CINCINNATI — Driver capacity concerns and truck manufacturing delays are just two reasons why commercial truck leasing outfits are bullish on their future, particularly among private fleets.
“From a market standpoint, it’s on fire,” Chuck Davis, Paccar Leasing director of sales, told FleetOwner during the 2021 National Private Truck Council’s annual education and management conference and exhibition this week. “We’ve just had three straight record months of orders.”
The booming truck orders this spring are creating a “healthy backlog,” he said, noting that equipment orders will be built out between now and early 2022. “Activity was slow during the pandemic. It really took off this February and then the orders started following about 30 days after that. It’s a pretty good indicator of what’s going to happen.”
Hundreds of private fleet executives gathered in downtown Cincinnati this week for what turned out to be the largest in-person trucking industry event since the coronavirus pandemic began in early 2020.
Leasing trends
According to the NPTC annual private fleet benchmarking survey, in 2019 about two-thirds of private fleets either leased at least some of their trucking equipment—with 33% leasing all equipment and 32% running on a combination of leased and purchased vehicles. NPTC plans to release its benchmarking report on 2020 and 2021 figures later this summer.
Because private fleets haul freight for companies whose main business is not trucking, many find that outsourcing procurement and maintenance can benefit their business. Fleet Advantage, which offers leasing solutions and asset management for heavy-duty truck fleets, is encouraging its clients to refresh vehicles between 400,000 to 500,000 miles.
“Through the use of data analytics, we’ve been able to identify that once you get beyond that warranty period, you see a significant increase in maintenance and repair costs,” Al Barner, SVP of strategic fleet solutions at Fleet Advantage, told FleetOwner at NPTC.
Barner called private fleets “the lifeblood of our business” and noted that as the COVID-19 pandemic recedes, many private fleets are growing. “That gives these companies more control of their products and their supply chain,” he said. “And the companies who are very efficient at running a private fleet are bringing their costs down.”
In the middle of last decade, Barner was looking at a private fleet trend of outsourcing logistics to other carriers—but that has changed this decade. “I really believe we’re going to see a big growth in private fleets because they do a very good job of running their businesses and they know their individual business better than anybody,” he said.
As fleets move to newer trucks, they are getting better fuel economy and offering more driver assistance and safety technologies than those made just a few years ago, Barner noted. “Once you look at the data, you can really see that it’s more cost-effective to exit those trucks before the warranty expires. Kind of the icing on the cake is the fact that the safety features have advanced and are now standard on new trucks.”
Pent-up demand combined with companies’ faith that the market is going to improve, is driving the 2021 surge in equipment orders, PacLease’s Davis said. He added that 2020, with the pandemic and uncertainly of a presidential election year, contributed to less activity. “Last year was a super low rental-purchase year,” he said. “Because of the pandemic, the utilization was low.”
Now with the pandemic receding, trucking capacity is increasing. “We see that in our truck leasing utilization starts just really maximizing,” Davis said. “There’s just such pent-up demand. And once it starts, people recognize that they need to go now because there are lead times. And once they start building out, it’s an opportunity lost. Once the switch was flipped back on, everybody started looking to secure equipment.”
New trucks, new technology
Because PacLease is connected to two major truck OEMs—Kenworth and Peterbilt—it gets preferential build slots, which Davis said gives his group an advantage. “We’re able to offer our customers quicker build times than many companies can,” he said. “The lease and rental businesses are like that. When things pick up, people want to try a new product.”
Davis pointed to two of Paccar’s newest trucks, which were both on display in the PacLease booth on the NPTC exhibition floor: the medium-duty Peterbilt Model 536 truck and heavy-duty Kenworth T680 Next Gen, which both were released this year.
Both trucks were “built from the ground up” and first rolled out in 2012. “We made $500 to $600 million worth in investments to make these trucks in 2012,” Davis said. “Less than 10 years later, we’re doing a complete refresh now. That is really quick.”
A benefit of leasing over buying equipment is the turnaround on refreshing a fleet’s equipment, Davis noted. Citing NPTC’s private fleet benchmarking survey, most private fleets that lease equipment turn it over every four to five years—while fleets that buy equipment, tend to keep that equipment for six to eight years. “There’s definitely an advantage there,” Davis said. “Driver retention is a big piece and it’s a big piece of the Paccar product.”
The newer Paccar trucks offer better fuel economy, an integrated powertrain, along with some of the latest onboard technology in trucking. And the vehicles are becoming more customizable for various applications, which Davis said is what customers are looking for.
Along with offering large signing bonuses in an attempt to lure new drivers, fleets are also advertising that their drivers get to work in new equipment, Fleet Advantage’s Barner noted. “If you’re trying to please those drivers and bring them into your organization, you want them to be in good, well-maintained equipment with the latest safety features.”
Asset depreciation
Companies are always facing asset purchase decisions. “Many people will tell you, you never want to invest in a depreciating asset—and that’s what these are,” Davis said, pointing to trucks on the NPTC exhibition floor at the Duke Energy Convention Center. “The lifecycle of the truck—or the purchase of the asset—follows the same four steps, which is you have to specify the trucks, you have secure financing to acquire the trucks, you have to maintain it during its lifetime, then you have to dispose of it. Certainly, you can do that in ownership or leasing.”
The leasing move takes away that residual risk that comes with purchasing equipment, Davis explained. “You don’t have to have a disposal strategy or disposal risk of losing money on that truck. It comes down to a return on investment calculation,” he said.
With truck build orders piling up, preparation is the key, Fleet Advantage’s Barner said. “What we’re advocating to our customers is you have to plan this out,” he said. “You can’t wait until three to four months before you have to replace equipment, you’ve got to have a lifecycle strategy that’s 12 to 24 to 36 months at a time. We’ve seen over the last couple of years as we’ve had spikes in equipment demand, so if you don’t have equipment on order with lead times and production slots, you’re almost waiting until the middle of next year.”
But the companies with the foresight over the past year to anticipate what they need over the next 12 to 24 months, “are in good shape because they’ve gotten the equipment on order,” Barner said. “That’s one of the things that we really focus on very strongly. That is helping our clients forecast what your costs are today and what we anticipate those costs to be 12 to 24 months out so you can get your orders in and make sure you’re ahead of that curve.”
PacLease, Davis said, likes to point out the benefits of leasing equipment. “We think of it as full-service leasing, which encompasses all maintenance,” he said. “It also ends up with zero residual risk because the truck comes back to the leasing company in the end.”
At NPTC, PacLease was showing off a daycab model of the Kenworth T680 Next Gen. While the long-haul, sleeper models continue to sell, Davis said there is a surge in orders for regional daycabs, which is part of a trend in trucking to offer drivers jobs that allow them to return home after a shift. “Regional hauls are growing,” Davis said. “We saw daycabs make up about 70% of sales in the last model—versus just the opposite of that 10 or 12 years ago.”
Along with seeking newer models of trucks through leasing to help retain and recruit drivers, more private fleets are turning to full-service leasing companies like PacLease because of the truck technician shortage. “There are always new technologies [for technicians] to learn: the electronics, the fuel systems, and all the other systems that are changing today,” Davis said. “There’s a continual need for upgrading tools. And technicians need to be continuously trained on new tools and knowledge.”
Davis said that based on PacLease’s history, it has developed models to help companies not only make decisions on what equipment is best to lease or buy—but how long that equipment should be leased for, depending on the application and maintenance costs.
“If you have high-demand customers, you have to have on-time deliveries. Those are the kind of companies that usually full-service lease,” he said. “Because they have high-demand customers, they need a full-service lease provider to be their support. Not only does a full-service lease come with extremely good preventive maintenance structures and matrix to follow, they also have after-hours service, 24-hour roadside service, substitute equipment to keep you on the road, to continue deliveries, those types of things.”
