Reducing Ownership Costs For Material Handling Equipment

Maintaining equipment and training employees to operate it could spell substantial extra costs for buyers.

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As the manufacturing and construction sectors continue to grow with the recovering U.S. economy, demand for a variety of material handling equipment has risen. This equipment, which includes pallet trucks, forklifts and aerial lifts, plays a vital role in transporting heavy materials throughout a work area. The increase in demand from companies operating in the manufacturing and construction sectors has consequently driven these products’ prices up during the past three years.

Factors that contribute to price growth for material handling equipment include the industrial production index (IPI), which measures output across manufacturing industries; the value of construction, which depends on the level of construction activity; and equipment users’ ongoing need for higher productivity. The IPI and the value of construction have both been rising over the three years to 2014, and buyers have sought to expand their operational capabilities as a result. In order to achieve higher productivity, buyers have increased their purchases of material handling equipment, driving demand and prices upward.

Although the price to acquire the equipment is important for buyers to consider, there are other long-term costs outside of the equipment purchase price that buyers should also take into account before finalizing their purchase. These costs relate to owning the equipment over time and have been on the rise during the past three years. As such, IBISWorld has identified several of these ownership costs and provides insight into how buyers can reduce them.

Pallet Trucks and Forklifts

Price increases for pallet trucks and forklifts have been moderate at estimated annualized rates of 2.9 percent and 2.0 percent, respectively. Three significant costs that buyers incur over the useful life of pallet trucks and forklifts are operator training, maintenance and fueling. Operator training is generally the least costly of these expenses. The Occupational Safety and Health Administration (OSHA) requires operator training for all employees that operate a pallet truck or forklift. As such, this cost is directly related to the number of operators that require training at the buyer’s company. Maintenance costs are more substantial. Given the nature of the tasks performed in the manufacturing and construction sectors, pallet trucks and forklifts are frequently exposed to hazardous conditions that accelerate wear and tear.

Furthermore, pallet trucks and forklifts are subject to heavy loading applications, which can lead to damage. To repair damage to pallet trucks and forklifts, buyers can procure maintenance services from the supplier they purchased the vehicle from. Top suppliers that offer maintenance services include Mitsubishi, Crown Equipment Corporation and Komatsu Limited. It is important to note that maintenance services can be quite costly. The actual amount that a buyer pays for maintenance services depends on a variety of factors, such as the age of the vehicle, the condition of the vehicle, the setting it is used in and the number of operating hours it accrues on an annual basis. For example, the annual maintenance cost for a new gasoline-powered forklift that accrues 2,500 operating hours in a year is about $1,500. For an electric forklift, this figure is about $500 per year.

Fuel-related costs can also be costly over the useful life of a pallet truck or forklift. Long-term fueling costs arise from the fuel itself and any refueling equipment that buyers need at their facilities (e.g. storage tanks and pumps). Considering the example stated above, a forklift that uses liquefied petroleum gas and accrues 2,500 operating hours in a year has annual fuel costs of about $5,000. For an electric forklift, this figure comes out to about $2,000 per year. While gas-powered pallet trucks and forklifts come with a less-expensive price tag than their electric counterparts, owning a gas-powered vehicle is more expensive in the long run. Because of the need to purchase refueling equipment and the continual refueling required, buyers should purchase an electric vehicle if they plan on operating it for several years.

Although the above expenses significantly add to the total cost of owning a forklift or pallet truck, there are ways that buyers can reduce these costs beyond purchasing electric equipment. Maintenance costs are largely related to the total use that the equipment has endured and its general condition. As such, new equipment has lower maintenance costs than used equipment, and buyers should weigh the purchase price difference against expected maintenance costs when choosing new or used equipment. Also, buyers can reduce maintenance costs for pallet trucks with exterior metal surfaces by having them powder coated instead of painted with a liquid paint. The powder coating improves the durability of the pallet truck’s forks, body, frame and steering handle.

Another way that buyers can reduce their total costs is through renting or leasing the equipment. If a buyer only plans on using the equipment for a limited amount of time or is just using it for a small project, renting or leasing the equipment will work in the buyer’s favor. For instance, IBISWorld estimates that the average cost for renting a forklift is about $894 per week, whereas the price of purchasing a new forklift is about $38,000. Therefore, buyers that intend to use the forklift for less than 10 months are better off renting. Furthermore, by renting a forklift rather than purchasing one, buyers will not have to worry about typical long-term costs related to maintenance.

Aerial Lifts

Aerial lifts are elevated work platforms. Similar to pallet trucks and forklifts, aerial lifts are subject to several supplemental costs that contribute to total ownership costs. Due to the risk of an accident when working on an aerial lift, preventative maintenance is required, which includes inspections, minor adjustments, lubrications and oil changes. Furthermore, depending on how many hours per day the buyer is operating the aerial lift, maintenance costs can be substantial over time. Buyers can often outsource maintenance services to third-party providers to obtain lower rates than those of manufacturers.

Purchasing an aerial lift outright can be very expensive. IBISWorld estimates that the average price for an aerial lift is about $32,000, and prices can run as high as $150,000. Therefore, depending on how long the buyer will use the aerial lift, renting or leasing should be considered as a way to save on costs in the long run. However, training is still required by OSHA for any employee who will operate the vehicle. Aerial lift rentals are usually available through contractors or scaffold retailers.

Costs beyond equipment purchases have remained high for material handling equipment such as pallet trucks, forklifts and aerial lifts. Buyers should keep in mind that renting is generally preferable when using equipment for short periods of time or if the buyer wants to avoid risks associated with equipment breakdowns and maintenance. Additionally, renting equipment usually ensures access to the latest models and technologies due to rental companies’ continual investments in their fleets. When purchasing equipment, buyers can often lower total costs by paying more upfront for newer equipment or equipment that runs on electricity rather than gas.

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