Written by Ryder Fleet Management Solutions
Anyone who has been involved with the trucking industry for more than a few years knows that it can be a boom-and-bust business, reacting to economic cycles in ways that challenge planning, budgeting and operations.
The recent economic downturn, which shows signs of improvement, has been particularly rough on carriers. Not only has freight been down and fuel more expensive, but carriers have been holding on to older trucks longer – and these trucks need replacement. Many dealers report that the traditional three- to four-year replacement cycle is being extended to four and even five years. For fleets running older trucks that do not meet current or upcoming pollution standards, renting or leasing new trucks may provide a way to meet these standards without the expense of retrofitting. A typical level 3 retrofit costs between $12,000 and $15,000, and may not be worth the capital outlay depending on the age of the truck.
Many fleets are left in quandary. How can they service their customers with the latest, most technologically advanced and reliable trucks while money remains tight? And what if the economy stalls?
For many fleets, renting trucks is a quick way to service clients without the risk of large cash outlays. For still others, leasing becomes a way to help smooth out the starts and stops that accompany normal cycles and help get them through the more severe economic swings and overdue replacement cycles. Tom James, president & CEO of the Alexandria, VA-based Truck Renting and Leasing Assn., which represents companies in the truck rental and leasing industry, notes that his members have been buying trucks for the pay year in order to meet the strong demand from carriers.
In general, he says, many fleets try to smooth out business cycles by renting first and then leasing because they would prefer to make a long-term commitment until they’re sure which way the economy is headed. “As the economy picks up, carriers usually go to rentals, then leasing,” he says. “They rent first to see what’s happening in the economy, then they may lease for a few years when they become more confident. After that, they buy or continue to lease.”
He adds that because of the uncertain economy, carriers have been stretching out their leases, holding their equipment longer.
“Carriers want a full-service leasing company, too,” James says, which helps keep costs constant and rules out some surprise expenses like repairs.
He notes that many shippers are requiring that carriers run green trucks and leasing is a way to do so without buying new equipment. “Fleets are seeing a demand for clean trucks and leasing is playing a role in meeting that demand. It doesn’t tie up capital, and money is hard to come by these days. The economy is not roaring back; it’s trudging back. Renting and leasing cane make a lot of sense,” he concludes.
