Traditionally, trucking fleets often own their own vehicles, yet leasing is also an option. Today, we will look at the benefits of leasing and why it may be right for your fleet. Whether it be through the freeing up of additional capital or gaining better insight into the total cost of ownership, leasing has its benefits.
In today’s trucking market, ask just about any fleet manager and he or she will tell you that keeping truck costs low is at the top of their priority list. Of course, this can easily be handled through more effective route planning, cutting down on idle time or installing speed limiters, but another option is through truck leasing.
The Truck Rental and Leasing Association (TRALA) recently did a study and found that nearly a quarter of all Class 8 commercial motor vehicles on the road were leased or rented. All told, that’s nearly 189,000 vehicles. Out of that number, almost three fourths were under a commercial lease.
Overall, that represents a very large number of Class 8 commercially leased vehicles on the road, yet there is much farther to go, simply because leasing a vehicle does come with benefits, and we aren’t talking about only reduced cost.
Above all, it’s up to the fleet manager to make the final determination on whether a lease is right for your fleet or not. So, what exactly are the benefits of leasing? Let’s look at them when viewed through the lens of buying.
Lease Benefits as Opposed to Buying
Fleets aren’t in existence to manage vehicles, they are there to fulfill the duties of their company mandate, whether it be to deliver food, fuel or provide some other service. Leases are beneficial because they generally come as part of a package deal, or with side benefits.
While many a trucking executive is wedded to the idea of a fleet owning its own vehicles, there is cause to believe this isn’t the best situation. Eventually, the fleet won’t have to keep paying a truck payment, but it will have to finance or pay for the vehicle up front, which ties up capital, time and resources.
Where a lease provides greater benefits over buying is that it requires a lot less cash to be put up front. Ongoing lease payments are also typically quite lower than regular truck payments through a financed option.
Lower payments free up cash flow and reduces overall fleet capital expense for other parts of the operation. There are also some tax advantages to leasing, though it is advisable that the back office verify this for your lease.
By Bank or Not By Bank
Of course, a fleet can choose to go through a bank to arrange vehicle leases, but generally fleet management companies are able to do better than a bank by offering additional services besides just financing.
Many companies offer the full vehicle lease, but may also throw in maintenance, licensing, handling title issues, and many other services that pertain to operating a heavy-duty Class 8 commercial motor vehicle day-in and day-out.
This creates a great value prospect, because then the fleet not only doesn’t have to deal with the heavy up-front financial burden of buying the truck, but they get additional services thrown in as well. Truck leases allow fleets to minimize staff time on truck-related issues that the fleet management company can easily handle.
Fleet management companies have also become very good at spec’ing CMVs according to the needs of their clients. They also have the tools required to keep the truck maintained and help reduce lifecycle overhead while increasing operational efficiency.
Consider training, as well. Your leasing partner will not only have the tools and the wherewithal to manage your vehicles, they may also be able to assist in training your truck drivers, which both increases safety and saves on fuel costs over the long-term.
When Maintenance Matters
Fleets spend a lot of money in the shop. Freeing up that time and leaning on your lease partner can be hugely beneficial. Not only can they advise on the proper maintenance program for the vehicle in question, but they can also provide preventative maintenance guidance and assist in scheduling shop time.
Leasing companies have also negotiated price for parts far in advance of your business with them. What you would pay as a small- to mid-range fleet for a transaxle or bearing would be far higher than a leasing company paying for the same parts. Many also come with roadside assistance programs built-in.
We recently reported on the shop of the future. Companies are now entering the game with mobile mechanic setups that alleviate a fleet from even needing to keep a fully staffed shop. Maintenance options can be either in-house, outsource, full-service or mobile programs.
By freeing up maintenance costs, you’re again able to shift the money around and push it towards uses that may yield greater benefit. The next benefit lies within the numbers.
Leasing in the Land of Big Data
If there is one thing that every fleet has on their mind right now, it’s likely one word: Data. As trucking inevitably moves from the paper to the digital era, data is being generated in huge amounts. Companies are coming to bear and parsing the data and generate actionable outcomes across the fleet.
This is where fleet management companies have another advantage. They are better able to capture real-time data about their trucks, analyze it and better use it to help the motor carrier they partner with better improve their operation, from spec to fleet size.
In a world where telematics is the new name of the game, lease partners can help implement full-scale telematics solutions for their clients. Whether it be ELD usage or otherwise, as technology and trucking continue to mash together, expect leasing companies and telematics providers to continue upping their game.
Analysts generally sit on the other side of the wire, ready to identify trends and truck driver behaviors. Through instantaneous tracking of each vehicle and everything that happens with it and a full analytical back office, leasing companies come “ready-made” and can hit the ground running with little to no learning curve.
What is a Full-Service Lease?
Beyond helping with financing or maintenance, truck leasing companies also operate in an administrative capacity, alleviating your back office from basic documentation and tracking duties.
When you partner with a company that offers a full-service lease, you can expect that they will handle most – if not all – fleet operational needs. They also can handle insurance claims, fuel card programs and fleet compliance requirements.
If your operation doesn’t have the scale or resources to handle administrative duties of this scale, fleet management companies can fill the gap. They come with fully-fledged industry relationships that can be leveraged for the benefit of your fleet.
All the services required to start a trucking company, or streamline an existing one, can be bundled together into one, simple, low-cost solution and consolidated into one billing cycle.
When a fleet management company owns the data, maintenance, accident, training and implementation requirements for a fleet, they can better answer vehicle life-cycle cost questions. By doing this, they can help lower the overall cost of ownership for the vehicle.
A fleet leasing and management company not only helps with asset acquisition, maintenance and back office work, but they can also assist in selling the truck at the end of the leasing period, since they will typically have partnerships with vehicle auctions and remarket sales companies.
Depending on the type of lease, which we will get to in a moment, the fleet may earn or owe some money at the end of a lease. Obviously, the goal is to owe nothing, but that also calls for better forecasting to ensure the truck was removed at the right time.
It may be easy to assume that getting a net earn on the lease is preferable, but that would mean you had less money on the other side for other aspects of fleet operations. The goal is to ensure as little inaccuracy in forecasting and modeling for a vehicle’s life cycle.
The leasing company wants to ensure the truck’s life-cycle time is maximized. This benefits not just the leasing company but the fleets they partner with as well.
The Two Lease Types Explained
There are two major lease types a fleet can enter. One is called a close-ended lease and the other is an open-end terminal rental adjustment clause (TRAC) lease.
An open-end TRAC lease puts the depreciation risk onto the lessee, but they also generally come with far more flexible terms, which is why these are also called finance leases. They allow the lessee to assess the CMV’s service life after a predetermined amount of time.
After the predetermined time has passed, the lease can be terminated at any moment with no penalty to the lessee.
A close-ended lease puts the depreciation risk on the lessor and has more restrictive terms. The lease agreement should show the monthly rental amount over a predetermined period.
While leasing may not be for everyone, it certainly has inherent advantages. Always take careful measure of your fleet’s needs before deciding on a lease option.