Changes in the truck leasing and renting market are so vast that to describe it as expanding is an understatement; transformation is more like it.
“Fifteen years ago, most trucking companies went through a bank or OEM to finance equipment,” says Spike Vera, senior marketing manager for Miami-based Ryder System. “But with the great explosion of Class 8 tractors on the road in the 1990s, there's been tremendous growth in alternative forms of financing, full-service leasing packages, contract maintenance and other services,” he adds.
Consolidation continues, too. At presstime, Penske Truck Leasing, the second-largest leasing company, announced the acquisition of Rollins Truck Leasing, the third-largest in the industry.
One reason for the buyout is that leasing is such a lucrative business. The commercial truck leasing market is predicted to top $46 billion in revenues in 2002, nearly double that seen in 1998.
But that's only part of the story. Truck leasing and renting vendors are now moving into new areas because carriers — both private and for-hire — have had to adapt new logistics strategies such as just-in-time deliveries.
According to William J. Ford, president and CEO of National Truck Leasing System (NationaLease), the truck leasing industry has seen significant change during the past five years. “We're looking to help customers with DCC, load tracking, carrier selection, warehouse management, outsourcing, freight bill auditing and a host of other nontraditional services.”
Leasing companies have developed a number of new programs customized to fit a range of trucking needs. For example, Ruan Transportation Management Services offers “Intersourcing,” which links its logistics services with those of a private fleet, instead of the typical outsourcing arrangement, in which the entire private fleet operation is replaced.
Two new programs from Idealease are “Idealimage,” which involves designing company names and logos for trucks, and “Idealfuel,” which provides competitively priced fuel via a nationwide network of 3,000 fueling locations.
Even OEMs are now getting into the leasing business. They want to provide better support for the leasing companies that purchase their vehicles, while giving fleet customers more financial and service options.
“Customers are telling us they're looking for improved flexibility when it comes to acquiring vehicles,” said Terry Dubowick, director of leasing for Mack Leasing System, a subsidiary of Mack Trucks. “They want to be in a better position to meet changing market conditions and have more risk management ability.”
THE NEW CUSTOMER
Demand for leasing services is also coming from small- to midsize fleets that operate a variety of vehicles, especially medium-duties.
“It used to be that nationwide, Class 8 operators formed the bulk of the business,” said Ryder's Vera. “Now we're servicing more regional fleets operating a mix of equipment. For example, we've seen a lot more strength from the Class 6 side of our business.”
About 67% of the commercial leasing market is now made up of fleets with between 4 and 24 vehicles. According to Gary Rolph, vp-sales for Rollins, that means leasing companies are changing the focus of their business.
“The customer has been changing to a degree,” says Rolph. “A ‘large deal’ now means 10 units. We're looking at 5 or 6 units to be a driving force in future business.” Also, while a significant portion of the leasing business still revolves around private carriers, more for-hire carriers are looking at leasing options, he says.
“Leasing has continued to grow strongly over the last five years,” adds Jim Feenstra, vp-marketing for Penske. “We also see a broader array of services being offered above and beyond traditional contract maintenance. Customers are asking for more services, which in many cases can lead to more outsourcing of logistics. We also see a wider range of customers using leasing, from one truck to 2,500.”
However, a widening customer focus also nullifies a one-size-fits-all approach to leasing, Rollins' Rolph adds. “The willingness to customize leasing packages for clients is what's driving growth in our business now,” he says.
Leasing is big business in the U.S. — and not just for trucks and trailers. The Equipment Leasing Association of America (ELA), Arlington, Va., estimates that 30% of the business equipment in the U.S. is leased. The leasing business jumped from $207 billion in 1998 to $234 billion in 1999, an increase of 13%.
According to ELA, two of the fastest growing leasing markets in the U.S. are transportation and technology equipment. Over 38% of the leasing industry's business in 1998 came from the transportation market, including items such as aircraft, rail cars and buses, as well as trucks and trailers. Some 16.5% of all trucks and trailers are leased, said ELA, up from 13.5% in 1997.
Private carriers, however, are still a driving force in the truck renting and leasing industry because they have a core business other than trucking that requires investment capital.
According to Tim Henebry, executive vp-general manager of PACCAR Leasing Corp. (PacLease), 20% of all Class 8 vehicles and 10% of all Class 7 vehicles are leased, with 50% of all trucks used by private carriers using some sort of full-service lease. “Private fleet managers today are faced with mandates to become more efficient with every dollar allocated to transportation,” he points out.
Henebry says the rising cost of trucking equipment, along with stricter emission and environmental regulations, may boost leasing even further. “Environmental and safety regulations, while positive, will doubtlessly increase the price of equipment,” he explains. “For example, the proposed 2004 emission restrictions will force radical modifications to existing diesel engine designs … adding about $5,000 to the cost of each engine. More regulations and the high cost of technology, not to mention inflation, may convince a greater number of private fleet operators to outsource transportation.”
MANAGING CASH FLOW
Conserving cash, however, still remains the top reason for leasing trucks, says Penske's Feenstra. “Customers say there are three reasons to lease. First, it allows capital to be spent on core business operations, not trucks. Second, it improves fleet management by using more fuel-efficient, newer vehicles, with less internal administration, and fewer regulatory requirement costs. Finally, leasing companies are repositories of trained vehicle technicians, which are getting harder to find in today's market.”
The recent spike in fuel prices has also drawn more attention to leasing options, says Ryder's Vera. “In the last year, some fleets saw operating costs jump 50% because of fuel price hikes,” he says. “That translates into cash-flow issues. Do you tie up capital for five years by purchasing a vehicle, or do you lease it for one to two years to see how fuel prices affect the trucking industry? Leasing can take risk out of the business.”
The Internet is also revolutionizing the leasing industry, although not in the way most people think. “I see the Internet as more of an administrative tool than a sales tool in this market,” says Mack's Dubowick. “Truck leasing really isn't a commodity, though some vendors are trying to treat it as such. It's really a customized business; customers need tailored, cost-effective packages to meet their specific needs.”
According to NationaLease's Ford, the benefits of using the Internet to help streamline the administrative end of truck leasing could be substantial. “The Internet will not so much create business as take the cost out of doing business,” he says. For NationaLease, which is an amalgam of 115 independent leasing vendors with nearly 600 locations in the U.S. and Canada, reducing costs is essential to making the leasing business more profitable.
“For example, we'll no longer have to send printed copies or invoices back and forth between our members,” Ford says. “Today, nearly 85% of our purchasing is done electronically. That's a huge saving to our members, because installing and using the Internet for this purpose is very cheap compared to other electronic methods. That's how we're going to compete in the future — by using the Internet to cut costs.”
Ryder's Vera agrees. “The Internet allows us to respond faster to customers. We now conduct credit approvals online to speed up the application process,” he says.
More changes lie ahead for the leasing industry. Rollins' Rolph points out that there will be a greater “unbundling” of leasing services in the future, as fleets demand the option of selecting which combination of services they want.
“Now, and even more so in the future, we'll be handing customers a menu,” he says. “We'll ask them what they want. We used to package everything in a full-service lease — maintenance, emergency road service, driver training, etc. — but now we'll let them pick and choose to get the lease rate they want. Such unbundling of services wasn't done 10 years ago; now it's commonplace.”
In addition, a shrinking labor pool of skilled technicians may also help boost the leasing business, says NationaLease's Ford. “Finding skilled technicians and holding onto them is getting more and more difficult, especially for smaller fleets,” he says. “These customers may look to outsourcing to gain that maintenance expertise.”
Finally, there's the issue of improving cost efficiency in the truck leasing business itself, adds Frank Daley, president of the American Truck Leasing Network (AmtraLease). That will also help drive the growing use of e-commerce in the industry.
Through the organization's partnership with AmeriQuest Corp., AmtraLease members can buy e-commerce capabilities, as well as online purchasing savings for tires, truck parts, etc. “It's critical that we give our members the flexibility to meet the changing truck leasing business environment,” says Daley. “That's what we're going to focus on for the future.”
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While the business outlook for the truck leasing and renting market is rosy, the industry is keeping a close eye on state and federal rules and regulations that could negatively impact their operations.
According to Peter Vroom, executive director of the Truck Renting & Leasing Assn. (TRALA), taxation and “vicarious liability” issues are two areas of concern. “Taxation will be a big issue because we're viewed as a service industry,” he says. “That puts us at a competitive disadvantage. We need to have a level playing field in order to compete effectively; extra property, fuel or sales taxes can affect our ability to do that.
“Vicarious liability is basically when the plaintiffs go after the deep pockets in a lawsuit, irrespective of negligence,” he explains. While there are only a handful of states where this is a problem, where it does exist, it's big, he adds.
Leasing companies can be on the hook for unlimited damages, even if a vehicle rented or leased in a state that allows vicarious liability has an accident in another state. “Unlimited damage situations like this — when the company is not at fault — can be the kiss of death,” Vroom points out. “Trying to get insurance coverage for this is almost impossible.”
Trailer leasing is rapidly becoming a business focused less on assets and more on developing strategies so customers can better manage trailer acquisition, use and disposal. “What we're trying to do is insert ourselves in the middle of the supply chain,” says Bill Franz, president and CEO of XTRA Lease. “Trucking companies are still buying too many trailers,” he says. Secondly, they have gaps in their transportation network, which they fill by renting and leasing additional trailers. “That makes the ones they do own less efficient.”
XTRA Lease is trying to find ways for its customers to rent and lease fewer trailers — something that may seem like an anathema in the leasing business. “Most fleets operate with a ratio of three trailers to every tractor,” Franz explains. “Our job is to use technology such as trailer tracking systems and the Internet to get that number down.”
More efficient use of trailers will save fleets money — and send more business to the company that helps them accomplish that. Medium-size and small fleets are the most likely candidates for such services, Franz says. “They're the ones that can't afford to spend the money on such technology. We leverage technology on our end to help them take advantage of it.”
Chris Hines, president of Transport International Pool, agrees. “We need to be able to provide productivity improvements to a fleet,” he says. “We used to just provide trailers to customers; now we're a solutions provider: We show customers how to rent or lease less equipment. By optimizing how many assets they really need, we can help them increase productivity.”
Cherry Hill NJ
Equipment Leasing Assn. of America 360
Fox River Grove IL
Mack Leasing System 362
National Truck Leasing System (NationaLease) 363
Oakbrook Terrace IL
PACCAR Leasing Corp. (PacLease) 364
Penske Truck Leasing 365
Rollins Truck Leasing Corp. 366
Ruan Transportation Management Systems 367
Des Moines IA
Ryder System Inc. 368
Transport International Pool (TIP) 369
Truck Renting and Leasing Assn. 370
XTRA Leasing Corp. 371
St. Louis MO