The five elements of fleet rental in waste and recycling
A well-balanced fleet needs to consider all costs, both direct and indirect, on the road to a more profitable business
Waste industry aside, the typical attitude toward renting equipment, vehicles and other assets has historically been negative, and in some cases, rental has been viewed as an alternative that can lead toward organizational failure. However, what used to be a last-effort 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 for municipalities as well. The landscape of asset ownership in the industry is quickly changing. Some of the reasons for this stem from the industry's improved understanding of the benefits of rental, based on what we refer to as the five key elements of renting: financial flexibility, total cost of ownership, growth opportunities, equipment availability and, most importantly, improved fleet management.
All of these attributes are contributors to the change occurring in how rentals are perceived within the waste industry. Still, depending on who you speak to or which resource you ask, many remain quick to dismiss renting from a financial perspective. Endless cost calculators have been created and numbers crunched, with the net benefits always pointing toward purchasing rather than renting. The remarkable fact is that most calculators and reasons simply do not address the five key elements, as below.
Each of these five factors tell a compelling story that most rental versus purchase calculators simply cannot capture, and they typically apply to most companies running a fleet of vehicles, whether they are large or small haulers, public or private.
1.) Financial Flexibility
Renting provides a company with the ability to strategically save capital dollars while gaining the benefit of using 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, and with little maintenance costs, as the rental company is responsible for any major maintenance items related to warranty.
2.) Total Cost of Ownership
There is a math equation that can be evaluated on a per company basis to determine how fleet 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, including both preventive maintenance and consumables, without the burden of large out-of-pocket expenses for replacing major maintenance items such as engines, transmissions and the labour 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 focused primarily on transportation and moving products, to adopt and embrace rental as it has, should give us all encouragement, especially in the waste industry.
3.) Growth Opportunities
When municipalities or other customers request contract start dates that are sooner than new equipment can be acquired, the current 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 difficult opportunities. In addition, a customer may request a contract length that is less than five years or shorter contracts with potential extensions, which may jeopardize attainable ROI, or make purchasing capital equipment burdensome to an organization facing a risk of what to do with equipment should business be lost.
The waste industry has typically capitalized equipment over a seven to ten year period, making it difficult to pursue shorter contracts. Renting can provide equipment with no risk to the waste hauler, as trucks can be returned at any given time. Growing your business one truck at a time is challenging, especially when deciding on the right time to purchase the next piece of equipment while keeping the business sustainable. Renting can provide an option to add assets 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, again, because the equipment may only be used for a short period of time, thus forcing many waste haulers to forego these opportunities.
4.) Equipment Availability
As both the economy and the waste and recycling industry continue to evolve and grow, the demand for refuse fleets is creating immense pressure and strong demand on the manufacturers of both refuse bodies and chassis. This growing demand in many cases has pushed truck delivery lead times in the marketplace to months, limiting the ability to have access to new equipment in a time frame that either supports growth or maintains a fleet replacement strategy. Renting can keep your strategy and plans intact as a suitable option to help mitigate wait time issues tied to new equipment deliveries.
5.) Improved Fleet Management
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 and recycling trucks that have been moved from the active fleet to "spares" are usually transitioned 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, including licensing, higher than typical maintenance costs, taxes and many other factors, all while, in most cases, failing to provide a backup plan as a true fleet replacement when needed most. Renting can be a part of the answer to this, helping reduce the spare vehicle ratio size and ensuring 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 an aging fleet? Double-timing use of newer trucks can be common, but causes long-term maintenance challenges, which can drive the fleet to age at a quicker pace, which may lead to additional capital needs earlier than expected.
The use of rental trucks can help relieve this bottleneck and even be used to allow all trucks to more regularly receive their proper preventive maintenance, keeping the fleet up and running for longer. Regardless of a hauler's size, in either the private or public sector, the question of whether rental or ownership is a better strategy toward creating a well-balanced fleet, can be determined by examining the above five key elements - elements which truly drive the rental industry. Questions to ask include: 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. All of our key customers have adopted this strategy, and it has allowed them to run more profitable businesses. As we continue our pursuit to help provide the waste industry with new and modern fleet options, every hauler, both public and private, should take the time to consider the option of renting to build their business and profitability. RPN
Jaksa Panic is director of Sales, Big Truck Rental Canada.
This article was originally published in the October 2018 edition of Recycling Product News, Volume 26, Number 7.