The price of fleet management services has increased at an estimated annualized rate of 1.6% during the three years to 2017, primarily on the back of rising demand. Local and state government investment has been growing due to falling unemployment and rising wages, which has expanded the tax base. This trend has raised demand for fleet management services, as many local and state government agencies conduct various services using fleet vehicles and therefore use market services to manage their fleets. The resulting increase in demand has caused suppliers to raise the price of their services, thereby hampering buyer power.
The number of businesses has also been increasing during the past three years, which has been expanding the pool of potential buyers of fleet management services. Many new businesses need fleet vehicles to perform their daily operations, such as visiting clients and delivering goods. As the number of businesses has risen, demand for fleet management services to help buyers manage their fleets in a cost-effective manner has increased. Suppliers have responded by raising service prices. However, corporate profit has dipped slightly in the three years to 2017 because declines in oil prices have shrunk profit margins for oil companies and weighed down corporate profit levels overall. Lower corporate profit has restricted investments made by some companies in fleet management services, but due to the limited industries that are affected, lower corporate profit has not had a large impact on demand or price.
Price volatility for fleet management services has been low in the three years to 2017. Steady overall increases in demand and substantial competition have kept price shifts minimal. Low price volatility has allowed buyers to budget for and project future costs more accurately. In addition, buyers are able to make purchasing decisions more deliberately, as there is little risk in drastic price shifts that could greatly increase costs. Still, buyers should seek contracts to lock in prices as soon as possible, because the longer a buyer waits, the higher prices are likely to be.
During the three years to 2020, the price of fleet management services is anticipated to rise at an average annual rate of 1.4%. Price volatility, meanwhile, is anticipated to remain low. Although price increases will have a negative impact on buyer power, low price volatility will allow buyers to accurately budget for service costs.
In the three years to 2020, corporate profit is expected to return to growth, driven by sustained increases in consumer spending and rebounding oil prices, which will reverse prior profit trends among oil companies. Growth in corporate profit will give businesses the ability to spend more and boost their demand for fleet management services. Suppliers will respond to growing demand by increasing the price of their services. In addition, the number of businesses is anticipated to continue rising. As the number of businesses increases, more companies will purchase fleets and fleet management services to assist with daily operations. Higher demand from businesses will therefore place upward pressure on prices.
As the economy continues to improve through 2020, local and state government investment is also anticipated to rise. Further economic growth is expected to increase wages and raise the taxes collected, which will allow local and state governments to spend more. An increase in demand from local and state government entities will encourage suppliers to raise prices even further, which will hamper buyer power. Fortunately, supplier wages are anticipated to fall as a share of revenue in the coming years, which will help reduce internal costs and mitigate price growth. Price growth will persist and, in light of these conditions, buyers are encouraged to seek contracts now to lock in lower prices. Additionally, buyers can bundle related services to seek further discounts.