When it comes to trailers, short-term options may have long-term benefits
Posted: September 6, 2018 by Elizabeth Bate
TORONTO, Ont. — As equipment orders continue to surge, pushing delivery dates well into the first quarter of next year, fleets looking to add to their assets might want to consider options like leasing or renting trailers in the shorter term.
Yes, just like tractors, trailers are seeing record-high sales numbers. Mike Krell, vice-president – sales and marketing at Trailcon Leasing, says build dates are further out than he’s ever seen.
“No one was really buying trailers in the down economy. [Equipment] became so tired that it’s time to purchase. The manufacturers are smiling from ear to ear, and the problem is that they can ask what they want. The cost of a trailer has almost doubled.”
In addition to potentially inflated costs for the trailers, delivery dates are stretching well into the first half of 2019, leaving fleets whose trailers are on their last legs in a bind.
Bruce Daccord, president and co-founder of Transcourt, says the company is getting a meaningful number of calls about rental trailers for clients looking to bridge the gap between now and delivery day. Market conditions overall are pushing leasing inquires higher, too.
Daccord says global uncertainty and the possibilities of increases in tariffs and interest rates are giving customers another reason to think about alternatives to purchases. An ever-increasing shortage in qualified drivers is affecting how customers manage their equipment as well.
“For the first time that I can recall in our history we’re talking to customers that are ready to go, need trucks and need trailers, and don’t have a driver to get behind it. That’s a new context for us,” he says.
Adding to the driver-shortage stresses are the introduction of mandatory electronic logging devices (ELDs) in the United States last December.
Sherry Mossman, vice-president – central Canada of Trailer Wizards, says customers will be pushing the rental market higher into 2019, trying to compensate for hours that can no longer be wasted in a yard while loading and unloading.
“They’re pushing every single bit of those hours of service (HOS) and there isn’t any wiggle room. There’s not enough hours of service on the road, so there has to be extra trailers to meet the demand.”
Having extra trailers in a yard means shippers and fleets can load in advance and have a trailer ready to go when the driver pulls up, giving drivers more time on the road without exceeding available hours. Adding trailers strictly to add hours to drivers’ days may be a short-term proposition, making leasing or renting the ideal choice in this case.
For customers who may be looking to future-proof themselves against the questions around the economic forecasts for the next 12 months, leasing trailers to match contract terms is also a good option.
Leasing contracts can be customized to fit the term of the agreement a fleet may have with a customer so the equipment is available when the work is available, but the costs don’t become a long-term proposition. Each lease can be negotiated to account for things like maintenance, roadside assistance, buy-out options and early release options, giving fleets the flexibility to meet an uncertain climate head on.
What’s in a lease?
Discussing those options should never be left until after agreements are signed. Like any good deal, the finer points should be worked out up front to avoid headaches down the line. So what should be in your trailer lease?
Krell says when searching for the right deal, customers should always make sure to discuss maintenance agreements, buy-out options, mileage rates, and penalties for early cancellation. Fleets will also want to consider coverage for worst-case scenarios.
“You want to look at geographical [service locations], what their support network is. What happens when I have a breakdown on the 401 corridor and it’s 2 a.m.? You want to make sure that they have good coverage,” he says.
Ensuring all the terms are clearly laid out ahead of time benefits customers in two ways — by leaving room for negotiation up front, and by providing a consistent way to anticipate and manage costs later on.
Added bonuses like included GPS and tracking systems can be added into agreements as well, to help both fleets and dealers protect their assets.
Krell says the GPS units not only help with more accurate mileage invoicing – providing real numbers instead of estimates – they help to keep track of units, even locating trailers when the wrong one has been picked up and driven out of the yard.
Each contract is different, allowing fleets to maintain flexibility and conserve cash now while still leaving the door open for ownership down the line.
When to rent
Rentals may seem like a very short-term alternative to leasing or owning, but Daccord says that’s not always the case.
“Quite often we have customers who will rent a trailer for four or five years,” he said. “Instead of writing huge checks for equipment like that, use that equipment and [make] money with it without adding huge lines to your balance sheet.”
Like a lease, those rentals can also be converted into lease-to-own agreements should a fleet want to keep units, but they can be returned much easier should business needs change.
Rental agreements will also include things like maintenance, damage, roadside assistance and more, and can be negotiated up front.
From a more traditional standpoint, rentals are ideal for fleets that see an increase of business for a short period of time like Christmas, summer, or back-to-school seasons. And like the trailers leased just to be loaded early, rentals are also good for parking lot storage during those peak periods.
When choosing trailers for storage there a couple of things to consider, including whether the trailer is going to be “dead” storage – sitting in one spot after delivery – or moving.
Even if a trailer is just being moved through the parking lot or across the street, it still needs to pass a commercial vehicle inspection (CVI), Mossman stresses. That distinction is important when picking a storage trailer, making older units more suited to “dead” storage situations. If a trailer is moving from a “dead” to “live” situation, or any time a trailer is going back on the road after being parked against a fence, it needs proper maintenance and to pass that CVI.
Parked trailers may also become a concern down the line as more fleets put in large purchase orders for new trailers.
As order boards continue to fill, Daccord says the market is creating a carry-on effect, putting some fleets at risk of buying more than they need.
“The order book starts to fill out, [they think] ‘I better get in, and I better get in with a really big order.’ A lot of those orders will get cancelled or cut back prior to delivery,” he says.
But not everyone sees the buying frenzy as too much. Krell says those fleets that held off purchases when the economy was slacking are now making up for it in spades, and for some fleets there is a certain amount of comfort in owning.
Own for the long-term
Owning often mean a more significant cash investment than shorter-term options, but can provide benefits in other ways.
Daccord says fleets are buying to help efforts in recruiting or retaining younger drivers.
“If I can get a nice new truck pulling a new shiny trailer, that’s attractive to potential drivers.”
In the end, Daccord says there’s no one right option for adding assets to an operation. “It’s really dependent on their own unique situation.”
Whether its replacing worn out models or just the pride of ownership, fleets that have decided buying is for them should follow some of the same rules when picking out equipment as those looking at leasing or renting.
Mossman says, just like the shorter-term options, any purchases should include a maintenance agreement.
Picking a dealer with a network is important as well, not just to easily address regular maintenance and repairs, but also to help with that all-important roadside assistance.
Whichever method managers choose to use when adding trailers, Mossman says they should be looking for a partner more than a dealer alone.