Getting Back To Leasing Basics

Companies need to do their homework before leasing trailers.


"We maintain a large trailer pool rental fleet. Because of this, we are able to provide our customers with extra trailers, via rental, during peak demands," Mallozo confirms.

Finding The Best Deal

After customers ascertain what their equipment needs are, the next thing they need to focus on is what type of lease suits them best.

"It gets back to what the customer requires," says Xtra Lease's Frank. "You can't really say you need a five-year lease or you need a one-year lease without trying to do an analysis of what their needs are."

Companies have to ask themselves what they're trying to accomplish with a potential lease. Are they trying to get new business, but don't actually have the capital to buy new trailers in order to support the extra business? How long do they envision they will need the leased trailers for?

"Maybe I've picked up a new account and I only have a contract for a year," says Frank. "I don't know if he'll renew, so I don't want to go out and buy equipment or lease it longer than a one-year term."

The most common type of lease in the industry is what is known as a full service lease. In this scenario, the leasing company will handle everything from the financing to the maintenance to the actual disposal of the trailer at the end of the lease term. Should a company elect to go this route, it needs to be certain that the leasing company is qualified to perform the maintenance required.

"It's important that you partner that lease with a best-in-class maintenance service. And one of the benefits to Ryder's maintenance service is that it's basically piggybacked on a full service lease offering, all maintenance included-you get the road service and tires all inclusive," says Ryder's Mallozo.

"We do an integrated reefer lease, which is the lease on the trailer as well as the maintenance program on the refrigerated unit in the box," adds GE's Nelson. Over the term of lease, the customer really doesn't have to worry about the operation of that device." He says this allows a food company to concentrate on its area of expertise-manufacturing and distributing food.

However, a company need not elect for a full service lease. The option remains for it to unbundle any part of the lease that it wishes. It may elect to find its own financing entity, whether it be its own bank or another third-party financing company. It may even elect to unbundled the maintenance part of the lease.

"We have customers that have full maintenance facilities and they're very comfortable performing their own maintenance, says PLM's Adams.

In this scenario, a company has to provide the entire maintenance for the lifecycle of the lease. It does all the tire work, all of the refrigeration repair-everything concerning the trailer. However, this practice presents a number of difficulties.

"It's become harder to hire and train mechanics," notes Adams. "You're going to have to find your own maintenance staff and that's difficult in today's environment."

He says that his company's studies have shown that, while a full service lease does cost more on a monthly basis, over the lifetime of a five-year lease customers will spend more maintaining equipment on their own then they will in a full service situation.

Customers who elect to provide their own maintenance must be aware that they will most likely have some residual risk at the end of a lease term, if the leased asset has not been maintained up to OEM standards.

"If they're leasing it through a Ryder full service lease, they have no exposure because we hold the residual responsibility, however, if they elect to finance lease it with a residual responsibility, say a 20 percent TRAC (Terminal Rental Adjustment Clause lease), they're responsible for 20 percent of the value of that trailer at the end of the lease term," Mallozo says.

A finance lease, he explains, is an alternative transportation offering designed to provide customized vehicle financing to meet a company's specific tax, residual risk and balance sheet requirements. In this scenario, the lessee is responsible for the residual value (TRAC) at term. Often, companies will use a high residual value to get a lower monthly cost, but will pay a balloon payment at term to make up for the high TRAC amount. This can be very costly on a large fleet. Ryder is able to assist the customer, using its extensive vehicle resale history, by recommending a fair and reasonable TRAC amount.

Already have an account? Click here to Log in.

Enhance Your Experience.

When you register for FoodLogistics.com you stay connected to the pulse of the industry by signing up for topic-based e-newsletters and information. Registering also allows you to quickly comment on content and request more infomation.

OR

Complete the registration form.

Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required