Truck leasing and rentals take new turns

Rental and leasing operations are an integral part of the trucking and transportation industry, serving fleets of all types and sizes. FleetOwner recently spoke with experts at leasing and rental companies, OEM dealer organizations, and management solutions providers on several subjects for their perspectives.

A number of topics were discussed, including trends in new equipment availability for the leasing and rental market and the impact of delays in delivering new vehicles to fleets on their operations. Also covered were industry and economic factors that drive the availability and use of leasing and rental equipment as well as their view of the most recent changes over the past year and their outlook for the remainder of 2023.

Panel of experts

John Barlow, VP of global asset management, Ryder System
Lee Brodeur, VP of services and solutions operations and leasing, Mack Trucks
Patrick Gaskins, senior VP of fleet solutions, Corcentric
Kurt Hollinger, VP of national accounts and leasing, Volvo Trucks North America
Andrew Keane, director of franchise operations, Paccar Leasing
Jim Lager, executive VP of sales and rental, Penske Truck Leasing
Greg Treinen, VP of on-highway market development, Daimler Truck North America
Dean Vicha, president, NationaLease

What trends are you seeing in new equipment availability for the leasing and rental market?

Vicha: Since the end of 2022, we have seen a consistent double-digit drop of 10% to 15% in rental utilization across all regions and markets. But it’s not as negative as it sounds because we’ve returned to normal levels for this time of year. Before, because of a lack of available vehicles, we were at levels that were unsustainable and were causing challenges in supporting our lease customers.

Lager: We still are seeing historically long delays in getting new units, but capacity has loosened up somewhat. We see better availability and delivery timing today than we did in 2022.

Brodeur: Like all segments in transportation, new equipment availability still is constrained by limited output of new trucks by the OEMs.

Keane: Availability has improved in 2023 compared to the last couple of years, but we still are not at a point where everybody can get every truck they need. There is still pent-up demand across the industry.

Hollinger: Expectations are that as the market begins to turn, there will be additional production capacity available for leasing and rental fleets. However, we are continuing to see more demand from fleets for new trucks and are trying to meet that demand while also keeping our leasing customers adequately supplied.

Gaskins: OEM backlogs are being reduced as supply chain issues are resolved, but the industry still is faced with labor shortages. Even though parts are available, the labor to assemble equipment is still delaying deliveries. In addition to assembly delays, there are delivery delays due to the ongoing driver shortage.

Treinen: The leasing and rental markets are subject to the same limitations caused by supply chain disruptions as the overall new-truck market. However, a healing supply chain has drastically increased the availability of new equipment and allowed the total Classes 6-8 North American market to grow 24% year-to-date through April.

How do delays in delivering new vehicles to fleets affect your business?

Andrew Keane of PacLease told FleetOwner that equipment availability has improved in 2023 compared to the last couple of years, 'but we still are not at a point where everybody can get every truck they need. There is still pent-up demand across the industry.' — Andrew Keane of PacLease told FleetOwner that equipment availability has improved in 2023 compared to the last couple of years, "but we still are not at a point where everybody can get every truck they need. There is still pent-up demand across the industry."

Brodeur: It has primarily impacted our dealer leasing and rental business in two ways. One, it has limited growth, so dealers have to be selective on how to utilize their lease and rental equipment when they have little capacity to take on new customers. Secondly, the dealer’s lease and rental fleet is older. Dealers have had to keep trucks in their lease fleets longer than normal, resulting in higher maintenance and repair costs.

Hollinger: The delays are impacting our market share. Aside from that, our customers want to get new trucks as soon as possible.

Vicha: Delays affect us because by the time a lease is signed and a truck gets delivered, we are incurring increased costs in higher interest rates. The cost of operating our fleet has also gone up because we are having to hold onto trucks longer. Our average vehicle age is just over a year longer than a couple of years ago.

Gaskins: Fleets continue to struggle with replacement cycles, forcing them to keep equipment longer and incur increased maintenance costs. A positive result of the delays and limited availability is that fleets have come to the realization that they need to be planning replacements 18 to 24 months into the future.

Keane: Due to delays and limited new vehicle availability, many customers chose to extend leases and continue running older trucks longer. That required leasing companies to focus on service to ensure that older trucks are still operating efficiently and deliver maximum uptime, but they are dealing with increased maintenance expenses on older vehicles.

Lager: While this is a source of frustration for us and our customers, we’re able to leverage our rental fleet to plug the gaps and help customers. We do have limited new-build availability for late 2023.

Treinen: The pandemic shutdown and subsequent supply chain difficulty has affected new-truck deliveries across the industry for the past three years. However, demand remains strong, and wait time has been decreasing as build rates continue to improve.

What industry and economic factors impact the availability and use of leasing and rental equipment?

A Penske truck in operation. Jim Lager of Penske Truck Leasing said: 'We still are seeing historically long delays in getting new units, but capacity has loosened up somewhat. We see better availability and delivery timing today than we did in 2022.' — A Penske truck in operation. Jim Lager of Penske Truck Leasing said: "We still are seeing historically long delays in getting new units, but capacity has loosened up somewhat. We see better availability and delivery timing today than we did in 2022."

Barlow: As companies require additional resources, they look to leasing and maintenance solutions. More regulation and complexity also lead to uncertainty, so companies come to leasing and rental experts who can navigate the changes and add value to their operations.

Keane: The lower rental utilization we anticipate for 2023 has positive impacts on overall vehicle uptime for leasing customers. There are more rental trucks available to replace units that are down for service, allowing customers to continue operating a full fleet of equipment.

Lager: Consumer demand is a big driver of our activity, along with the replacement cycle for fleet operators.

Hollinger: The stronger the economy, the less availability you’ll tend to see on the leasing and rental side. As the economy slows, you’ll typically see a shift back to more availability.

Brodeur: We don’t see economic factors impacting the dealers’ need to replace older trucks in their fleets. Therefore, we see consistent demand for new trucks over the near term.

Gaskins: When primary drivers of freight volume decline, such as retail sales and new housing starts, we see a decline in rental equipment utilization and a slowing of new lease transactions. When the economy slows, fleets and lessors take the opportunity to return rentals and sell off older assets. Then the overall fleet reduction begins to compound, driving used-truck prices down at an accelerated rate.

Vicha: There are signs of an economic slowdown. The amount of freight has dropped, prices and inflation are increasing, and demand seems to be slowing down.

Treinen: A mild, short-lived recession is expected to begin very soon due to the Fed’s aggressive rate hikes. Core inflation remains very sticky due to service inflation and is now above total inflation. The Fed introduced another quarter-point rate hike in May, although their news briefings have grown considerably dovish, and there is debate from forecasters whether the rate hike campaign is over or if markets will see one more quarter-point hike. This has slowed the economy and caused consumer demand to fall, as well as drastically increased the cost of financing leasing and rental equipment.

How have things changed over the past year, and what do you anticipate in the rest of 2023?

Ryder has created an end-to-end 'turnkey' electric vehicle solution designed to help fleets navigate electrification by providing advisers, vehicles, charging, telematics, and maintenance all for one price. John Barlow of Ryder System said: “Having a provider that can cover the EVs, as well as the charging and services required, is critical for making EV adoption and implementation a simple solution.” — Ryder has created an end-to-end "turnkey" electric vehicle solution designed to help fleets navigate electrification by providing advisers, vehicles, charging, telematics, and maintenance all for one price. John Barlow of Ryder System said: “Having a provider that can cover the EVs, as well as the charging and services required, is critical for making EV adoption and implementation a simple solution.”

Gaskins: The first quarter of 2022 saw record pricing for used tractors and exceptionally high spot freight rates. Equipment was scarce, and freight was abundant. The first quarter of 2023 was the opposite. Used-truck values have dropped by more than 45%, inventory is growing daily, and spot rates are almost lower than the average cost to operate a tractor-trailer combination.

Barlow: In 2023, we expect our lease fleet to grow at a higher rate than normal, which reflects growth from leases signed last year where the equipment is starting to come in. We continue to see good lease activity but now we have about a 9- to 11-month backlog due to long OEM lead times, so we expect the equipment for leases we’re signing today to be delivered in 2024.

Vicha: The past year has been fairly consistent. The used-truck market started to show a drop-off starting in the fourth quarter of last year, and that has continued for the last eight months. As freight demand has dropped, so has rental and lease activity. Our customers are becoming more cautious and conservative about the future. We are getting a lot of intelligence that allocations are not going to be over in 2023 and that there will be allocations from the OEMs as to how many trucks we can buy in 2024. In addition, we are starting to see people thinking about 2027 and are trying to develop a strategy that will allow them to replace as much of their internal combustion engine fleet before the emission standards change and there are serious increases in the price of a truck.

Keane: With decreasing spot rates for freight, overall utilization of rental trucks is down from record highs in 2022. We anticipate rental utilization to normalize at levels comparable to historical averages.

Lager: We think capacity will tighten over the balance of 2023 as the economy and freight markets improve.

Hollinger: We are hearing that rental utilization in fleets has begun to decline. As fluid as the market is, it would be hard to predict exactly what will happen for the remainder of 2023.

Brodeur: We have seen rental rates decline, though they are still higher than pre-pandemic levels. This is a result of new-truck availability improving. Moving forward, we expect more of the same. Regardless of what happens with economic conditions, dealer lease, and rental businesses need to replace older trucks. As OEM capacity constraints improve, we expect to see consistent demand.

Treinen: Total freight volumes have decreased due to falling real retail sales and ongoing destocking. Spot rates have fallen once again, with some forecasters indicating that they have reached the bottom, and are pushing smaller carriers to either leave the market or move to the large fleets. Large fleets are cushioned by strong balance sheets resulting from two years of record profit margins, but contract freight volume is beginning to have significant declines, and contract rates are falling as well. Economic headwinds will drag the trucking industry down and create a greater risk of a sales slowdown in the second half of 2023, but current pent-up demand remains abundant and continues to fuel sales. Due to this factor, 2023 looks robust for OEMs.

Ready, set, plug in: EVs drive new business model for leasing, rental operations

As the electric vehicle market for commercial vehicles continues to grow, leasing and rental operations are actively planning for a plugged-in future, the same panel of experts said.

“We see the EV segment being in the very early stages, but it definitely adds complexity around range, application, and charging,” said Jim Lager, executive VP of sales and rental at Penske Truck Leasing. “We can reduce the risk and exposure to unknowns for fleet operators. We can provide one-stop support for customers, which includes vehicles, funding, help in securing grants, and charging.”

Leasing and rentals offer an excellent way for companies to test out new technology without committing to up-front acquisition costs, which can be quite high, Andrew Keane, director of franchise operations at Paccar Leasing, noted. “We’re working to help franchises and our customers identify, apply for, and obtain grant funding to lower their capital investment as they transition to electric vehicles.”

“In theory, EVs should work in favor of leasing or rental due to the complexity of implementing solutions and the infrastructure required to support it,” said Kurt Hollinger, VP of national accounts and leasing at Volvo Trucks North America. “Another benefit of working with leasing companies is their ability to devote the necessary resources to deployment and carry the capital expense.”

Rental fleets are a perfect avenue to introduce battery-electric trucks to new customers, related Lee Brodeur, VP of services and solutions operations and leasing at Mack Trucks. “What has changed is that the leasing company has to provide new expertise around battery life, charging, and route planning,” he added. “This requires different experts, skill sets, and tools to assist lease and rental customers with anything they need to introduce EVs into their fleets.”

“We expect fleets to have a higher propensity to outsource EVs due to challenges with vehicle acquisition and financing, new services, charging, and infrastructure,” said John Barlow, VP of global asset management at Ryder System. “Having a provider that can cover the EVs, as well as the charging and services required, is critical for making EV adoption and implementation a simple solution.”

“Electric vehicle operation and infrastructure will have a substantial impact on our fleets’ operations, and DTNA is committed to supporting our customers on this journey,” said Greg Treinen, VP of on-highway market development at Daimler Truck North America.

“When that transition happens, it is going to change our industry exponentially, and our value proposition to our customer is going to look a lot different than it does today,” said Dean Vicha, president of NationaLease. “We’re talking to OEMs, partners, and customers all the time about this. We’re gathering data as to how these trucks are going to operate, what our value proposition is going to be to our customers, and how to become the EV lessor of choice in the marketplace."

“At the end of the day, customers just want their assets to be used to deliver their product in the most cost-efficient way possible because that’s what gives them an advantage over their competition,” Vicha continued. “We are going to do the leg work on the front end and have the relationships and support network to take care of these trucks. That is what we have to be learning about and adopting right now.”

Treinen said: “Daimler Truck North America has a team of experts, Detroit eConsultants, who have worked with customers over the past several years to help electrify commercial trucking fleets. This team is able to support customers in right-sizing infrastructure, choosing ideal chargers, navigating rebates and incentives, assisting with site selection, providing connectivity insights, and offering photovoltaic and energy storage options and more.

“Freightliner also maintains the leading dealer network in North America, which is well-prepared for the transition to battery-electric vehicles. With over 90% of the Freightliner dealer base having completed a proprietary EV Masters Sales training course, dealers are fully equipped to answer EV questions and evaluate the best use cases for eCascadia and eM2 as well as identify potentially relevant EV rebates in a specialized database.”