Procurement Advice: A blended approach to managing demand

Motorway
Morning View of frozen UK Motorway.

Kim Harrison, Category Lead – Crown Commercial Service, looks at the risks the rise in grey fleet could bring and suggests that a blended approach might be the way forward for fleet managers.

When reflecting on 2020, it’s clear that the global situation has meant that both businesses and the general public have needed to travel fewer miles. 

After just a week of the initial UK-wide lockdown, road usage was around 25% of what it would normally have been at that point in the year. Since then, the largest decrease in use remains passenger cars, but commercial fleets are also far from the levels at which they began the year.

As a result, many operational fleets have been forced to review their fleet profile. In response to declining demand and an increasing desire to get the most out of every pound, some will have decided to reduce the numbers within their fleets.

However, the UK is starting to return to the road. For the employee, the temptation to use their personal car will be high. It will be easily available and feel like the safer option. But an increase in the usage of grey fleet – defined as drivers using their own vehicles for business purposes – poses several potential risks to the fleet manager.

The hidden risks of grey fleet

In the past, fleet managers may have thought the use of grey fleet meant the risk had been transferred elsewhere. They couldn’t have been more wrong. 

Under health and safety law, employers have the same duty of care obligations when their staff use personal vehicles for business as they do when they are using a vehicle provided by the organisation. 

Employers need to ensure that their actions, or inactions, do not “cause or permit” offences under the Road Traffic Act and have taken all reasonable steps to ensure that the vehicle is roadworthy and suitable for use. Organisations also need to be able to demonstrate they have checked the employee’s vehicle is appropriately insured to cover business usage and that the driver is suitably licensed and skilled to drive for business. 

A breach of this responsibility can result in prosecution, fines and reputational damage. The most serious offences, such as those involving the death of drivers, passengers or pedestrians, can see employers charged under corporate manslaughter.

Aside from the safety and legal risks, the cost management of grey fleet can be challenging for the fleet manager. 

The use of an employee’s vehicle for work should be defined within an organisation’s fleet, travel or expenses policy. It should clearly state the circumstances in which grey fleet can be used and the method for reimbursing staff for costs. It should also include factors over and above legal requirements – such as the maximum age for vehicle usage and even a CO2 threshold. 

The final factor that needs to be considered is that the use of grey fleet typically pushes up an organisation’s carbon emissions. With the average car on the UK road 8 years old, and likely to be powered by petrol or diesel, this is an area that often inadvertently pushes up an organisation’s carbon footprint.

The use of grey fleet needs to be considered as one of many business mobility options available to employees. The most effective businesses support intelligent travel decision-making and consider a range of factors including cost-effectiveness, safety and productivity. 

Such approaches will combine road and rail journey planning with owned/hired fleet costs, overlaid with mileage reimbursement rates, subsistence costs and travel time. There will typically be a threshold point at which it becomes more economically sensible to use a pool vehicle or rental car than funding a driver to use their own vehicle. 

Managing demand

As organisations are still considering what their longer term objectives look like, their future vehicle requirements may be unclear. Fleet managers will need to be able to manage these uncertainties while ensuring fit for purpose vehicles are readily available to meet operational demands.

A blended approach to fleet profile will be required. One that combines a mixture of long-term committed volumes (whether owned or leased) complemented with the ability to meet peaks in demand with flexible daily rental and car club schemes.

While grey fleet still has a part to play, other routes need to be considered in order to provide greater duty of care, actively reduce carbon footprint and ensure strong commercial outcomes. Salary sacrifice schemes can meet these elements whilst also providing employee benefits and supporting staff recruitment and retention. 

Salary sacrifice

With a salary sacrifice scheme, employees drive away in a brand new, low-cost car. It is cost-neutral for the employer and the service provider will manage all of the administration. The employee pays a fixed monthly fee, deducted from salary, and gives them exclusive use of a vehicle for personal and business use. 

Salary sacrifice schemes can be set up to support an organisation’s green agenda while helping to cut costs. Less polluting vehicles typically enjoy low, or no, vehicle excise duty, lower pence-per-mile operating costs as well as potentially favourable lease costs from attractive residual values. 

Equipping staff with ‘green’ vehicles also helps them to avoid additional road usage supplements such as those in clean air zones.

As part of the offering, schemes usually include service, maintenance and repair as well as insurance. This provides peace of mind for the employer – knowing that the vehicle is likely to be in a good state of repair, roadworthy and adequately insured. For green vehicles, schemes can now also wrap in the cost of purchase and installation of a vehicle home charging point without attracting benefit-in-kind taxation charges. 

Car Clubs

If salary sacrifice vehicles are not suitable for either the whole of the organisation, or some employees, then car clubs could offer the flexibility needed. They are a dynamic way to access vehicles in direct response to demand, covering hires from just a few hours to several weeks. 

There are 4 types of car clubs: 

  • Virtual vehicles, available through a supplier’s established network, usually for short trips in an urban environment. Hire is usually for very short periods such as 1 hour
  • Dedicated pool vehicles rented for an extended period and for exclusive use by a business, and potentially opened up to others in the local vicinity
  • Mixed-use vehicle pool vehicles which can be reserved for set times, e.g. within business hours. Outside of this set time, the vehicles are available to the general public
  • Using a business’s own fleet, input into a car share booking software, allowing vehicles to be accessed through an online booking system

Car clubs are most likely to be used in support of business travel and, depending upon the travel patterns of a business, could help to bridge small, but often expensive gaps in regular journeys which can’t be completed via public transport. Quite often, business premises are located away from major public transport links. A car club available at either end can easily fill those last few miles, often making monetary and time savings. 

The Blended Approach

More than ever before, fleets need a variety of options and flexibility to meet their fleet and travel requirements.

Best practice would see a joined-up approach to mobility that considers fleet and travel needs alongside employee commutes. Intelligent decision-making tools can support the selection of the right means of travel for an organisation. This could range from making use of remote-working technology and limiting all but essential travel through to accessing the public transport infrastructure of buses and trains or using pooled vehicles, car clubs and, in specific circumstances, potentially grey fleet.

The impact of the accelerating shift to sustainable solutions, coronavirus and Brexit means keeping your fleet on the road in a cost-effective, sustainable manner has never been more important, or difficult. 

 

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