Equipment Lessors’ Rental Business Grows as Fleets Replace Old Trucks, Test Equipment

Equipment-leasing and fleet-management firms said they are seeing a rise in demand for truck rentals as customers seek to replace aging vehicles and test new technology in response to improving business conditions.

The market shift is creating opportunities for companies that supply trucks, trailers and containers to go beyond vehicle spec’ing and maintenance to provide services — such as fuel purchasing, driver monitoring and even advice on strategic business planning — that can help fleet operators better manage costs.

“There is still a lot of overall uncertainty with respect to investing in new equipment,” said Terence Dubowick, national account manager for Mack Leasing System and Volvo Truck Leasing System and chairman of the Truck Renting and Leasing Association in Alexandria, Va.

“Full-service leasing and rental tend to thrive in this type of environment,” Dubowick added.

Mike Lewis, vice president and general manager of equipment leasing for Donlen Corp. in Northbrook, Ill., said he sees a new attitude toward outsourcing as fleet operators grapple with fuel, maintenance and compliance issues.

“What’s different now is there is a strong sense of austerity,” he said. “I see a big swing from trying to wrestle [equipment issues] with private resources. We’re seeing a switch over to leasing. And for ancillary services, like fuel, maintenance management and DOT compliance, we see a lot of activity.”

Looking for ways to reduce costs, fleet operators also are turning to vehicle suppliers for help.

In 2009, for example, Carl Hamilton began to look for GPS tracking capabilities for New South Express, a private fleet that he oversees for Canfor Corp., a forest products company based in Vancouver, British Columbia. The fleet of 44 tractors and 138 trailers hauls lumber, wood chips and sawdust from Canfor-owned sawmills in North and South Carolina.

After looking at various commercial systems, Hamilton said that he decided to use a system provided by the company from which he leases vehicles — Ryder System.

“We didn’t have to pay the upfront cost, just a fee,” he said, adding, “We didn’t want to buy something and find out we didn’t like it.”

Using the GPS technology had immediate benefits in terms of customer service, providing a means to reliably estimate delivery times and reducing out-of-route miles and unauthorized use of vehicles.

Over the past two years, Hamilton said he has taken advantage of other technologies supplied by Ryder to monitor shift patterns, hard braking and over-speed incidents by drivers, resulting in a gain in fuel mileage of 5.5% to 6% on average and cutting the cost of fuel by an estimated $160,000 a year.

In the year ahead, Hamilton said he plans to install electronic onboard recorders to replace paper logbooks and investigate the use of trailer-tracking systems to achieve even more cost savings by reducing paperwork and improving utilization of equipment.

Keith Trumbull, vice president of the truck and equipment services division for PHH Arval in Sparks, Md., said companies want equipment providers “to take on additional responsibilities.”

“Fleets are struggling to keep up with new vehicle technologies, regulations and the costs associated with operating their fleet as efficiently as possible,” Trumbull said. “Clients continue to be more and more focused on the bottom line.”

When ordering new vehicles, for example, clients “expect us to find alternatives” to standard offerings by truck and trailer manufacturers, Trumbull said.

“In fact, many clients are now willing to take a second look at the OEM-sponsored upfit packages, particularly with the offering of composite materials.”

Environmental concerns continue to be “in the forefront” of discussions with fleet operators, Trumbull noted.

“Fleets are trying to use ‘green’ technologies, not only to reduce costs but to also promote their company to the public as environmentally friendly,” he said.

Robert Sanchez, president of Global Fleet Management Solutions for Ryder System, said his company is seeing greater interest in outsourcing of trucks and trailers.

In June, Ceva Logistics agreed to lease 1,044 trailers from Ryder and, under terms of the 10-year contract, Ryder will provide a dedicated fleet coordinator and GPS tracking to oversee the movement of the trailers and provide mobile maintenance for the trailers at seven Ceva warehouses in North America.

Sanchez said Ryder also is looking to offer maintenance services on a “transactional” basis to customers who may not want a full-service lease arrangement.

“Although Ryder has traditionally focused on the full-service lease, we will also provide help to customers that want more alternatives,” he said. “We see increased demand for customized levels of service.”

Another way in which some leasing companies and fleet-management firms are saving money for fleet operators is by negotiating lower prices for things they need to buy.

Two firms — AmeriQuest Transportation Services in Cherry Hill, N.J., and TopSource LLC in Braintree, Mass. — agreed to work together to help fleet operators save money on purchases of material handling equipment parts, oil and lubricants and fleet graphics.

AmeriQuest is the corporate parent of NationaLease, a franchise organization that offers truck leasing and rental and dedicated contract carriage through independent affiliates throughout the country. TopSource is a subsidiary of Topco Associates, a cooperative-buying organization for food and other retail companies.

“Our participating customers have realized savings of 15% to over 40%,” said Susan McNamara, senior sourcing manager for logistics and distribution for TopSource.

Scott Grushoff, vice president of AmeriQuest, said the benefits of group purchasing go beyond price.

Fleet managers often “don’t have the expertise or standing to negotiate with suppliers,” Grus-hoff said. “You don’t have to have meeting after meeting with suppliers. You don’t have to negotiate credit terms. We have a program in place. Pricing is in place. The entire supply management process is in place.”

Suppliers also see benefits. Consolidating shipments, for example, can reduce the cost of packaging and transportation, and placing larger orders can help manufacturers operate production lines more efficiently, said Debbie Wilcox, a sourcing analyst for TopSource.

Officials at fleet-management firm Automotive Resources International, which is based in Mount Laurel, N.J., said that they were able to cut transportation expenses for a California-based communications firm by $1.3 million over three years while helping the fleet expand by 30% to nearly 1,000 vehicles using a software program to track work orders and parts.

Roy Hoysgaard, a utility fleet expert at ARI, said information provided by the software program enabled the company to streamline scheduling, increase labor productivity and reduce parts inventory.

One downside to the use of technology, said one leasing executive, is the diminished role of personal relationships in forging ties between leasing companies and customers.

“Most firms are finding themselves calling 1-800 numbers with large fleet-management firms and speaking to someone in customer service who is unfamiliar with their company, their agreements and their expectations,” said Adam Berger, vice president of sales for Doering Leasing Co. in Milwaukee.

At Worldwide Equipment Enterprises in Prestonsburg, Ky., however, CEO Terry Dotson said he got help in an unexpected way from GE Capital Fleet Services.

Dotson said the company helped him to develop a new strategic plan for the firm he has headed since 1981. Worldwide operates a network of 33 heavy- and medium-duty truck dealerships, service centers, parts stores and leasing locations in Kentucky, Tennessee, Virginia, West Virginia and Ohio.

“GE’s way of strategic thinking applies to every aspect of business,” Dotson said. “We learned to identify our strengths and weaknesses and how to effect change.”

Based on feedback from GE, Dotson said he chose longtime executive Scott Blevins as chief operating officer and set in motion a plan to cultivate employees for future leadership roles. The company also overhauled its website, established a call center and created new ways for customers to contact management.

Demand for rental trucks is rising, and many equipment leasing executives see that as a sign of good things to come.

The business “is going gangbusters,” said Gene Scoggins, president of NationaLease in Oakbrook Terrace, Ill. “All of our companies are running short of trucks.”

Part of the reason that rental trucks are in short supply is that many companies downsized their fleets during the recession. Many of those trucks were sold or converted to long-term leases.

Scoggins said he estimates that there are only about 30,000 commercial rental trucks in the United States now, compared with as many as 50,000 three or four years ago.

“It will take two or three years to get back to that level,” Scoggins predicted.

An increase in demand for rental trucks is typically a precursor of lease activity, said Scoggins and other leasing industry officials.

A survey by the Equipment Leasing and Finance Association, in fact, shows a surge in leasing activity in June with new business volume for a representative group of 25 member companies reaching $7.3 billion, up 33% from $5.5 billion in the same month in 2010.

“Overall new business activity in the equipment-finance sector continues to show steady improvement,” said William Sutton, president of ELFA in Washington, D.C. “We hope that this positive trend will continue as we head into the second half of the year, amid an economic recovery restrained by uncertainty.”

Mack/Volvo’s Dubowick added a note of caution.

“Rental is the barometer we generally set our sails to,” he said. “However, to be clear, improving conditions for truck rental and leasing do not necessary correspond to an overall improvement of economic conditions.”

Many fleet operators are trying to catch up on deferred vehicle replacement and, in some cases, to add new vehicles to support an increase in business demand, said Ken Gillies, truck operations manager for GE Capital Fleet Services in Eden Prairie, Minn., the nation’s largest fleet management company, with more than 1.4 million cars and trucks under contract worldwide.

“We’ve been experiencing a steady climb in quote activity, and orders for new vehicles have been closely following the same track,” Gillies said in an interview with Transport Topics.

Companies that reduced personnel during the recession may find it difficult to quickly ramp back up on their own, he said.

“They may find themselves needing a means to boost their fleet expertise in a very short time frame,” Gillies said.

Some customers also are worried about the consequences of waiting too long to lock in leases now, when interest rates are relatively low, he said.

“Most people believe interest rates will be heading north,” Don-len Corp.’s Lewis explained. “That will raise the cost of leasing.”

Another concern of fleet operators is that keeping older trucks in service will lead to more equipment breakdowns.

“When you keep vehicles too long, maintenance and fuel risk is higher,” said Mark Conroy, vice president of sales and marketing for Union Leasing Inc., Schaumberg, Ill.

Conroy said his company has picked up several new accounts, including 55 vehicles leased to a professional baseball team for use by talent scouts and some construction equipment for a local firm that is “doing well.” The company also won some business when a large competitor stopped accepting new customers during the downturn.