Fleet Replacement, Technology Choice, and the Option to Breach a Leasing Contract

Abstract

We analyze the option to breach a leasing contract when replacing a fleet of ICVs (internal combustion engine vehicles) and EVs (electric vehicles) subject to cost uncertainty. We derive the optimal policy for technology choice and breaching ICV contracts. The decision to breach is shown to offer both cost savings resulting from reduced ICV operating costs and preemptive acquisition, but incurs additional costs arising from the need to compensate for breached vehicles and in the form of opportunity costs. We also demonstrate that the effects of breaching a leasing contract have a ripple effect across the decision horizon, thus amplifying the impact of a single breach. A numerical study based on data from La Poste, the French postal service, shows that breaching a leasing contract in this context offers measurable cost benefits.

A pricing model for Internet of Things-based fleet services to support equipment sales

“…The existing fleet management models include e.g. defining the optimal fleet size (see Eftekhar 2015;Pascual et al 2013), optimizing fleet renewal through lease contracts (Neboian & Spinler 2015), pricing freight carrier services (King & Topaloglu 2007), and decreasing the size of the required prototype fleet in the automotive industry (Lockledge et al 2002). Economies of scale have been addressed for instance by Cullinane and Khanna (2000), who have modeled operating large containerships as opposed to smaller ones in shipping.…”