113-1 Engineering Economy Case Study:
Revamping the Delivery Fleet for Green Mobility
Background Scenario
EcoDelivery Ltd., a logistics company founded in January 2020, offers last-mile delivery services in five
major cities, primarily serving e-commerce businesses and small retailers. To start, the company purchased
50 diesel vans, each making about 200 deliveries weekly. However, the aging fleet, now averaging five years,
faces challenges related to rising operational costs and compliance with new environmental regulations. Fuel
costs have risen by 12% over the past two years, with each van consuming around $4,300 in diesel annually.
Maintenance expenses are also climbing, averaging $3,000 per vehicle per year. Stricter urban emissions
regulations affecting diesel vehicles and increasing client demand for sustainable delivery options compound
these issues.
To address these challenges, EcoDelivery's management has proposed two solutions to modernize its
fleet. The first option is replacing the fleet with electric vehicles (EVs), which eliminates fossil fuel reliance,
reduces emissions, and lowers fuel and maintenance costs. However, EVs require significant upfront
investment for 50 new vehicles and charging infrastructure, along with potential operational disruptions,
such as driver training and charging delays. The second option is retrofitting the existing fleet with hybrid
engines, a more economical solution that reduces fuel consumption by 50% and ensures compliance with
emission standards. Retrofitting offers a shorter, phased transition but provides less environmental benefit
and may result in lower performance and reliability compared to new EVs.
Option 1: Transition to Electric Vehicles (EVs)
This alternative involves replacing the entire fleet with 50 new electric vans priced at $53,000 to balance
the initial investment. In addition to the vehicle costs, EcoDelivery would incur an 8% sales tax and an
annual insurance cost of $1,200 per vehicle. Upgrading to electric vehicles requires the installation of 8
fast chargers, each costing $25,000, with an 8% tax applied. Further investments include $100,000 for
electrical upgrades (also taxed at 8%), $50,000 for specialized tools, $25,000 for staff training, and $10,000
for permits to adapt the maintenance facility. Operating costs for EVs are expected to be significantly lower
than the current fleet, with electricity costs of $1,100 per vehicle per year and maintenance costs of $800
per vehicle per year.
Option 2: Retrofitting Existing Fleet with Hybrid Engines
At a basic cost of $18,000 per vehicle, subject to an 8% sales tax, the second option involves replacing the
fleet's 50 vehicles with hybrid engines. As a function of vehicle age, the variable replacement cost is
calculated as follow: 100𝑥2+400𝑥+2,000, where 𝑥 represents the vehicle's age in years. Additional costs
include $250,000 for specialized tools needed for the retrofitting process, $10,000 for a battery
monitoring system, and $20,000 for staff training. Operating costs are reduced compared to the current
fleet, with fuel consumption dropping from $4,300 to $2,150 annually per vehicle (a 50% reduction), and
maintenance costs estimated at $2,200 annually. The retrofitted fleet would also require an annual
insurance cost of $1,200 per vehicle, like the EV option.
Decision-Making Dilemmas
EcoDelivery Ltd. has set an 8-year project lifespan, consistent with the operational life of commercial
delivery vehicles and adaptable to technological changes and emission regulations. Estimated total salvage
