Navigating the leasing landscape

When companies enter into negotiations to lease trucks or trailers, it’s typical for them to open up their businesses and their books so the leasing company can better understand their business models and their equipment needs. But what businesses need to realize is it’s equally important to get to know the leasing company before signing any contracts.

Financial stability and accountability

Even though leasing companies like to use terms like “relationship” or “partnership” to describe the arrangements between them and their clients, it’s critical to remember that these connections are first and foremost business ties, and as such they should be built on financially stable ground.

Beyond looking at their big financial picture, it’s also beneficial to get a sense of the leasing company’s day-to-day operations. Although the leasing company’s profit and loss statements and quarterly reports can offer a big-picture look at what its operations are like, businesses should examine their future partners through a macro lens as well. And this means looking at their fleets and how they manage them.

Although he was speaking about Ryder Canada’s own policies and operations, vice-president of business development Chris Fairey’s approach can be used by any fleet manager hoping to get a better sense of a potential lessor.

“We really recommend that, on a regular basis, we sit down with the customer and share what our KPIs are like and explain what our key performance indicators are,” he said.

“Are we getting the trucks in for regular servicing? Is our preventive maintenance currency up? What kind of breakdowns have we had? Have we done any repairs between the PMs? How many subs did we put in—if any at all?

“Those KPIs tell the story of how we’re doing. So if we’re sitting down regularly and saying, “we are accountable, here are the KPIs, and here’s how we’re doing, the customer gets pretty comfortable that things are operating as they should be. Or very quickly you get the discussion going about what the gap is and how you fix it.”

Flexibility and accommodation

Once a contract has been signed, generally both parties are expected to stick with the terms and conditions set forth in the document. Businesses, however tend to operate in a less static world than those laid out in legal agreements. Change and fluidity are facts of life, and sometimes that means there is a need to revisit a lease. While that should be avoided if at all possible, it is important fleet executives have the ability to broach that discussion with their leasing companies, and that the leasing companies are, at the very least, willing to have that talk.

Trailcon Leasing Inc. president Al Boughton says that while leasing companies work to ensure they are providing the right equipment to their customers, sometimes errors are made.

“It does happen. Sometimes we’ll have a case where a customer’s business changes. They’ll put in the equipment and the next thing you know, they have the ability to double-stack, or their product mix changes and instead of shipping 40,000lb. loads, they now realize they can put 65,000lbs. on the trailer. But the trailer’s only got two axles, so that won’t work. So what do you have to do?

“We can put tridems on, so that’s not a problem and we’ll switch it out. We’ll make an agreement with them and put the tridents on,” Boughton said.

“If it’s just the wrong equipment, we’ll switch it out. Does that happen? Absolutely?”

Anything that can be done before the lease is signed to ensure that the right equipment is being provided is, of course, better than fixing the situation after the fact, and it’s here that leasing companies can demonstrate their expertise, and show they are capable of working with their clients.
Jim Molinaro, senior vice-president of sales for Penske Truck Leasing, said that spec’ing the equipment is becoming a more complicated task, and a leasing company should be willing to take the time to work through all of the options available to help its customers derive the most benefit from the technology and vehicles.

“The industry has really changed in the last four or five years, spec-wise. There are a lot of very valuable options out there that can really help the customer reduce his overall cost,” he said offering up the automatic transmission on Class 8 trucks as a prime example of a cost-saving option. “We want to make sure our sales team can really articulate not just the spec, but the value of that spec and where it really makes sense.”

Molinaro added it’s becoming common for customers to want more than just data and information. They want to experience the equipment operating in the real world, and that’s a service a leasing company can sometimes provide.

“More than ever, I think customers are really looking for things that are tangible—that they can go upstairs to their officers and show them the economics of why one works better than the other. So we do a lot of demos with the current vehicles and the current technology,” he said.

“We’ll go into our rental fleet and work out an arrangement where the customer can use one of our vehicles and run it for a certain window of time to show the economics of the new technology and the new vehicles that are out there today.”

Scope and reach

Just as every fleet has its own speciality and area of service, leasing companies too can have expertise in certain areas, so if you need something specific, it helps to work with a lessor that understands the business. Some, for example, may have more experience with temperature-controlled trailers for food. Others may have worked extensively with oil and gas or construction fleets.

Even beyond a specialization, the most important factor to consider when picking a full service or maintenance leasing partner (as opposed to one who is just supplying the equipment and is not responsible for its care) is how well its network overlaps with your routes and lanes, because no matter what ever extra ‘value-adds’ the leasing company offers, such as insurance, handling registrations, driver safety training, or government regulation updates, it won’t help if a truck breaks down in an area where the lessor has no affiliates who can fix the truck, or no replacement vehicles within a reasonable driving range. If you can’t rely on your leasing partner, you may as well be on your own.

Technology experiments on wheels

Glenn Weddel takes a traditional approach to fleet management. The president and owner of Cam-Scott Transport Ltd. in Whitby, Ontario believes in the value of owning power units and trailers.

“I don’t want to wake up one day and be a trucking company that doesn’t own any assets. It’s a control thing, maybe—you lose a bit of control if you don’t,” he said.

“The difference between owing and leasing, to me, is with owning we are always building an asset: the value of the company. If it’s all structured properly we are building the asset of the company. We look back 20 years and say if we had leased everything for the past 20 years, we wouldn’t have anything today. We wouldn’t own anything.”

The Cam-Scott fleet consists of 125 Class 8 power units, 200 reefer trailers, and 25 straight trucks divided between two companies: Cam-Scott Transport Ltd. and Cam-Scott International Inc. But even with the preference for owning, Weddel is currently running 10 trucks on four- and five-year, full-service leases as a technology experiment, and as a way to avoid buying future mistakes.

“Because technology has changed significantly with the engines and the after-treatments and with who is building what, I think we, as an industry, have lost ability to say “this is the truck we’re buying and that’s it,” he said. “There are Class 8 trucks from different manufacturers that if you bought them two years ago, they wouldn’t even be worth half of what you paid for them because the engine technology didn’t prove well, and the efficiency didn’t prove well. And you’d be stuck with them.”

To avoid that happening to Cam-Scott, which carries refrigerated product, Weddel has leased a smorgasbord of equipment from Penske. His leased fleet includes Volvo tractors with Volvo power, Freightliners with Detroit engines and Peterbilts using Cummins’ technology.

“Depending on how this works out, it will help us when we do make a purchase. We look at this as a low-risk deal, although I’m not sure everybody would agree. We can take multiple units from different manufacturers, test them out, see which are the best ones, and maybe it will point us in the direction of who is building the best trucks.”

His scepticism about new truck technology developed after dealing with recent models repeatedly breaking down.

“I have a 2012 new truck that is no longer under warranty. In two months I spent $10,000 trying to fix a problem with it. The truck literally broke down in five different places in North America on its trips. It came down to a wiring problem—turned out it’s sensors and systems—and it was misdiagnosed four or five times.” The $10,000 repair bill including towing charges.

According to Weddel, the problem of new technology being unreliable and breaking down is so bad his company put in place procedures to deal with the consequences—Cam-Scott now holds a weekly meeting to discuss the equipment failures, something that wasn’t required seven or eight years ago—and that customers have come to expect late shipments.

“At one time most of our customers were expecting 98% on-time for any reason whatsoever. Now we’re having to phone them up and say ‘my 2013 truck just broke down in Northern Ontario, and there is nothing I can do about it. The DEF system that delivers the DEF fluid that makes the clean exhaust froze, the computer on the truck shut itself down and it’s -45°C. We’ll let you know when we can get these things going.’

“The only good news about that is we’re all in the same boat. There are no stats, but I think our customers are seeing more service failures from trucking companies than they ever have. So when I phone up, they almost understand it now: ‘Yeah, I’ve heard this before. I get it.’”

While the leased trucks aren’t helping the company build any value in assets, Weddel calculates they are saving Cam-Scott money in a few different ways. First there is an immediate monthly savings of between $300 and $500 per truck in the difference between a typical lease fee and a traditional payment on a purchase truck. When breakdowns, happen, the company is no longer on the hook for towing charges, or charges on short-term rentals. The one other significant savings at this point is in the shop.

“I can add 10 trucks, but I don’t have to add another mechanic, which is a problem—finding qualified guys to look after the stuff. And the newer trucks take more and more training for your garage staff to look after. So now we introduced three new suppliers with all new technology, three new engines, and we didn’t have to be trained on any of that,” he said.

“So if all of the sudden the dust settles on who is making the best truck and the best engine—at least from a Cam-Scott perspective—and we decide we’re actually going to purchase some Volvos, for example, as assets, we will actually invest in the repair and diagnostics technology. We don’t need to worry about what the Detroits or Cummins will need.”

Besides looking at the raw numbers, having a variety of leased trucks allows the drivers to try out new models.

“We are going to measure what the drivers think about the trucks, and how the trucks stand up: do they shake, do they rattle, do they make a lot of noise? How much do the drivers like it? Drivers are at a premium too. Our drivers have to be happy drivers. To be a happy driver, they don’t want to break down, because they don’t make any money when they break down, and they want to be comfortable in a unit,” said Weddel.


Transferring Responsibility

As warehouse manager for Asian food importer JFC International (Canada) Inc., Steve Ritchie has a large number of responsibilities.

The company operates two distribution centres (one in Mississauga, Ontario, and one in Burnaby, British Columbia) and two smaller depots in Calgary, Alberta and Saint-Laurent, Quebec. But beyond managing the inventory flowing into and out of the facilities, Ritchie is also responsible for the company’s truck fleet. Which is why he opted to lease rather than buy.

“In the early days, it was very tough, particularly on myself, to make sure the trucks were maintained and kept up and running properly, and the safeties were where they should be. And it was actually taking more time away from managing the warehouse to manage the trucks.

“I was also finding when they would go in for service, it would take longer and longer times to get them back. Trying to find rental trucks was very difficult because we require a reefer unit on them as well,” he said.

JFC had a history of owning its own vehicles, and making the switch to leased trucks, which happened about ten years ago, required a switch in the corporate business philosophy, although the advantages that came with leasing made a compelling argument.

“When we started looking at doing a full-service lease, things were very appealing to me and also to our company—now they’ve realized that we’ve always got trucks and when they do go down, we get a substitute right away, and we’re not losing that vehicle. We don’t have to try to rework routes that have already been put together for those trucks, we don’t have to pull loads apart and try to fit them into other trucks, which creates a bit of a mess,” he said.

Currently, JFC uses what Ritchie describes supercubes (vans capable of carrying up to 7,000lbs), 26’ tandems, and straight trucks with 24’ boxes. The trucks come from a variety of manufacturers, including Hino, Fuso, Kenworth and Isuzu, but JFC tries to keep the general configurations consistent, especially with regards to the reefer systems and the layouts.

Besides having variety in its fleet, JFC also uses a selection of leasing companies. There are relationships in place with Pac-Lease in Ontario, with Ryder in British Columbia and with Brossard in Quebec.

“The companies we are with now, their expertise, their set-up, and their personnel in those areas seem to mesh well with what we need. We’ve tried other companies and flip-flopped back and forth with PacLease and Ryder and found out who was better to meet our needs,” he said.

Despite the differences in partners and geography and even equipment, JFC has found the financial commitments to be very similar across all of its leases.

“There is actually not too much difference in cost, even with the hourly rates for the reefers and the fixed costs for the kilometres. It varies a little bit, but we’re not talking huge amounts, maybe pennies here and there. For the most part it has remained fairly the same.”

JFC tends to sign 60-month leases, covering not just the service of the trucks but also the registration. The company insures the trucks on its own.

When it comes to doing the administration work on the leases, JFC is still using a “pen and paper approach” and hasn’t ventured into using the online management tools offered by the leasing companies. Even though it’s old-fashioned, the approach seems to work well.

“We have the office staff go through the leases. We have GPS that we use to track the kilometres. It has actually been pretty easy to follow. It has not been a continuous battle to figure out everything because we submit based on what it is: the fixed rate is the fixed rate and the kilometres are submitted every month. When the bill comes in, it’s pretty simple. My office staff hasn’t complained about it yet. We have some other stuff we lease, including dock equipment, we hare having trouble with. Those are hard to follow.”

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