Chapter 1: The Concept of Total Cost of Ownership (TCO)
Equipment acquirers, more often than not, fail to understand the concept of total cost of ownership (TCO), instead are focusing mainly on the initial cost of the purchase in making their ultimate decision. In reality, TCO is far more relevant to the lift truck purchase decision-making process. Perhaps the most compelling argument in favor of electric AC lift trucks over its IC competitor is that the total cost of ownership (sometimes also called the total operating cost) over the life of the truck can be much less with an AC than an IC lift truck. Key factors affecting operating costs of both power systems which need to be considered during the decision-making process include the following:
- Truck performance (pallets moved per hour).
- Energy efficiency (how long the truck can run on one battery charge or one tank of fuel).
- The cost of fuel or electricity to operate the lift truck.
- Reliability (work time lost due to lift truck scheduled down-time).
- Cost to maintain the lift truck, including such components as batteries (IC lift trucks also have batteries), fluids, tires and filters.
- Cost of maintaining air quality in the warehouse.
- Heating and/or cooling costs (HVAC).
- Residual value (what will the equipment be worth in 5 years).
- Infrastructure space taken up to accommodate refueling/battery charging stations.
TCO, as a monetary estimate, can help supply chain and warehouse managers evaluate the direct and indirect costs related to the purchase of a capital investment such as a lift truck. When comparing the initial cost for one piece of equipment in comparison to another, one must take into consideration repair costs over the life of the lift truck as well as other expenses such as upgrades. Looking at it this way, the magnitude of the initial price can be offset by the ensuing series of cost savings realized over the truck’s lifecycle. At the end of service life, the upfront purchase price of a lift truck will be a fraction of the total cost of ownership (See Fig. 1).
Notes/Assumptions:
- ‘CNG’ rates have been substituted for ‘LPG’ rates in Figure 1.
- Our models indicate, based on amp hour needs, that the proper battery requirements for this application are 2.3 batteries/lift truck, not 3, with the use high frequency (HF) smart chargers and a FIFO (first in, first out) system.
- Battery price includes FIFO system and 5-year warranty.
- Charger price includes state-of-the-art high frequency (HF) smart charger.
- The IC lift truck acquisition cost includes all infrastructure (conversion) requirements for CNG.
- Battery maintenance and watering is NOT included. This can be included for an additional $75/month/ battery.
- Lift Truck maintenance cost does not include attachments, tires, lights and damage. The rates in Fig.1 are subject to a thorough site evaluation
Consider the following hypothetical analysis factors:
- A prospective purchase of one 6,000 lb. lift truck (an individual AC lift truck may cost $27,000 and a CNG lift truck may cost $38,000).
- The operation runs three shifts, but requires only 2.3 batteries per lift based on AMP hour needs.
With the AC lift truck, 2.3 $6,000 batteries and a $4,000 high frequency smart charger (HFSC) are necessary. That adds another $17,800 for the AC lift truck. For AC, the initial purchase cost can rise to as much as $44,800. The price of fuel for an IC over the lifecycle of the lift truck can be roughly 4-7 times that of an AC, while maintenance can be 25-50 percent more, leading to a total cost per year that can be 2-4 times that of an AC lift truck.
Considering a five-year life cycle, the operation costs of an AC lift truck will be typically 40% less than an internal combustion lift truck. The return on investment (ROI) for AC versus IC will usually become attractive between the first and second year of lift truck ownership – at some point in that time period, IC costs will surpass the costs of an AC lift truck (See Fig. 2).
It is true, however, that the initial purchase price of an electric AC lift truck will be either moderately higher or substantially higher than the alternative IC options, depending on whether the auxiliary equipment – the battery and charger – are included in the price (See Fig. 1). In fact, the biggest difference in the initial cost of an AC system versus other technologies is not so much due to the lift truck itself, but to the battery and charger. Electric lift truck batteries, which are quite large and heavy, are expensive in large part due to the cost of lead in recent years.
What’s more, multiple batteries and a charger may be needed at the time of the initial lift truck purchase depending on the number of amp hours required. However, the adjusted price differential between the initial cost of an AC versus an LPG IC lift truck (i.e., leaving out the cost of battery and charger for electric vehicles) is perhaps only a few thousand dollars, however, when compared to a CNG IC lift truck, the cost of the CNG is significantly higher. While the cost of electricity differs from state to state, typically it is about one-tenth the cost of typical fossil fuels. The cost to fuel a 6000# LPG lift truck in the State College, PA area will cost $25.28. The cost to fuel a 6000# CNG lift truck in the State College, PA area will cost $16.90. By contrast, the energy cost to recharge the battery once for an electric lift truck may be as low as $4.
*On average, hours per year for electric lift trucks is approximately 20% less in comparison to LPG or gasoline/diesel lift trucks in the same application. This is due to the fact that electric lift trucks consume minimal energy when idling. This percentage has been incorporated in the results.
Continue to Chapter 2…
Read The Full Series:
Chapter 1: The Concept of Total Cost of Ownership (TCO)
Chapter 2: AC Technology Compared to Internal Combustion
Chapter 3: Compressed Natural Gas (CNG)
Chapter 4: Trends in Materials Handling
Chapter 5: Voltage Levels Used in Electric Lift trucks Today
Chapter 6: Battery and Charging Systems
Chapter 7: Electric Braking and Energy Regeneration
Chapter 8: Emissions and Corporate Responsibility: A Major Problem for IC Lift Trucks
Conclusions & Final Recap
HCO Innovations is publishing this eight-part series as an in-depth comparative analysis and discussion on Compressed Natural Gas (CNG) Internal Combustion (IC) motors and Alternating Current (AC) Eletric lift truck engines, Comparison Analysis of CNG (IC) vs. AC Electric Lift Trucks, by Will Van Ness, VP of Fleet Management at HCO Innovations.
Comparison Analysis of CNG (IC) vs. AC Electric Lift Trucks (AC)
The materials handling industry continues to evolve at a rapid pace, particularly in the area of motive power propulsion. Tremendous technological advancements have been made over the past decade to directly address the rising cost of petrol (fossil fuels) along with stricter emission standards. Today’s MHE acquirers have more choices than ever when it comes to motive power propulsion and with the success seen amongst fleets utilizing alternative fuel sources such as lithium ion (LION) and Hydrogen Fuel Cell (HFC), the choices will most likely increase as time goes on. For the purpose of this discussion document, our focus will be on comparing AC Electric (AC) to Internal Combustion powered lift trucks (IC), specifically compressed natural gas (CNG).
What is Total Cost of Ownership (TCO) for forklifts?
The Total Cost of Ownership (TCO) for forklifts refers to the comprehensive analysis of all costs associated with owning and operating a forklift throughout its lifespan. It includes not only the initial purchase price but also ongoing expenses such as maintenance, repairs, fuel, training, and disposal.
Why is Total Cost of Ownership (TCO) important for forklifts?
Understanding the Total Cost of Ownership (TCO) is crucial because it provides a more accurate assessment of the financial impact of owning a forklift. By considering all expenses, including both direct and indirect costs, businesses can make informed decisions about their forklift investment and identify potential cost-saving opportunities.
What factors should be included in the Total Cost of Ownership (TCO) calculation?
The factors that should be included in the Total Cost of Ownership (TCO) calculation include the initial purchase price, ongoing maintenance and repair costs, fuel consumption, operator training and certification, insurance premiums, depreciation, resale value, and potential downtime costs due to mechanical failures or breakdowns.
How can calculating Total Cost of Ownership (TCO) help businesses achieve cost savings?
Calculating the Total Cost of Ownership (TCO) helps businesses identify areas where cost savings can be achieved. By analyzing the different cost components, businesses can compare different forklift models, maintenance plans, and fuel options to find the most cost-effective solution for their specific needs. It also helps them determine the optimal time to replace or upgrade their forklifts to minimize overall costs.
What are some commonly overlooked costs when calculating Total Cost of Ownership (TCO) for forklifts?
Some commonly overlooked costs when calculating Total Cost of Ownership (TCO) for forklifts include administrative expenses (such as licensing and permits), operator downtime and training, operational inefficiencies, potential fines for non-compliance with safety regulations, and the cost of environmental compliance.
Can leasing or renting forklifts be more cost-effective than purchasing?
Leasing or renting forklifts can be more cost-effective than purchasing, depending on the specific needs and circumstances of the business. Leasing or renting allows businesses to avoid upfront costs, have access to newer and more efficient equipment, and benefit from included maintenance and repair services. However, it is essential to evaluate long-term usage and compare the cost projections of leasing/renting versus owning to make an informed decision.
How frequently should a forklift's Total Cost of Ownership (TCO) be analyzed?
A forklift's Total Cost of Ownership (TCO) should be analyzed periodically throughout its lifespan. It is recommended to conduct a comprehensive analysis before purchasing a forklift and reassess the TCO annually or whenever significant changes occur, such as increased usage, modifications to business operations, or regulatory changes.
Are there any industry benchmarks for comparing Total Cost of Ownership (TCO) for forklifts?
Yes, there are industry benchmarks available for comparing Total Cost of Ownership (TCO) for forklifts. These benchmarks consider factors such as typical operating hours, maintenance and repair costs, fuel consumption, and other relevant metrics. Consulting industry associations or utilizing online TCO calculators specific to the forklift industry can assist in comparing TCO across different forklift models and brands.
The Potential Environmental Impact of Forklift Operations.
In today's rapidly evolving world, businesses face increasing pressure to prioritize sustainability and minimize their impact on the environment. The focus on reducing carbon emissions, optimizing energy consumption, and adopting eco-friendly practices has become a global imperative. However, one area often overlooked when considering environmental impact is the operations of forklift fleets in warehouses and distribution centers.
The Unseen Environmental Impact
Warehouses and distribution centers play a crucial role in the supply chain, managing the storage and movement of goods. Forklifts are an essential part of these operations, facilitating the efficient movement and transportation of heavy loads. However, the use of forklifts can have adverse effects on the environment.
One of the main environmental concerns associated with forklift operations is the emissions produced by these vehicles. Forklifts, typically powered by diesel, propane, or electricity, release carbon dioxide (CO2) and other pollutants into the atmosphere during operation. These emissions contribute to air pollution, greenhouse gas emissions, and climate change.
Additionally, forklifts require energy to operate, whether it's from fossil fuel combustion or electricity from the grid. Depending on the energy source, the environmental impact can vary. Diesel-powered forklifts, for example, rely on non-renewable fossil fuels, while electric-powered forklifts depend on the energy mix of the electricity grid.
HCO Innovations: Driving Sustainable Forklift Operations
Recognizing the need for more sustainable practices in warehouse operations, HCO Innovations offers innovative solutions to optimize forklift fleets and reduce their environmental impact. By leveraging their expertise in warehouse optimization and forklift fleet management, HCO Innovations helps businesses achieve operational efficiency while minimizing their carbon footprint.
One of the key ways HCO Innovations addresses environmental concerns is through the adoption of electric-powered forklifts. Electric forklifts provide several environmental advantages over their diesel or propane counterparts. They produce zero emissions at the point of use, significantly reducing greenhouse gas emissions and improving air quality in warehouse environments.
Furthermore, HCO Innovations works closely with clients to evaluate their energy consumption and identify opportunities for energy efficiency improvements. This includes assessing the energy source for electric forklift charging, recommending renewable energy solutions where feasible, and implementing energy management strategies to optimize energy usage throughout the warehouse.
In addition to reducing emissions and optimizing energy consumption, HCO Innovations also focuses on other sustainability initiatives for forklift operations. These initiatives include:
- Promoting the use of alternative fuels, such as biofuels or hydrogen, for forklifts where applicable
- Implementing efficient battery management systems to prolong battery life and reduce waste
- Exploring the potential for integrating renewable energy sources, such as solar panels, to power electric forklift charging stations
- Providing comprehensive training programs for forklift operators to improve their skills and reduce accidents and equipment damage, resulting in a more sustainable operation
By combining their expertise in warehouse optimization, forklift fleet management, and sustainability practices, HCO Innovations helps businesses reduce their environmental impact while optimizing operational efficiency.
A Clear Path to a Sustainable Future
With increasing global focus on sustainability, businesses can no longer afford to overlook the environmental impact of their operations. By partnering with HCO Innovations, companies in the warehousing and distribution industry can pave the way for a more sustainable future.
Through their comprehensive services, HCO Innovations enables these businesses to optimize their warehouse layouts, enhance safety measures, and implement turnkey maintenance solutions. With the use of advanced cost-tracking software and a collaborative approach, HCO Innovations helps clients achieve substantial cost reductions and operational efficiency while minimizing their impact on the environment.
Together, with forward-thinking strategies, innovative technologies, and a commitment to sustainable practices, HCO Innovations and their clients can drive the transformation towards greener and more sustainable warehouse operations.
Discover how HCO Innovations can help you optimize your warehouse operations and reduce your environmental impact. Visit their website here to learn more.
