Late last year, the Federal Reserve approved its second rate increase in a decade, upping the interest rate by a quarter percentage point between 0.5% and 0.75%. So, what does that increase, though seemingly small, mean for private truck fleets and for-hire carriers going forward?
According to Brian Holland, president and CFO of Fleet Advantage, higher interest rates have historically had a negative impact on truck demand as the cost to finance equipment increases. However, the underlying movement in interest rates is tied to an improving economy, he noted.
“The GDP [Gross Domestic Product] numbers increased again, and the stock market is approaching all-time highs,” Holland explained.“These are indicators that businesses will continue to expand and their demand for trucks will increase.”
“Based on Fleet Advantage data analytics, we’ve determined that depreciation and interest represent a smaller percentage (26%) of truck costs compared to fuel (59%) and maintenance and repair (15%) costs,” he added. “By replacing older tractors with new highly efficient units, fuel and maintenance savings easily offset higher interest costs. In fact, a recent analysis of shorter lifecycle practices proves a significant fuel cost savings, particularly on a three-year replacement strategy. And while rates are marginally higher, they are still close to historic lows.”
So, to offset those higher interest costs, Holland recommends businesses evaluate the total cost of their fleet operation.
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