Analysis Series, Chapter 1: The Concept of Total Cost of Ownership (TCO)

Analysis Series, Chapter 1: The Concept of Total Cost of Ownership (TCO)

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).

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).

Figure 1: Lift Truck Total Cost Of Ownership Comparison – 2.3 Batteries per Truck:

forklift management fleet battery engine

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.

Figure 2: Cost Of Ownership Comparison 2.3 Batteries per Truck:

Cost Of Ownership Comparison 2.3 Batteries per Truck:

Note: ‘CNG’ rates have been substituted for ‘LPG’ rates in Figure 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

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