Make savings on ground transport costs
CWT Travel Management Institute says continuous monitoring of ground transportation spend remains key for driving tangible savings. Read on for advice on improving ground transportation programmes
Ground transportation, which includes rail travel, car rental, limousine, chauffeur-driven 'black car' and taxi services, is often a low priority. Bear in mind, however, that it often represents ten per cent of a total travel budget in the US and even more in Europe and Asia, where rail is commonly used by business travellers. A well-designed ground transport programme integrates high-speed rail as an alternative to air, and considers the full range of possibilities for road transportation, including car rental, chauffeur-driven cars, taxis and other solutions.
Optimising rail travel
Within business travel programmes, high-speed rail often accounts for five to ten per cent of total travel spend. Travellers like rail travel because of its convenience, punctuality and the normally favourable cost. The average ticket price is often two to four times lower for rail tickets than air fares. Travel managers can take four basic steps to make the trade-offs between air and rail.
STEP 1: Identify the main routes where rail may be an alternative to air. Rail is typically worth considering for routes under 500 miles, which can be covered in around three hours by train.
STEP 2: Calculate the company’s current volume of air traffic on these routes and the potential savings offered by switching to rail. A CWT client recently shaved US$3million from its $24million travel budget in less than two years by switching some air volume to rail. Travel buyers may also be able to negotiate discounts when they present large volumes on routes where rail is in competition with air, although the margin for negotiation is generally low with train operators.
STEP 3: Optimise the rail class policy. Ticket prices can be at least 40 to 60 per cent lower in standard class than in first. Many companies make a distinction in authorised class for different categories of employees, or by trip duration – for example, standard class travel for trips below two hours for all travellers other than senior executives.
STEP 4: Update the travel policy to support a rail sourcing strategy and promote compliance through mandates and communication. Many companies already have a dedicated rail section in their travel policies but policy communications may need to be improved.
Potential savings impact: 4/5
Average room for improvement: 4/5
Optimising car rental
Car rental spend represents on average seven per cent of the total travel budget, but it is typically given less attention than it deserves. There could be double-figure savings by applying best practices. Regional differences are still striking in this highly consolidated global market, so travel buyers can expect different service depending on geography. Significant competition between brands means that car rental is one of the only categories of corporate travel spend where flat to lower pricing may be possible in 2012. There are six main steps you should take.
STEP 1: Gather more market information. A full RFP should be conducted at least every year to see whether an incumbent’s pricing and conditions remain competitive.
STEP 2: Request full spend data from suppliers, with a breakdown of rental rates compared to ancillary fees and other charges. Ancillary fees in particular now represent ten to 20 per cent of total costs, including fuel charges, GPS systems, winter tyres and insurance. Ancillary fees can add significantly to the overall cost of car rental and can be negotiated with suppliers. For the moment, only a third of travel managers track ancillary spend to identify the services most often used by their travellers, such as GPS systems or refuelling. The only ancillary fees included in negotiations by most companies are collision-damage and loss-damage waivers. Refuelling rates, extended third-party coverage, special status for frequent renters and GPS systems feature less often among the negotiated ancillary fees.
STEP 3: Set up framework agreements. Here, preferred contracts are signed at a country or group level and ideally renegotiated annually, bringing up to 30 per cent savings. Two-year car rental contracts with the option of renegotiating mid-term are now possible thanks to suppliers’ improved visibility on fleet costs. To benefit from framework agreements, companies usually organise a call for tender led by the purchasing department with advice from travel managers. This may require one or several rounds, in which suppliers are selected and conditions finalised, over a three to six-month period.
STEP 4: Define a supplier selection strategy. The selection criteria for car rental suppliers differ with the size of the company. While large and mid-size clients tend to emphasise network size and structure, smaller businesses focus above all on price. Most companies work with several suppliers to ensure the right geographical coverage.
STEP 5: Negotiate beyond daily rates. A startling fact: most organisations spend 30 to 40 per cent of their car rental budget on weekly or monthly rentals, but they do not realise they could negotiate these (lower) rates in addition to daily rates and bring significant savings.
STEP 6: Ask specialists for support. Travel management companies and specialist car sourcing consultants can produce timely market information, identify savings opportunities within your existing ground transport programme and provide expert support for negotiations with new suppliers, with a high return on investment. It is recommended that all suppliers respond to the RFP with rates that include a loss damage waiver and a collision damage waiver on all rate types. Refueling rates should also be negotiated although many travel managers are unaware that this is possible. 'Soft' benefits are also available, such as convenient, pre-printed contracts that save time; meet and greet services; vehicle delivery; and upgrades. Finally, some rental car companies are offering bundled contracts that also include black car and limousine services. To stabilise costs, it is best to negotiate terms that will limit major price hikes over the duration of an agreement. This is especially important in a volatile market.
Potential savings impact: 4/5
Average room for improvement: 4/5