A well-balanced fleet typically considers all costs, both direct and indirect. It is those decisions that has allowed companies to run a more profitable business.
By Jaksa Panic
Waste industry aside, typical attitude towards renting equipment or assets has historically been viewed as negative and even in some cases pointing towards organizational failure. What used to be a last effort potential solution viewed as unorthodox or unattainable has evolved and changed over time. For the waste industry, specifically, new challenges continue to present themselves daily for haulers of all sizes and municipalities as well. The landscape of asset ownership in the waste industry is quickly changing and some of the reasons point to better understanding in what we refer to as the five key elements: financial flexibility, total cost of ownership, growth opportunities, equipment availability and, most importantly, fleet management.
All of these attributes are contributors to the change in mentality and, ultimately, how rentals are perceived within the waste industry. Depending on who you speak to or which resource you ask, everyone is quick to dismiss renting from a financial perspective. Endless cost calculators have been created, numbers crunched with the net benefits always pointing towards purchasing. The remarkable fact is that most calculators and reasons simply do not address the five key elements.
Each of these five factors tell a compelling story that most rental vs. purchase calculators simply cannot capture. The most incredible revelation is that they typically apply to most companies, whether they are public or private, big or small haulers.
Renting provides a company with the ability to strategically save capital dollars while gaining the benefit of using the equipment immediately. This can be done for a long period of time or can be used as a bridge into a new fiscal year. Renting additionally provides a company with predictable costs as the rent is consistent month-to-month with little maintenance costs as the rental company is responsible for any major maintenance items related to warranty.
Total Cost of Ownership
There is a math equation that can be evaluated on a per company basis to determine how rentals may be able to provide a lower total cost of ownership. This equation needs to factor in fleet age, fleet purchasing costs, maintenance costs, financing costs, downtime, lost opportunity and many others. Renting provides the opportunity to perform minimal maintenance such as preventative maintenance and consumables without the burden of large out of pocket expenses for replacing major maintenance items such as engines, transmissions and the labor or outsourcing costs that go along with material costs. Industry leaders in the courier market such as UPS and FedEx, to many people’s surprise, all have adopted renting as part of their business strategy. For an industry dependent on transportation and moving products to adopt renting should give us all encouragement, especially in the waste industry.
When municipalities or other customers request contract start dates that are sooner than new equipment can be acquired, the current state option is to typically not bid on the project due to asset setbacks. However, renting assets until equipment can be received can provide the bridge needed to capitalize on these otherwise opportunities. In addition, a customer may request a contract length that is less than five years or shorter contracts with potential extensions, which may make purchasing capital equipment burdensome to an organization with a risk of what to do with the equipment should the business be lost. The waste industry has typically capitalized equipment over a seven to 10- year period, making it difficult to pursue shorter contracts. Renting can provide the equipment with no risk to the waste hauler as the trucks can be returned at any given time.
Growing your business one truck at a time is challenging when deciding the right time to purchase the next piece of equipment while keeping the business sustainable. Renting can provide an option to add an asset without the risk, as haulers work to maximize and expand routes before making the decision to purchase equipment. Also, opportunities for seasonal work or storm relief can be cost prohibitive because the equipment may only be used for a short period of time, thus forcing the waste hauler to avoid these opportunities.
As the economy and waste industry continue to evolve and grow, gaining refuse fleets are creating immense pressure and strong demand on the manufacturers of both refuse bodies and chassis. This growing demand can and has pushed truck delivery leadtimes in the marketplace out for months limiting the ability to have access to new equipment in a timeframe that either supports growth or maintains a fleet replacement strategy. Renting can keep your strategy and plans intact.
Typical management and ownership of a truck fleet within the waste industry over a 10-year period with a 10-1 spare ratio has become the representative standard. This standard strategy comes with some consistent challenges of increases in ongoing maintenance costs, downtime and spikes in capital needs as refuse fleet age within the public and private sector. Refuse trucks that have been moved from the active fleet to “spares” are usually for reasons related to age and reliability. Spare trucks, which have been retired due to age or reliability, present a very costly expense to most organizations such as licensing, higher than typical maintenance costs, taxes and many other factors all while, in most cases, failing to provide a backup plan to being a true fleet replacement when needed most. Renting can be a part of the answer to help reduce the spare ratio size and insure uptime and customer service expectations are met when the need arises.
Do you find that your new trucks are over-used to make up for the challenges of the aging fleet? Double timing newer trucks can be
common and causes long term maintenance challenges and can drive the fleet to age at an even quicker pace, which may lead to more capital needs earlier than expected. The use of rental trucks can help relieve this bottleneck and even be used to allow all trucks to get their proper preventative maintenance to keep the fleet up and running.
Regardless of the hauler’s size, both private or public sector, we have found that the answers all fall within the five key elements that truly drive the rental industry. Why rent? What drives your decision? What benefits do you see from adding rentals? A well-balanced fleet typically considers all costs, both direct and indirect. It is those decisions which all of our key customers have adopted that has allowed them to run a more profitable business and have given us the opportunity to service the waste industry. As we continue our pursuit to help provide the waste industry on new and modern fleet options, every hauler, both public and private, should take the time to consider their solutions and we hope to have the opportunity to be a part of that process.