4 Trends Driving Demand for Truck Leasing

Winds of change are driving innovation in how trucking equipment can be acquired, enabling fleet operators to run more efficiently by implementing new approaches to leveraging advanced vehicle technology.

Executives with national rental/leasing and management-services firms tell HDT that a range of market conditions — including economic and regulatory developments — are driving greater demand for leasing among private fleets, the mainstay of leasing, as well as in the growth arena that is the vocational market, particularly in construction fleets.

The current challenges buffeting fleets that leasing providers aim to help them overcome range from stiffer greenhouse gas rules from the Environmental Protection Agency and the California Air Resources Board (which warrant concern about whether to pre-buy and when) to the gradual but steady rollout of battery-electric trucks across all vehicle weight classes.

“Strong demand in a low-supply market is driving more private fleets toward leasing companies because of [lessors’] slot availability, leveraging their strong OEM relationships,” says Jason Leon, vice president of operations for Ryder.

“As processes become more complex and require additional resources, fleets traditionally look to outsource leasing and maintenance solutions,” he continues, because more regulation and complexity lead to uncertainty for customers.

“This typically benefits industry experts, such as Ryder, because fleets will come to firms that can navigate the change and add value to their companies.”

Ryder works with OEMs and new-technology providers to understand the performance of technology and how to maintain it, as do other large leasing companies.

“The transportation fleet, corporate private fleet sectors, and vocational markets like construction continue to face a bevy of industry, economic and environmental challenges that are certain to create operational turbulence,” says Hadley Benton, executive vice president of business development for management-services provider Fleet Advantage.

“Fuel and equipment prices due to interest rates, ongoing driver and technician shortages, and a possible economic recession have many in the industry on edge as they navigate through the early parts of 2023,” he adds. “These issues are major drivers in encouraging these organizations to inject more leasing into their operations and equipment portfolios.” 

Benton also expresses concern about the continued rise of interest rates and inflation, noting that the Federal Reserve raised its benchmark interest rate in early February by a quarter of a percentage point, bringing the target range to 4.5% to 4.75%. At the time, the Fed gave no indication to ending its rate increase campaign in 2023.

“All that being said,” he says, “the driving factors for the growth in leasing are low-risk financing, flexibility, and reduced cost of ownership. It’s important to try and match your financing program with the usage of the asset, and leasing accomplishes this by mirroring ownership without the long-term risk.”

Michael Wiley, assistant general manager of Paccar Leasing (PacLease) sees two interrelated issues leading fleets to give greater consideration to leasing solutions.

“Even as supply-chain constraints continue to linger, fleets want to bring on new equipment as well as secure parts when needed. Also, they need to understand the new technologies available and how to leverage them” for cost savings.

The upshot is “our growth continues to be driven by the personalized approach we take to meeting customer needs and our ability to keep things moving,” he says. Wiley notes that PacLease shops are tailored to manage uptime for each lease customer. He also points out that both vehicle acquisition and parts availability benefit from PacLease’s “unique position of having a direct line to Kenworth, Peterbilt and Paccar Parts,” all of which are sister operations.

“The economy continues to move forward, and new technologies are coming into play,” he says. “Because of that, I think proactive fleets will look at how they can leverage these new technologies to increase uptime. Ownership customers hit by supply chain constraints may need to run their equipment longer, so we are also seeing an increased demand in our managed maintenance programs."

Dean Vicha, president of NationaLease, which comprises more than 140 independent lessors, says that right now, “there’re lots of reasons to be bullish on leasing. Trucks are way more complicated with new technology, and they cost way more to own and operate. For private fleets, transportation is always their necessary evil. We take that away, and current impacts like integrating technology and dealing with technician shortages makes leasing more attractive.”

Vicha says that for private fleets, “equipment remains a major capital expense and they will continue to turn to experts in buying, maintaining, and disposing of these assets as efficiently as possible.”

Due to the COVID-19 pandemic, he explains, leasing has come through an “unprecedented time of managing supply chains, not just to take in trucks but parts as well. We never shut down any of our shops, and I’m also proud of what the leasing industry did as a whole” to help keep trucking on the go.

The four equipment-acquisition executives HDT spoke to collectively identified four key trends that are driving fleet concerns about acquiring as well as maintaining trucks:

1. Regulatory developments
2. Emission rules
3. Battery-electric vehicles
4. Technician shortage

1. Regulation Developments

Ryder’s Leon says leasing providers can “reduce the burden/impact of compliance for customers by identifying a handful of actions that can meet the compliance requirements across several rules.”

He adds that Ryder Fleet Services helps lease customers navigate regulations, such as by “establishing best-practice safety programs and implementing safety technology like dash cams and driver training programs.”

NationaLease’s Vicha also says companies like his help fleets keep up with changing regulations. For example, he points out that lessors have been at the forefront of leveraging data from mandated electronic logging devices to show customers how the data can inform scheduled and predictive maintenance.

And then there are clean-vehicle regulations.

“Fleets are taking a closer look at the more stringent 2027 GHG rules and how it affects their equipment acquisition strategies,” points out Fleet Advantage’s Benton. “Those fleets that need to reduce their average equipment age after the recent production shortages will have 2024 and 2025 to execute. The time is now to understand your vehicle life cycle post-Covid and prepare for the upcoming emissions regulatory changes.”

Another regulatory challenge ahead will be complying with California’s mandates for electric vehicles by certain dates, says PacLease’s Wiley.

“As a leasing provider, we are up to date on all regulations and when they come into effect," he says.

2. Tighter Emissions Rules

As their general remarks on regulations indicate, the upcoming more stringent emissions rules, from the U.S. EPA and from the California Air Resources Board (CARB), will be front and center in devising effective strategies for equipment acquisition over the next few years.

“We have to be strategic, especially as we increase our ability to get truck allocations from OEMs,” says NationaLease’s Vicha. “Some indicate they may have some open production slots by 3Q or 4Q this year. As for a pre-buy ahead of 2027, we all have memories back to 2007. It’s the same now with customer concerns over the cost and performance of meeting the 2027 standards.”

PacLease’s Wiley agrees that trucking will see a pre-buy effect ahead of the new rules. But it will be different this time, he says, because there will be more options to consider to meet the rules, from diesel and clean diesel to CNG and gasoline power as well as electric vehicles.

“Customers coming up on a 2028 or ’29 replacement cycle might look to replace those vehicles early, prior to the 2027 emissions deadline. This would take a traditional diesel [truck] well past this emissions transition, giving them more time to evaluate new emission options as they are made. And we continue to see interest by customers in BEVs, too,” as emissions mandates ramp up.

Ryder’s Leon concurs that zero-emission rules may again trigger pre-buy situations or trends. However, he points to another way this time may differ from 20 years ago.

“For example, certain CARB rules allow fleets to satisfy requirements through a phase-in milestone approach,” e.g. that a percentage of the fleet can be BEV at certain points of time. “That would mean that a pre-buy of non-EVs would thereby increase the number of EVs required when compliance years are here in 2025, and so on.”

Fleet Advantage’s Benton adds that a pre-buy ahead of 2024 CARB regulations could be impacted by lingering supply-chain disruption problems, meaning “fleets will be challenged to pull a high percentage of their 2024 MY purchases into 2023.”

3. Battery-Electric Trucks

NationaLease’s Vicha says leasing companies have a great opportunity to work with fleets on alternative power solutions.

“That does require us to take a strategic view, and we will have to change the value proposition we bring to our customers, based on the experience [with alternative power] we gain," he says.

He notes that most private fleets run Class 6-8 power, and while “there is interest there in electric, it’s a major cost differential now so they’re sticking with [internal combustion] engines. There also needs to be a lot of growth in charging infrastructure — it’s nowhere close to charging thousands of trucks at once. Plus, the residual values for electric have yet to be determined.”

Ryder’s Leon expects fleets to have “a higher propensity to outsource EVs versus ICE trucks” due to these more challenging circumstances:

• Vehicle acquisition and financing.
• New ancillary services/requirements for an EV (such as electrification consultation pre, during, and post-deal), charging, and support infrastructure.
• Preventive and unscheduled maintenance or repair.
• On-road use with telematics and digital technologies delivered by and integrated with one source.

In addition, he points out that fleets have an interest in renting as well, to supplement short- or long-term EV leases.

“Having a provider that can cover the EVs, as well as the charging and services required, plus a preventive maintenance and owned network of branches nationwide, is critical for EV early adoption and to make implementation a simple solution,” Leon says.

Wiley points out that PacLease customers have a “keen interest in EVs and leasing and/or renting BEVs [to] offset their initial cost and keep the unknowns off the fleet’s plate. We are already taking orders and beginning to operate our first EVs in the lease and rental fleet.”

As to charging setups, he says, that can be accomplished in several different ways.

“A fleet may opt for a separate lease agreement for charging, or we can sell them chargers outright through our network with the support of our infrastructure partner. It all depends on the customer’s comfort level. They can also charge trucks at our facilities as they come online.”

At Fleet Advantage, Benton says, they believe “the best approach to realistically bridge today’s clean-diesel technology into tomorrow’s alternate fuel options is by leading with the appropriate environmental, social, and governance (ESG) roadmap, supported by strategic asset-management partners to determine truck procurement strategies with optimal life-cycle management.

“This will maximize environmental considerations and organically progress toward alternate fuel technology. In doing so, fleets will achieve critical ESG goals and continuously operate the most appropriate equipment for their operation.”

4. Finding and Keeping Truck Technicians 

Technician recruiting and retention have never been more important than they are today, says Ryder’s Leon. And for some fleets, outsourcing maintenance may be the answer to this challenge as large leasing companies address the problem.

“Success requires a coordinated effort across our organization, including recruiting, training, and operations teams,” Leon says.

Recruiting includes targeting different demographics, including U.S. Army soldiers preparing to transition to civilian life, as well as high school students who are paired with experienced Ryder mentors as part of their school’s automotive/diesel program.

Ryder recently formalized scheduled one-on-one conversations between technician and supervisor “to identify and implement individual development plans, discuss recent successes, and ensure the technician is fully informed on operational priorities.”

PacLease’s Wiley says that compared to 10 years ago, “the tech shortage is a growing everyday conversation. It’s key to invest in them by partnering with tech schools and providing advanced training and a ‘career ladder’ that shows them how they can move up through the ranks.”

Wiley notes that the working environment is also important, with clean and safe shops, as are benefits.

“Techs are what we do, so we have to be best at attracting, training and retaining them,” says NationaLease’s Vicha. “Our investment in this critical human capital extends to supporting high schools and vo-techs so that their students are aware of the opportunities in this field — including how high-tech today’s trucks are. It can be a very lucrative career, but we have to do more to attract and keep techs.”

Fleet Advantage’s Benton cites one study that found 177,000 new diesel-tech entrants are needed between 2022 and 2026 to meet both new demand and to make up for those retiring or leaving the profession.

“With the trucks of tomorrow,” he adds, “technicians will be necessary for traditional maintenance tasks, but they will also serve as vehicle engineers to handle all the maintenance on the technology systems.”