Purchasing/Supply Management

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Purchasing/Supply Management
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Fuel Hedging

• locking into a future price for a period of
  time-you are expecting the price to rise
• pay a premium over current price but you try to
  avoid paying a higher price in the future
• longer the period of time, the larger the
  premium, usually two yrs. maximum

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Fuel HedgesImpact on Air

• Percent of Total Annual Fuel Requirement Hedged
  and Hedge Cost in 2006
• South West- 70 _at_ 36 barrel
• Alaska- 45 _at_ 40
• Air Tran- 25 _at_ 56
• Jet Blue- 16 _at_ 68
• American- 18 _at_ 60

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Fuel Consumption by Mode

• Trucking- 51.4
• Air- 13.6
• Water- 7.8
• Rail- 4.1

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Major Consumers of Fuel

• US- 28
• China- 8
• Japan- 6
• Germany- 3
• Russia- 5
• Rest of World- 53

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Historical Gas Prices(Adjusted for inflation)

• Year Price Per Gallon
• 19501.91
• 19551.85
• 19601.79
• 19651.68
• 19701.59
• 19751.80
• 19802.59
• 19851.90

• 19901.51
• 19951.28
• 20011.66
• 20021.31
• 20031.52
• 20041.79
• 20052.28
• 2006 (so far)3.03
• Source U.S. DOE

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Equipment PurchasesMajor Truck Manufacturers

• Freightliner-owned by Daimler which also includes
  Western Star and Detroit Diesel, 31 mkt share
• Navistar(International), 21 share
• Volvo-five years ago bought out Mack from
  Renault, sold auto to Ford, 17 share
• Paccar-Kenworth and Peterbilt, 22 share

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Major Trailer Manufacturers

• Great Dane
• Utility
• Wabash-financial difficulty recently
• Many specialty trailers- tankers, flats, dumps,
  equipment hauling, log hauling

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Specing Engine and Power Train Factors

• Engine make and size-trend to higher horsepower
• Rear end ratios-how fast axles turn in relation
  to engine-speed and pulling power
• Transmission speed-number of gears
• Tire size-speed, trailer height, and tire life
• Fuel economy desired vs. driver wants
• Techno.-computers, sensors, GPS

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Engine manufacturers aligned with specific truck
manufacturers

• Caterpillar
• Detroit Diesel-Daimler
• Cummins
• Mack-Volvo
• New Intro. Paccar MX
• International ERG technology

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Clean Air Engines regulated by EP

• Nitrous oxide emissions acceptable limits lowered
  in October 2006
• In 2002 truck engine manufacturers illegally
  tried to defeat pollution control devices, but
  paid millions in fines
• Newer engines-less fuel economy, and pulling
  power made pre-emission controlled engines more
  valuable
• The above changes created a pre-buying frenzy in
  summer of 2006 and a fall-off in 2007 and early
  2008, recent recovery due to the growing economy

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Pricing Negotiations-Request for Pricing(RFP)

• Select manufacturers which meet your
  criteria-resale value, service, staying power
• Involve original equip. manufacturers(OEMs) and
  local dealer to get factory rebates
• Ask OEMs for literature, read trade
  publications, talk to peers, get blue book trade
  values
• Develop list of major specs engine, power train,
  transmissions

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Negotiations (cont)

• Stress your positive points of your business-why
  they need your business
• Say you want their best bid but after receiving
  initial bid play one against the other, dont
  leave dollars on the table
• Never divulge competitors price but say you are
  disappointed in their pricing
• Look at trade price, warranty, and other savings

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Options to Dispose of Equipment

• Trade-in with new purchase
• Sell outright to used truck dealer, either
  independent or OEM involvement, or direct to
  public, e.g., owner operators
• Auction-minimum price or w/o minimums-most
  attention
• Out of U.S. connection-Latin America

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Factors in Life Cycle Costing/Replacement

• Resale or trade value
• Technology advances of new equipment-MPG, GPS,
  driver comfort
• Mileage that that you expect to travel
• Cost avoidance of repairs, tire replacement
• Driver recruitment/retention-comfort prestige

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Reasons for Rapid Replacement

• Higher trade-in values for 2006 engines-due to
  the 2007s lower fuel economy, less pulling
  power, added cost for the new engines-which drove
  up trade values for 2006 and older trucks
• Improved fuel efficiency with exception of 2003
  and 2006 engines- due to clean air restrictions,
  will occur again in 2010
• Little out of pocket maintenance costs
• Driver attraction and convenience
• Company image-private carrier especially

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Vendor Evaluations

• Service levels
• Priority in their shops for your equipment
• Prices of equipment and replacement parts
• Hours of operation
• Coverage across the country
• Support-training of your people, materials, parts
  consignment, follow-up on problems