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In transport economics, there is no denying that local transport operators now understand the concept of Total Cost of Ownership (TCO) – a comprehensive metric that evaluates every expense across a truck’s entire lifecycle. While fuel consumption, maintenance, insurance, uptime, parts availability and driver productivity all form part of the equation, one factor is increasingly coming to the fore: residual value.

“While the pie chart still encompasses all the critical factors – fuel consumption, maintenance, insurance, uptime, parts availability and driver productivity, among others – it is, in my view, residual value that now has the greatest impact on TCO in today’s transport landscape,” says Marius Barnard, Managing Director of Babcock’s Transport Business.

For businesses that rely on a fleet of vehicles, whether large or small, TCO can have a significant impact on the bottom line. Looking at the complete cost of ownership allows fleet owners and management teams to make more informed decisions about which vehicles to purchase.

Beyond the sticker price
In commercial vehicles, TCO goes beyond the purchase price of a truck, measuring the full cost of operating it throughout its working life. The initial vehicle price is an obvious consideration but financing costs, interest rates and taxes also contribute to the overall cost.

Fuel remains the single largest variable operating expense, with fuel costs potentially accounting for up to 60% of a commercial vehicle transporter’s total operating costs. Even small improvements in fuel economy can compound rapidly across high mileage, directly reducing cost-per-kilometre (CPK) and influencing overall fleet profitability.

Maintenance and repairs – including scheduled servicing, spare parts, tyres, lubricants, labour and unexpected repairs – also affect operating costs. “Reliability and service intervals can therefore make a significant difference to the cost of a truck over its lifetime,” Barnard explains

Then there’s uptime. “Every hour a truck is unavailable can mean lost revenue. A supplier’s strong branch network and the availability of parts where and when they are needed are therefore critical TCO considerations,” he says.

Driver productivity is another part of the equation. While driver wages are not directly related to the truck itself, vehicle productivity can influence CPK. Features that improve driver comfort, safety and efficiency can also support better productivity and driver retention.

Insurance premiums, road taxes, tolls, permits and other compliance-related costs should also be included when calculating TCO.

Residual value to the fore
While all these factors play a role in influencing TCO, Barnard believes what happens at the end of a truck’s first economic life can have the greatest impact. “What happens at the end of a truck’s first economic life can have the greatest influence – whether through trade-in, buyback, resale value realisation or giving the truck a new lease on life,” he says.

“Choosing the right truck is not simply about what it costs to buy today but
about what it is worth – and what it can continue to deliver – throughout its
lifecycle.”

In an increasingly challenging economy, the truck market has become more competitive, with new manufacturers entering the fray and offering trucks at attractive purchase prices. European manufacturers such as DAF Trucks have traditionally held their own when it comes to residual value and DAF has maintained a strong reputation for holding its value.

A European-brand truck after three years of operation can be worth up to 50% of what the customer originally paid for it. Retaining 50% of the original purchase price after three years is a strong benchmark for residual value in the trucking industry.

More than one economic life
At the end of the financing term, a strong residual value also gives the customer options.

“A good European brand gives the customer the flexibility to say, ‘I don’t have to buy a new truck’,” says Barnard. Brands such as DAF have demonstrated that trucks can have a second, third or even fourth economic life – whether through continued use, refurbishment or the reuse of components.

The previous-generation DAF XF 105 is a good example. Many years after the discontinuation of the model, its cab can still be sold for up to 30% of the truck’s initial sticker price. “That represents a potential buyback value of 30% after 15 years meaning the customer can still recover a significant portion of the initial investment,” Barnard points out.

Extending the economic life of a truck through continued use, refurbishment or component reuse can also contribute to a more cost-effective and sustainable fleet management strategy.

The bigger picture
Ultimately, TCO is about looking beyond the price on the invoice and understanding the value a truck delivers throughout its entire working life. Fuel efficiency, reliability, maintenance, uptime and driver productivity all play an important role. But residual value can be the factor that brings the entire equation together.

“The best investment is not necessarily the truck with the lowest purchase price, but the one that delivers the lowest CPK and retains the greatest value over time,” says Barnard.

As transport operators continue to face rising operating costs and economic pressure, taking a long-term view of TCO has never been more important.

“Choosing the right truck is not simply about what it costs to buy today but about what it is worth – and what it can continue to deliver – throughout its lifecycle.” 

Discover how DAF trucks can help you optimise your total cost of
ownership.

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