Equipment Lessors Consolidate, Reduce Fleet Sizes to Adjust for Changing Demand
By Daniel P. Bearth, Senior Features Writer
This story appears in the March 31 print edition of Transport Topics.
A weak economy and a deteriorating business environment for truckers are creating challenges and opportunities for equipment leasing and rental companies, executives in the field say.
“It’s been a rough 18 months or so,” Lance Bertram, vice president of marketing for Idealease Inc. in North Barrington, Ill., said.
An oversupply of trucks — caused, in part, by fleets buying more equipment than they needed in 2006 to avoid purchases in 2007 — coupled with falling freight demand has sharply curtailed demand for trucks and, to a lesser extent, trailers.
Idealease affiliates have cut 500 trucks from a rental fleet of 9,000 vehicles and plan to cut another 500 this year in an effort to bring supply in line with demand, Bertram said.
Trailer lessors likewise are ramping up efforts to sell used equipment. Xtra Lease, St. Louis, recently announced plans to sell off “hundreds” of trailers from the company’s rental fleet in the United States and Canada. Bob Keller, Xtra Lease senior vice president, said the move was necessary “to right-size the fleet to specific target markets.”
But hard economic times also are expected to generate more demand from shippers and carriers for leasing and contract maintenance services, said Peter Vroom, president of the Truck Renting and Leasing Association in Alex-andria, Va., and leasing industry executives.
One way to assess the effect of leasing on the trucking industry is to look at the number of trucks put into service by leasing companies, according to Olen Hunter, Paccar Leasing Co.’s director of sales.
Since 1985, full-service leasing companies have registered be-tween 13% and 19% of all new Class 8 vehicles, rising and falling with the overall truck market (see graphic on p. 1).
Hunter said he believes that the percentage of leased vehicles will grow as fleet owners increasingly struggle with the burdens of buying and maintaining more costly and sophisticated truck equipment.
“Fleets are faced with the cost of training, tooling and hiring technicians, what I call the three Ts,” Hunter said. “And it will continue to be an issue.”
Right now, the switch to new clean-burning diesel engines is fueling growth in leasing, TRALA’s Vroom said.
New emission technology has added nearly $20,000 to the cost of heavy-duty tractors over the past six years, said Idealease’s Bertram.
Vroom said demand is especially strong among private fleet operators and small and midsize for-hire carriers that may lack the funds to buy and maintain new trucks and trailers. “Leasing reduces that risk,” he said.
Bob Southern, president of PacLease, said he expects the market for truck leasing to pick up as truck sales increase over the next two years.
“Truck leasing typically expands at a faster rate than the rest of the industry during strong truck-buying markets,” he said. “We’re beginning to see that hap-
pen now and expect this momentum to continue as companies consider the upcoming 2010 engine change.”
Vroom, along with other industry observers, also said that they expect to see additional consolidation in the truck leasing and rental industry.
In the past two years, for in-stance, Ryder System has purchased the leasing business of Lily Transportation Corp. in the Northeast and Pollock NationaLease in Canada. And two leading independent leasing franchise organizations — AmeriQuest Transportation and Logistics Resources and NationaLease — joined forces.
Vroom said he expects that the number of independent leasing companies will continue to shrink as second-generation executives sell out to bigger and financially stronger competitors and as truck manufacturers expand their influence in the market.
“The big guys are getting bigger at the expense of smaller guys,” he said.
AmeriQuest President Doug Clark said that his goal is to help independent leasing companies compete better with national service providers, such as Ryder System and Penske Truck Leasing, and companies owned by truck manufacturers, such as PacLease and Mack Leasing System.
AmeriQuest negotiates volume discounts on equipment purchases and automates payment pro-cesses to reduce overhead costs, he said.
“We do see consolidation continuing,” Clark said. “It’s an issue we are addressing.”
As an example, in February, AmeriQuest signed an agreement with Ariba Inc. to use its “spend management” software program to more closely monitor purchasing costs.
Bertram said that in the early 1990s, there were at least 13 easily identifiable leasing companies. Now there are about five.
“I used to work at Rollins Truck Leasing,” he said. “I know guys who worked at Ruan Leasing and General Truck Leasing and Rental. Now we sound like old men telling stories.”
Ryder President Greg Swienton said he expects leasing revenue to grow by 5% in 2008, down slightly from the 8% growth in 2007. Commercial truck rental is expected to be flat or up as much as 2% after declining 7% in 2007, he said.
Swienton said the company reduced the number of trucks in its rental fleet by about 12% “to align the fleet size and mix with market demand.”
“U.S. rental fleet utilization in the fourth quarter of 2007 im-proved over the prior-year period for the first time in the year,” he said.
Todd Renehan, executive vice president of sales and marketing for Ryder Fleet Management Services, said the outlook for most companies is uncertain.
“Companies are under pressure to drive out costs,” he said, “and the more complex and harder things get, the more people will look at outsourcing.”
The market for first-time leasing customers is potentially huge, Renehan said.
“We’re going after folks who have never leased before,” he said. “There are an estimated 6.7 million commercial trucks that don’t outsource.”
Mack Trucks, Volvo Trucks North America and Paccar Inc. — the parent of Kenworth Truck Co. and Peterbilt Motors Co. — all offer leasing services through truck dealerships.
Last year, Daimler Truck Financial launched a program for Sterling Truck dealerships — called CompleteLease — to provide lease financing and maintenance services for commercial and vocational fleets. Daimler Truck Financial and Sterling are both units of Daimler Trucks North America, which also makes Freightliner and Western Star trucks.
Although officials at Daimler Trucks declined to comment for this article, most industry ob-servers expect the company eventually to offer a full-service lease program for its Freightliner and Western Star dealers.
Paccar has been especially ag-gressive in expanding its business. Since 2004, the company has added an average of 40 new locations a year and has doubled the number of trucks under lease to 32,000 vehicles.
In January, the company opened 14 additional leasing centers, bringing the total number in the United States and Canada to 328, up from 150 locations in 2000.
Paccar also expanded overseas with the purchase of a German leasing company with 1,200 trucks and 1,800 trailers in 2007.
The soft economy, industry consolidation and outsourcing are also leaving a mark on trailer leasing.
Officials at GE Trailer Fleet Services said the company is continuing to expand “cradle-to-grave” trailer management services to help customers maintain and better utilize trailer equipment.
“We combine procurement, fi-nancing, maintenance and tracking services,” said Scott Nelson, vice president of GE’s trailer-leasing business. “Private fleets, in particular, tend to acquire many kinds of trailers over time. They don’t think about the life cycle.
“They may have a hodgepodge of trailer sizes and flavors, and as trailers age, they become warehousing units and eventually they are parked against the fence.”
Nelson said GE has contracts with about a half-dozen fleets for what it called total fleet management. The service is similar to what GE does for the U.S. Postal Service: GE supplies 4,732 dry van trailers, each equipped with a satellite tracking device, and provides all maintenance and repair services.
Another avenue of growth for GE is the sale of used trailers.
GE has opened retail sales centers in Dallas, Chicago and Fontana, Calif., and plans to open three more this year, Nelson said.
A similar transition is under way at PLM Trailer Leasing. The Montvale, N.J., firm, which provides refrigerated trailers and containers exclusively, opened a 24-hour call center to improve its ability to respond to over-the-road emergencies.
The company also has set up its own shops to handle repair and maintenance of trailers and refrigeration equipment.
“This is a huge change for us,” said Lance Wingfield, vice president of marketing for PLM. “Three years ago, we didn’t have any repair facilities. Now, we have five or six open, and we do some work at customer locations.”
The company operates a fleet of about 50 mobile service trucks equipped with welding tools, air compressors and parts to make virtually any kind of trailer repair and preventive maintenance service.
By doing more of the work in-house, Wingfield said, the company believes that it can provide better quality service at less cost, both for its own fleet and for trailers provided by outside customers.
The changes are being made at the urging of PLM’s corporate parent, Japanese trading company Marubeni Corp., which last year extended PLM’s reach into Canada with the purchase of Train Trailer Rentals in Mississauga, Ontario.
PLM began converting some diesel-powered reefer units on trailers to electric and now is finding a ready market for the trailers as storage units for restaurants, grocery stores and florists.
Higher fuel costs and restrictions on idling and noise are all contributing to the push for electric-powered reefer units, said Wingfield.
“We have about 400 units today and will convert 200 more this year,” he said.
PLM also has developed a proprietary tracking system called Cold Link to give customers more information about shipments.
“Food service companies want to know much more than where the boxes are,” Wingfield said, “and they are driven by manufacturers. Companies like Burger King want proof that meat is secure from the truck to the processing plant to the store. They need to know the temperature in transit.”
Phil Murphy, vice president and general manager of Aurora Lease, a unit of Aurora Trailer Holdings in Chesterfield, Mo., said that although he expects customers to be cautious about spending in light of weak economic trends, trailer leasing is “countercyclical.”
“Fleets will look to lease or rent, rather than make a purchase commitment, until the economy strengthens,” he said.
Murphy said Aurora plans to add satellite tracking to the services it provides.
“Obviously, it is nice to know the location of a particular trailer anywhere in the country at any time,” he said. “But more important is the potential fuel savings this technology offers by helping companies better control and utilize trailer pools.”
Tire inflation systems are another technology that will be offered. “It is surprising how few fleets are using tire inflation systems, which substantially increase tire life and could equate to huge savings over the life of a trailer,” Murphy said.
As fuel costs rise, Murphy said, he sees trailer leasing companies responding to increased demand for intermodal transportation by retrofitting trailers to make them piggyback-compatible for use on railroads.
This story appears in the March 31 print edition of Transport Topics.
A weak economy and a deteriorating business environment for truckers are creating challenges and opportunities for equipment leasing and rental companies, executives in the field say.
“It’s been a rough 18 months or so,” Lance Bertram, vice president of marketing for Idealease Inc. in North Barrington, Ill., said.
An oversupply of trucks — caused, in part, by fleets buying more equipment than they needed in 2006 to avoid purchases in 2007 — coupled with falling freight demand has sharply curtailed demand for trucks and, to a lesser extent, trailers.
Idealease affiliates have cut 500 trucks from a rental fleet of 9,000 vehicles and plan to cut another 500 this year in an effort to bring supply in line with demand, Bertram said.
Trailer lessors likewise are ramping up efforts to sell used equipment. Xtra Lease, St. Louis, recently announced plans to sell off “hundreds” of trailers from the company’s rental fleet in the United States and Canada. Bob Keller, Xtra Lease senior vice president, said the move was necessary “to right-size the fleet to specific target markets.”
But hard economic times also are expected to generate more demand from shippers and carriers for leasing and contract maintenance services, said Peter Vroom, president of the Truck Renting and Leasing Association in Alex-andria, Va., and leasing industry executives.
One way to assess the effect of leasing on the trucking industry is to look at the number of trucks put into service by leasing companies, according to Olen Hunter, Paccar Leasing Co.’s director of sales.
Since 1985, full-service leasing companies have registered be-tween 13% and 19% of all new Class 8 vehicles, rising and falling with the overall truck market (see graphic on p. 1).
Hunter said he believes that the percentage of leased vehicles will grow as fleet owners increasingly struggle with the burdens of buying and maintaining more costly and sophisticated truck equipment.
“Fleets are faced with the cost of training, tooling and hiring technicians, what I call the three Ts,” Hunter said. “And it will continue to be an issue.”
Right now, the switch to new clean-burning diesel engines is fueling growth in leasing, TRALA’s Vroom said.
New emission technology has added nearly $20,000 to the cost of heavy-duty tractors over the past six years, said Idealease’s Bertram.
Vroom said demand is especially strong among private fleet operators and small and midsize for-hire carriers that may lack the funds to buy and maintain new trucks and trailers. “Leasing reduces that risk,” he said.
Bob Southern, president of PacLease, said he expects the market for truck leasing to pick up as truck sales increase over the next two years.
“Truck leasing typically expands at a faster rate than the rest of the industry during strong truck-buying markets,” he said. “We’re beginning to see that hap-
pen now and expect this momentum to continue as companies consider the upcoming 2010 engine change.”
Vroom, along with other industry observers, also said that they expect to see additional consolidation in the truck leasing and rental industry.
In the past two years, for in-stance, Ryder System has purchased the leasing business of Lily Transportation Corp. in the Northeast and Pollock NationaLease in Canada. And two leading independent leasing franchise organizations — AmeriQuest Transportation and Logistics Resources and NationaLease — joined forces.
Vroom said he expects that the number of independent leasing companies will continue to shrink as second-generation executives sell out to bigger and financially stronger competitors and as truck manufacturers expand their influence in the market.
“The big guys are getting bigger at the expense of smaller guys,” he said.
AmeriQuest President Doug Clark said that his goal is to help independent leasing companies compete better with national service providers, such as Ryder System and Penske Truck Leasing, and companies owned by truck manufacturers, such as PacLease and Mack Leasing System.
AmeriQuest negotiates volume discounts on equipment purchases and automates payment pro-cesses to reduce overhead costs, he said.
“We do see consolidation continuing,” Clark said. “It’s an issue we are addressing.”
As an example, in February, AmeriQuest signed an agreement with Ariba Inc. to use its “spend management” software program to more closely monitor purchasing costs.
Bertram said that in the early 1990s, there were at least 13 easily identifiable leasing companies. Now there are about five.
“I used to work at Rollins Truck Leasing,” he said. “I know guys who worked at Ruan Leasing and General Truck Leasing and Rental. Now we sound like old men telling stories.”
Ryder President Greg Swienton said he expects leasing revenue to grow by 5% in 2008, down slightly from the 8% growth in 2007. Commercial truck rental is expected to be flat or up as much as 2% after declining 7% in 2007, he said.
Swienton said the company reduced the number of trucks in its rental fleet by about 12% “to align the fleet size and mix with market demand.”
“U.S. rental fleet utilization in the fourth quarter of 2007 im-proved over the prior-year period for the first time in the year,” he said.
Todd Renehan, executive vice president of sales and marketing for Ryder Fleet Management Services, said the outlook for most companies is uncertain.
“Companies are under pressure to drive out costs,” he said, “and the more complex and harder things get, the more people will look at outsourcing.”
The market for first-time leasing customers is potentially huge, Renehan said.
“We’re going after folks who have never leased before,” he said. “There are an estimated 6.7 million commercial trucks that don’t outsource.”
Mack Trucks, Volvo Trucks North America and Paccar Inc. — the parent of Kenworth Truck Co. and Peterbilt Motors Co. — all offer leasing services through truck dealerships.
Last year, Daimler Truck Financial launched a program for Sterling Truck dealerships — called CompleteLease — to provide lease financing and maintenance services for commercial and vocational fleets. Daimler Truck Financial and Sterling are both units of Daimler Trucks North America, which also makes Freightliner and Western Star trucks.
Although officials at Daimler Trucks declined to comment for this article, most industry ob-servers expect the company eventually to offer a full-service lease program for its Freightliner and Western Star dealers.
Paccar has been especially ag-gressive in expanding its business. Since 2004, the company has added an average of 40 new locations a year and has doubled the number of trucks under lease to 32,000 vehicles.
In January, the company opened 14 additional leasing centers, bringing the total number in the United States and Canada to 328, up from 150 locations in 2000.
Paccar also expanded overseas with the purchase of a German leasing company with 1,200 trucks and 1,800 trailers in 2007.
The soft economy, industry consolidation and outsourcing are also leaving a mark on trailer leasing.
Officials at GE Trailer Fleet Services said the company is continuing to expand “cradle-to-grave” trailer management services to help customers maintain and better utilize trailer equipment.
“We combine procurement, fi-nancing, maintenance and tracking services,” said Scott Nelson, vice president of GE’s trailer-leasing business. “Private fleets, in particular, tend to acquire many kinds of trailers over time. They don’t think about the life cycle.
“They may have a hodgepodge of trailer sizes and flavors, and as trailers age, they become warehousing units and eventually they are parked against the fence.”
Nelson said GE has contracts with about a half-dozen fleets for what it called total fleet management. The service is similar to what GE does for the U.S. Postal Service: GE supplies 4,732 dry van trailers, each equipped with a satellite tracking device, and provides all maintenance and repair services.
Another avenue of growth for GE is the sale of used trailers.
GE has opened retail sales centers in Dallas, Chicago and Fontana, Calif., and plans to open three more this year, Nelson said.
A similar transition is under way at PLM Trailer Leasing. The Montvale, N.J., firm, which provides refrigerated trailers and containers exclusively, opened a 24-hour call center to improve its ability to respond to over-the-road emergencies.
The company also has set up its own shops to handle repair and maintenance of trailers and refrigeration equipment.
“This is a huge change for us,” said Lance Wingfield, vice president of marketing for PLM. “Three years ago, we didn’t have any repair facilities. Now, we have five or six open, and we do some work at customer locations.”
The company operates a fleet of about 50 mobile service trucks equipped with welding tools, air compressors and parts to make virtually any kind of trailer repair and preventive maintenance service.
By doing more of the work in-house, Wingfield said, the company believes that it can provide better quality service at less cost, both for its own fleet and for trailers provided by outside customers.
The changes are being made at the urging of PLM’s corporate parent, Japanese trading company Marubeni Corp., which last year extended PLM’s reach into Canada with the purchase of Train Trailer Rentals in Mississauga, Ontario.
PLM began converting some diesel-powered reefer units on trailers to electric and now is finding a ready market for the trailers as storage units for restaurants, grocery stores and florists.
Higher fuel costs and restrictions on idling and noise are all contributing to the push for electric-powered reefer units, said Wingfield.
“We have about 400 units today and will convert 200 more this year,” he said.
PLM also has developed a proprietary tracking system called Cold Link to give customers more information about shipments.
“Food service companies want to know much more than where the boxes are,” Wingfield said, “and they are driven by manufacturers. Companies like Burger King want proof that meat is secure from the truck to the processing plant to the store. They need to know the temperature in transit.”
Phil Murphy, vice president and general manager of Aurora Lease, a unit of Aurora Trailer Holdings in Chesterfield, Mo., said that although he expects customers to be cautious about spending in light of weak economic trends, trailer leasing is “countercyclical.”
“Fleets will look to lease or rent, rather than make a purchase commitment, until the economy strengthens,” he said.
Murphy said Aurora plans to add satellite tracking to the services it provides.
“Obviously, it is nice to know the location of a particular trailer anywhere in the country at any time,” he said. “But more important is the potential fuel savings this technology offers by helping companies better control and utilize trailer pools.”
Tire inflation systems are another technology that will be offered. “It is surprising how few fleets are using tire inflation systems, which substantially increase tire life and could equate to huge savings over the life of a trailer,” Murphy said.
As fuel costs rise, Murphy said, he sees trailer leasing companies responding to increased demand for intermodal transportation by retrofitting trailers to make them piggyback-compatible for use on railroads.
