The need for an effective grey fleet and transport management has once again increased last year with the UK Government’s Streamlined Energy and Carbon Reporting regulation.
Yet, not all organisations make it imperative to manage their and their employees’ use of vehicles which offers a solution to improving their fuel consumption, eliminating associated costs and reducing environmental impact.
Whilst, the grey fleet management can differ depending on the type and size of business, vehicles’ volume, data availability or established behaviours, the ‘drive’ for managing it should apply to all.
The drivers behind organisational energy and fleet management can be manifold depending on each organisation.
These can be driven by:
- Regulatory requirements
- Cost reduction
- Finite resource depletion
- Climate change
- Air quality
As emissions increase and air quality decreases, Governments are setting standards on energy and fuel efficiency. For example:
The Streamlined Energy and Carbon Reporting (SECR), introduced in April 2019, sets legal requirements for Quoted, Large Unquoted and Large Limited Liability Partnerships (LLPs) to report annually on greenhouse gas emissions, fuel and energy consumption for their built estate and fleet.
The Energy Savings Opportunities Scheme (ESOS) sets out mandatory requirements on large companies to conduct compliant energy and fleet assessments every 4 years.
In addressing energy and fleet fuel efficiency, companies can make significant financial savings against their costs. A company that has previously not addressed energy efficiency can save upwards of 40% of these costs. Where a company is spending a conservative 20% of its outgoings on energy and fuel, then even a 10% saving against is a 2% saving on annual available income. That’s a 2% increase to the company’s profit line.
Finite resource depletion
The earth’s naturally occurring fossil fuel resources (coal, oil and natural gas) evolved over hundreds of millions of years. More than half of these reserves have been extracted and burnt in the production of energy, transport fuel and goods since the start of the industrial revolution in 1760. A period of a mere 260 years.
The rate of fossil fuel extraction, consumption and combustion has increased dramatically. In 1927, the world’s annual Carbon emissions from fossil fuel burning reached 1Gt for the first time. Only 62 years later, this figure was 6Gt per year. It is currently close to 10Gt.
Climate change is a real and present danger. In 2016, in reaching 26% of all greenhouse gas (GHG) emissions, transport overtook Grid power generation for the first time. Emissions from transport rose from 15% of total GHG emissions in 1990 to 26% in 2016. Figures for the EU as a whole are 24%. Importantly, air quality levels around the world are at an all-time low in the history of human occupation.
Air Pollution kills more people worldwide each year than does AIDS, malaria, diabetes or tuberculosis. Air quality throughout the world has been worsening year on year due in large part to vehicle emissions. The findings of Diesel-gate are leading to the addressing of emissions in new vehicles, but in the UK alone there are almost 38.2m vehicles on the road of which 31.5m are cars.
Fleet management (cars and light commercial vehicles)
The most prevalent form of business car use in the UK is grey fleet. Grey fleet is a historic term which broadly relates to mileage reimbursement. In particular, using a driver’s personal car for business purposes.
Grey fleet use in the UK is significant, the Public Sector travels 1.5 billion miles per year at a cost of £786 million.
This is made up of:
- 40% National Health Service (NHS);
- 34% Local Authorities;
- 16% Civil Service;
- 10% Further Education and Blue Light Services combined.
In comparison, the Private Sector travels 11 billion miles per year at a cost of £5,000 million (£5bn).
Grey fleet in the UK is made up of vehicles that are on average 8.2 years. This means that depreciation values are low, whereas emissions are high. These vehicles deliver on average 152g/km of Carbon Dioxide CO2 into the environment. For context, the average emissions of UK cars at 2018 was 124g/km. Clearly there are many cars now available that are low and ultra-low carbon and vehicles that are sub 100g/km CO2 are very easy to access.
The financial case for tackling grey fleet is compelling. However, there are many competing factors, predominantly financial but not solely limited to reimbursement, which can limit progress.
Employees in the public sector have been subject to pay restraint for several years, which makes negotiating any perceived cuts in benefits difficult.
The level of business mileage reimbursement can be perceived as part of the overall salary and compensation package. As a result, there is a strong incentive to drive and claim potentially unnecessary mileage. The responsibility for grey fleet management is often poorly defined in the public sector.
Often the department responsible for, and with expertise in, vehicle fleet management has little, if any responsibility for grey fleet.
In the private sector, the choice afforded by using a grey fleet car and the relatively low and consistent impact on personal taxation through income tax and National Insurance (NI), in comparison to annual increases in Company Car Tax, requires a determined effort by the organisation to provide equally attractive alternatives which reduce overall costs and comply with HMRC and duty of care requirements.
Organisations will often opt for the use of their staff’s personal cars as it saves them the outlay of purchased or leased cars. In some situations, there remains a strong case for the retention of grey fleet. Examples of this are where the use of vehicles is so infrequent that any other option would be unjustifiably expensive.
For fleets that use cars for sales and marketing, the case for replacing and addressing grey fleet is powerful:
- Cost saving
- Health and Safety (MOT, servicing, license checks, insurance checks, roadworthiness)
- Corporate manslaughter
- Congestion reduction
- Air quality improvements
- Reputational advantages
Grey fleets can be monitored by mileage management which involves the understanding of the nature, frequency and duration of business journeys made. A detailed picture of organisational travel requirements will help an auditor determine and recommend the most suitable alternative to grey fleet.
In addressing any vehicle fleet, availability of good data is paramount.
Accurate filling station fuel data against vehicle registration is meaningless without access also to accurate and regular odometer readings. Any organisation that is not recording odometer readings should start to do so immediately. This should be an absolute requirement of anyone driving a grey fleet car that is expecting to submit a mileage reimbursement, it is questionable why this should be any different for commercial drivers.
This article is an extract from the EMA Guide to Fleet Management. The Guide has been developed to help companies to take control of their transport and fuel use. It focuses on explaining grey fleet and conducting transport audits for cars and light commercial vehicles with an aim to assist businesses and fleet managers in undertaking assessments and identifying opportunities.
It includes further sections outlined below:
- Alternatives to grey fleet;
- Effective fleet management;
- Transport energy auditing – assessing a fleet (mileage claims, fuel receipts, fuel card invoices, fuel types, telematics), establishing a baseline, simple payback, return on investment, internal rate of return, life cycle cost analysis;
- Driver behaviour and benchmarking – stakeholders, business case (benefits matrix), value at stake;
- Opportunities in tackling car and commercial fleets – travel policy, benchmarking, monitoring methods;
- Solutions for car and commercial fleets – fuel, electric vehicles and charging infrastructure, hydrogen, car share, rationalised mileage rates, control of managed fleets;
- Case studies.