When it comes to used trucks, the future is now
While the U.S. economy continues to fire on all cylinders, churning out freight at a near breathless pace, trucking fleets are scrambling to find enough equipment to haul the freight. As fleets look to boost capacity to meet the breathless demand, they have pushed order boards to unprecedented levels. This, in turn, has pushed deliveries out to early next year.
Fleets that can't afford the wait and don't want to lease equipment have turned to the used truck market as a viable way to build their fleet. What they have found is a market that boasts a wide variety of quality, late-model equipment and a philosophy more attuned to the business of operating a fleet.
"The way people are approaching the used truck market is changing," says Martin Labbe, principal of Martin Labbe Associates, an industry research firm. "Historically, the used truck buyer would look first at the engine to see the size, rating, and mileage. While that's still true today, the business-oriented buyer is considering more factors -- things like warranty, maintenance records, repair and product features, and technology. Used truck buyers are becoming more sophisticated and demanding than they were in the past."
This new attitude may well have moved price down the list of reasons why fleets play in this marketplace.
The supply The inventory of used trucks is better than ever. All you have to do is look back three to five years at new equipment sales for an idea of what is coming into the used truck market (see Fig. 1). Not only are the numbers encouraging, so is the quality and longevity of the equipment.
"When I broke into this business 22 years ago, 250,000 miles meant a truck was ready for overhaul," says Steve Nadolson, corporate used-truck manager for Sweeney Truck Group. "Today, it's hardly broken in at that point. Buying a truck that only has 350,000 to 400,000 miles on it is probably not a bad buy today."
The quality of used equipment can be laid on the doorstep of more intelligent spec'ing by the original truck owner. When fleets order new equipment they spec it with an eye on pumping up residual values.
For instance, today's electronic engines can be uprated with a simple programming change, making them more attractive in the used truck market.
Not only is the volume and quality of equipment increasing, fleets can take advantage of locator systems that allow buyers to cherry-pick their units and better match them to operating profiles.
Since its inception 20 years ago, Fleming Transport has relied on the secondary marketplace to build its fleet. The last time a new truck was purchased was 1978. The reason is simple -- finances. "We want to remain as debt-free as possible," says owner Jimmy Fleming.
Here's how the math works. Fleming figures that a new fleet version of a Class 8 tractor would cost him at least $65,000. That compares to the $14,000-$16,000 he shells out for a used piece of equipment. "The up-front investment isn't as great," he explains. "That means we don't have to run all the time to cover our costs. The bigger the payments, the harder you have to work."
It's that philosophy that has helped boost Fleming to its current size of 60 tractors and 250 trailers. About one-third of his fleet consists of owner-operators -- company drivers he converted to independent status. Fleming is quick to admit that his tractor-to-trailer ratio is out of whack, but says that more and more of his customers are demanding drop-and-hook operations. With all of the fleet's boxes acquired second-hand for less than $7,500, Fleming has the luxury of spotting the trailers without taking a major hit in the wallet.
His customer list reads like a "who's who" of shipping. Clorox, Lever Brothers, and Lipton, to name a few. None are concerned about the used equipment. "Customers don't look at your equipment," says Fleming. "The only thing they're concerned about is on-time pickup and delivery. We've never missed our windows."
And drivers don't seem to mind. "When we recruit drivers, they know that what they see is what they get," he says. While attracting and retaining drivers remains a concern, it's no more of a concern for Fleming than it is for other carriers.
While Fleming operates nationwide, the core of his strength is the Atlantic seaboard from Baltimore to Maine, where drivers rack up 80,000 miles annually on each unit.
Aside from the up-front investment, buying used equipment helps Fleming reduce his property taxes and insurance bills. It costs him more for equipment upkeep, but not significantly more. In any event, that's a price that Fleming, who maintains an 8-bay maintenance facility staffed by 12 technicians, is willing to pay.
Fleming maintains that many service issues remain the same, regardless of whether the equipment is new or used. For instance, grease and lube intervals still have to be maintained. And tires are a wash. In fact, he says, the presence of worn casings on a used piece of equipment is enough to make him veto the deal.
"We adhere to a strict preventive maintenance schedule," he says, "just to stay ahead of things." When it comes to more major repairs, his shop staff can handle it. And does.
Fleming depends on local dealers, both Freightliner and International, for parts support and service backup. Their local presence has guided his equipment specifications.
When it comes to adding a new piece of used equipment, Fleming looks for the best trucks and the best deal. This keeps him plugged into several fleets that he knows run the equipment well. But Fleming also buys equipment from truck wholesalers, although he tries to find out as much as possible about how the units were treated before adding them to his fleet.
Fleming has no hard-and-fast replacement strategy. "I plan on keeping units for as long as they're running well, assuming the cost of maintaining them doesn't creep too high," he says. However, you know it's time to start looking for new units once they become due for a major transmission overhaul, engine work, new brake drums, or a new rear. "I start getting anxious at the 700,000-mile mark."
Similarly, Gary Davis, owner of Davis Transfer, Athens, Ga., says his strategy of buying primarily used equipment is financially motivated. "I don't want to owe more on equipment than I can unload it for."
Davis buys almost all of the equipment for his 140-tractor, 375-trailer truckload fleet directly from other fleets. That controls his spec. He buys well-maintained equipment that has less than 400,000 miles on it. On the rare occasion when he pops for a new rig, Davis' specs mirror those of the used units in his fleet.
"We're not afraid to run a truck one-million miles," says Davis, "if we can keep it safe. We don't have a lot of excess expenses except for warranty work." Since the closest dealer is 80 miles away, Davis absorbs most of those expenses. "That just kills us," he says. "We actually see very little difference in downtime between new and used equipment. Today's truck is light years beyond those we drove through the early 1980s."
Davis credits his success to staying close to the drivers. "They have the smallest voice in the system," he says. "Without taking the time to listen to them, it would be real easy for that voice to get lost." That focus is reflected in the type of communications system Davis bought -- a Qualcomm satellite tracking system that encourages drivers to use free-form messages. "I feel many fleets lose part of their system's value by forcing drivers to use canned messages," he says.
Davis is also sensitive to personal needs. With an average length of haul of 450 miles, he is generally able to get most drivers home every weekend. "Our goal is to make sure that every driver has two days off at home."
He pays drivers 32 cents per mile. "That's part of the answer -- to put pay where it should be and to ensure they get the miles." Davis still tries to get drivers 2,200-2,500 miles a week.
Meeting that goal means managing lots of load swaps. "It's not uncommon for us to make 8-10 swaps a night," says Davis. New software, along with the Qualcomm communications systems, allows the fleet to hold decisions till the eleventh hour.
Although Davis does his own maintenance in three company shops, he outsources tire mounting, engine rebuilds, body work, and front-end alignment. "We could do it ourselves, but I'd rather not tie our people up," he says. "I'd rather have them on the inspection lane."
Davis employs a maintenance staff of 12 and figures he is spending 11 cents per mile to maintain the fleet. "Our strategy emphasizes the safety lane. We can't see it enough. That gives the mechanic good communication as to what's going on," he emphasizes. Davis wants to upgrade fleet maintenance with software packages that identify how and where he's spending money. He plans to adopt bar-coding for parts invoices and to monitor productivity in the shop.
Product support Sophisticated buyers like Davis and Fleming are becoming more commonplace, according to Sweeney Truck Group's Nadolson. Like the first truck owner, the secondary market is looking for improved product support features. Chief among these is warranty, whether it's transferred with the equipment or purchased as an add-on aftermarket package. "These programs offer very good engine and driveline coverage that add value and security to the purchase of a used truck," says Nadolson.
"Product integrity is very important," he continues. "That's not forgotten when the used-truck operator converts to a brand-new piece of equipment."