Motor Carrier Fleet Management Suzuki and Pautsch, 2005

1
Motor Carrier Fleet Management (Suzuki and
Pautsch, 2005)

• Background
• Dramatic decrease of vehicle resale value
• Sharp increase of vehicle insurance premiums
• How should carriers respond to these changes?
• One important factor that affects a carriers
  profit is vehicle replacement policy
• Looks at how optimal replacement cycle would be
  affect by these changes, and gain insights.
• How?
• A unique solution exists (models exist)
• But these models may not give implementable
  solutions
• Create a model that considers short-run
  constraints and investigate year-to-year
  replacement decisions

2

• Goals
• Develop implementable model
• Apply actual data and give implications
• Intensive sensitivity analyses
• Model
• Costs maintenance, fuel, insurance, down-time,
  depreciation, re-sale prep.
• Objective min total cost for a carrier over the
  planning horizon
• Constraints Cash, vehicle availability, etc.
• Features
• Unique solution to each carrier
• Can purchase vehicles of any age
• Different replacement cycle for each vehicle
• Simple, easy to solve (except integer constraints)

3

• Data
• A mid-sized TL carrier (500 tractors)
• Freightliner C-120 Century-class tractors (Table
  1)
• Currently uses 3-year cycle
• Other data sources Transport Topics, Wall street
  journal, Government pubs, internet, interviews
  with vehicle manufacturer, inputs from a truck
  dealer
• Optimization issues
• 10 years of planning horizon
• 4 scenarios tested (Table 2)
• Heuristic approach for integer constraints
• Results
• Table 3, Figures 2-5

4

• Implications
• Carriers with newer vehicles can use shorter
  cycles (cash effect)
• All scenarios have similar ending inventories
  (8th year)
• In the long-run, 3-year replacement cycle with
  brand new purchase may be optimal
• Purchase age-1 vehicles whenever possible
• Sensitivity analyses
• Resale value 60 - 115
• Insurance premium 25 - 150

5

• Implications (Figures 2-5)
• As resale value decrease, use longer cycles
  regardless of initial inventory (counter
  intuitive?)
• As resale value decrease, age of purchased
  vehicles generally increase
• When both not necessary, use longer cycle than
  buy older vehicles to minimize costs
• No effect of insurance premiums on replacement
  policy
• Only if 800

6

• Discussion Questions
• Why carriers do not buy age-1 vehicles?
• What do you do if resale value or premium change
  dramatically?
• Should you be concerned about increase in
  insurance premiums?
• What other constraints would you include in the
  model?
• What is the disadvantage of using longer
  replacement cycles?