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What’s the best strategy to manage your fleet?
By Craig Barth
Barreling down a superhighway at 65 miles per hour, truck trailers travel in any weather, on any day, and are the heart and soul of today’s modern supply chain. For fleet managers truck trailers are assets that need to be managed carefully to avoid both a shortage of trailers as well as trailers that sit idle. The decision on the right mix of rent, lease, and own semi-trailers depends on many things: how it will be used, how long it is needed, cost considerations, and many other factors.
It is also influenced by supply, demand, business risk, available resources, and requires careful consideration. Only when transport and business needs are clearly defined can the best, informed decision be made.
Trailers are flexible assets. They are needed for varying lengths of time and for various reasons. Depending on the climate or season, there may be times when they are unused and sit idle. That’s where strategic trailer leasing and renting comes in.
When to Rent
Renting, simply stated, is a most effective solution for immediate and short-term needs that allow for maximum flexibility at a higher cost. To rent, customers sign a general rate agreement with few strings attached. The rental begins when trailers are received for use, much like a car rental arrangement.
If you need to expand fleet size or acquire trailers of diverse types to meet specific customer requirements in the short term, renting is the answer.
In renting trailers, your term is for as long as you need it. When you no longer need it, you simply return it. Trailer rentals range from just a few days, weeks, or months – but usually a shorter duration than leases. Rental payments scale up and down based on demand and are an expense on a company’s income statement offset by the income the trailer produces.
When to Own
Contrary to the flexibility of rented trailers, owning your fleet makes the most sense when your needs are long term, known, and demand for use is sustainable. When trailers are owned outright, the owner has complete control over every facet of the trailer as well as complete responsibility.
Ownership is straightforward provided the desired trailer is available and the purchaser has sufficient financial resources or credit to acquire it. Much depends here on the economy and the prevailing laws of supply and demand. When a supply chain strain is in place (such as with the worldwide pandemic), an intentional buyer may wait several months or more before a trailer is available to purchase or pay prices exceeding market value.
Ownership also brings with it complete responsibility for necessary maintenance. Proper maintenance is costly upfront, but necessary for long term sustainment of the trailer. To ensure a trailer is roadworthy and safe, a rigorous maintenance program with a disciplined schedule is necessary to ensure maintenance actions, scheduled or unscheduled, get done.
There is another facet to ownership that is sometimes overlooked: Financial management. Typically, new trailers are depreciable assets and lose 30% of their value right after buying -- similar to a new car. On the flipside, tax depreciation is a key benefit for profitable businesses that continue to invest and can depreciate the year of purchase and therefore reduce their profitability. However, if owned trailers sit idle, they depreciate with no income to offset this expense.
When to Lease
Suppose you need to increase the size of your fleet for a specific time frame (during peak season or for a specific project). Renting may be an option but is more costly than leasing which may be the most viable choice.
When a carrier or shipper contracts with a customer, leasing also allows fleet expansion with the type of trailers needed for the transported cargo. Arrangements may be made for a specific period suitable to your customer contract.
In addition to timeframe flexibility, a leased trailer may also include a maintenance contract to service the trailer over the selected time frame. The specific terms of a maintenance contract will depend on the cargo, the end customer, and the tempo of the customer’s transportation needs. In addition, Loss Damage Waiver protection may also be contracted to cover damage and loss, making leasing a solid alternative for semi-permanent needs.
Finding the Right Mix of Rent, Lease, and Own
Determining the best mix of rent, lease, and owned trailers for your needs, depends on many things. How profitable is your business? How stable are your trailer needs? What is the current cost of trailers? Do you have a existing maintenance team? Does your need fluctuate by season or customer?
While some business leaders prefer to own all assets, while others prefer the opposite, most companies find a mix of rent, lease, and own to be the most advantageous strategy to accommodate their needs of flexibility, cost-effectiveness, and financial stewardship. From my experience here at Premier, a mix of own 75-80% own, 15-20% leased and 5-10% rented seems to be a common setup for larger companies, however there is no one-size-fits-all when it comes to managing your fleet. The best ratio requires careful analysis and the selection of partners who can help make the best decision.
Craig Barth is Chief Financial Officer of Premier Trailer Leasing. From Citi Group, to Ford Motor Company and Schneider Electric, Craig has been a leader in his field for decades. Follow Craig as he shares more about his expertise on LinkedIn!
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