Leading indicator

Sept. 1, 2011
If Ryder's experience with short-term rental demand during business cycles holds true, the economy is improving. According to Bob Brunn, vice president of corporate strategy and investor relations, as economies pick up, freight demand grows and companies need more trucks. Until they feel that growth can be sustained, however, they opt for shorter-term rentals over longer-term rentals or leasing. The

If Ryder's experience with short-term rental demand during business cycles holds true, the economy is improving. According to Bob Brunn, vice president of corporate strategy and investor relations, as economies pick up, freight demand grows and companies need more trucks. Until they feel that growth can be sustained, however, they opt for shorter-term rentals over longer-term rentals or leasing. The numbers bear this out. For the second quarter of this year, the company realized a 38% increase in commercial rental revenue from the prior year.

“We're seeing more activity from a volume standpoint,” Brunn says, “which is a positive economic sign.” He also notes that because of more stringent emissions standards and technology advances, many private fleets are choosing not to deal with these changes, opting instead to let rental firms handle them. “With new emissions equipment and technology changes, new vehicles are expensive to buy and maintain. Some private fleet owners would rather not spend capital for these expensive trucks,” he says.

He notes that as the economy improves, and companies feel more confident about the future, they will change from renting to leasing. This may occur after five or six strong quarters of growth. “Then we'll see increased demand for longer-term leasing …There's a bit of a lag time before we'll see that change,” says Brunn.

Ryder doesn't get ahead of the curve, choosing instead to order new trucks for leasing only after fleets decide to sign leasing agreements. It can then take a couple of months to put these trucks into service.

The company had anticipated increasing its rental fleet by about 10% by year's end and it's still in that ballpark, notes Brunn. “If demand is stronger than we expect, we can hold some of our rental trucks for longer periods of time before taking them into the secondary market.

“We buy most of our rental trucks late in the first quarter, early in the second and sell them about a year later,” Brunn explains. “We'll hold them longer if we're seeing strong demand, and purchase more if we have to.”

He says the company is still a couple of thousand rental trucks below pre-recession levels. He also notes that Ryder is obtaining more rental vehicles through acquisitions such as U.K.-based Hill Hire. The deal brings about 4,000 “heavy goods vehicles” (vehicles over 3.5 tons GVW) into Ryder Europe.

“In our long-term view, we will continue to do well in the private fleet market because of the aging of fleets and pent-up demand for replacements,” says Brunn.

About the Author

Larry Kahaner

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