Buying vs. Leasing Trailers: How Do You Handle an Unpredictable Market?
This is the second post in our series on buying vs leasing trailers.
Rick and Steve make a decision about buying vs leasing trailers, part 2
When we left Rick and Steve they were trying to figure out how to get five more reefers for their contract with Huge Store.
Rick picked up his cell, ready to call his Usefully and Mastiff manufacturer’s rep to see if he could get any build slots for reefers this year. But instead of dialing, he just stared out the window.
Steve lifted his head from his spreadsheet. “What’s up?” he asked.
Rick said, “Do you think Huge Store would let us postpone that contract for a few months so we can buy new reefers?”
Steve snorted. “I don’t want to give up a few months of revenue. And you know how long it took me to even get into that guy’s office—then we had to cut our rate to match KC Quest. I don’t feel like taking a chance!”
“Neither do I,” said Rick. “Maybe Used Trailer World has five reefers.”
“Better get an extra one, just in case,” said Steve. “And see if they’ll let us use those dry vans as trade-ins.”
How do you handle an unpredictable market?
Your main goal never varies: to make your customers happy. To do that, you have to be flexible—because what makes customers happy shifts pretty often!
So how does owning vs leasing trailers compare in flexibility?
Looks like we’re skewing “lease”. Here are a few reasons why:
- To get a new trailer from a manufacturer, you may have to wait six to nine months for delivery—if you can even get a build slot. To buy a used trailer, you have to find one with the specs and vintage you need; if you can’t, you have to compromise, which may make it harder to meet your commitments to your customer.
- Customer demands are changeable. If your demand forecasts miss the mark, you could end up buying too many or too few trailers.
- Speaking of changing demands…how many regulations are you trying to comply with today? What will you have to contend with tomorrow? Leasing can give you a quick way to get the latest equipment to keep up with regulations.
- Congratulations! You just got a dedicated three-year contract for a shipper who requires pretty specific specs. So you buy some trailers to meet those needs. But what will you do with those trailers three years from now? How will you keep them useful for their entire lives? You may get another contract with that shipper or with another that has similar needs…but what if you don’t? You may be stuck with trailers you can’t use and you’re out capital you could put toward building your business.
- What if you want to say yes to a great dry freight customer who’s asked if you can haul refrigerated cargo? Do you know what a new or used reefer costs or which specs are best or what kind of maintenance a reefer needs? If you’re going to buy reefers, you’ll have to find out fast.
- You’ve spent a pretty penny hiring, training and keeping your drivers. Still, their heads may be turned by another carrier waving a sign-on bonus. What else can you do to keep your good drivers seated in YOUR tractors? Many fleets believe shiny new equipment helps show drivers you care—and you can usually get it faster by leasing.
- If you want to keep your fleet on the young side, buying begets buying. That can work just fine when your customer’s demands for capacity are loud and frequent. What happens, though, when the economy softens? Take the example of John Doe Trucking. Flush with cash in 2014, John bought 10 new dry vans. In 2017, the economy turns and he has to weather a few off years. He uses all the income he has to comply with FMCSA’s latest rules, to keep his drivers from jumping ship and to meet the increasing maintenance costs his once-new fleet accrues as it ages into midlife. John’s head sprouts a few more gray hairs as he tries to figure out how to keep his trailers working.
- Speaking of aging trailers…technology, like time, marches on. Before you buy, you have to think about the regulations your fleet will have to meet many years into the future (the average useful life of a dry van is almost 15 years!) and choose specs, tires and aerodynamics that’ll work best for you not only today, but also years from now.
Rick and Steve make a decision about buying vs leasing trailers, part 2.5
“Used Trailer World has a 2012 Usefully,” Rick said. “I’m gonna go check it out.”
“What’d they say about the trade-ins?” Steve asked.
“Didn’t tell them yet,” said Rick. “I don’t want them working out a ‘deal’ where we somehow end up paying more.” He put on his damp jacket and pulled his cap down a little as he headed toward the door.
Steve said, “While you’re gone, I’ll call Add-a-Few Leasing and see if they can do anything for us.”
“And make more coffee,” said Rick, running out before Steve could answer.
Steve gave him the stink-eye anyway.
Read “Buying vs leasing: where will your capital go?” for the conclusion of the Rick and Steve story.
Note: The information provided in this post is not intended to be legal or financial advice. Please consult a qualified professional for such advice.
Here are a few more takes on buying vs leasing trailers
- Infographic on the advantages of owning and leasing trailers
- Part 1 – Buying vs leasing trailers: advantages of each
- Part 3 – Buying vs leasing trailers: where will your capital go?
- Quiz on buying vs leasing trailers to help you figure out what’s most important to your operation when adding trailers to your fleet.
- How a request for 40 turned into 66