A talk with PacLease's Hunter about leasing, rental, equipment trends

An aging fleet, the high cost of fuel, sticker shock on new trucks, and a recovering economy are driving interest in leasing, according to Olen Hunter, director of sales at PacLease.

In fact, he said, the company's business in the first quarter was up 150 percent year over year.

In a wide-ranging recent interview, Hunter noted that business is picking back up as the replacement cycle finally starts to kick back in. ACT Research reports average fleet age is at an all-time high, he noted. "We have not seen a normal trade cycle for more than three years," he said. Many customers, running fewer miles on their equipment, had negotiated longer lease terms, but that's changing.

"We also see a lot of customers that have always owned, but looking at the price tag of new equipment, they're starting to look at alternatives," such as leasing, Hunter said.

Emissions sticker shock

New emissions technology, including the diesel particulate filters from the EPA 2007 engines and the new selective catalytic reduction equipment on 2010 engines, has not only driven up costs, but also complexity. The tooling, training, and getting technicians up to speed is another factor behind some companies looking to full-service leases.

As an example, Hunter cited Western Refining, which owns and operates refineries throughout the U.S., in western Texas, northwestern New Mexico, and on the east coast of Virginia. The company had half a dozen shops, but wanted to focus on their core business. They did a lease-vs.-buy comparison and went with a full-service lease, one which included Paclease taking over their company shops, hiring their technicians, so they had the convenience of on-site maintenance but without the hassle of tooling, training and HR issues.

Then there's truck rental. The Paclease rental fleet was cut significantly during the recession because of the lower demand. Now, however, business is up, as a lot of carriers want to rent trucks to make sure a new lane is profitable before committing to a purchase or a longer-term lease. Rental utilization started picking back up last fall and has been in the mid 90s since then. Daycabs, he said, have been especially popular.

New technology

"Used truck values are coming back, so it's easier to go to a customer and sell them the benefits of 2010 technology if they were in '07 engines," he said.

A number of fleets have reported problems with DPFs in 2007 engines. Hunter said while the 2010 engines still have DPFs, because the SCR technology means fewer regens, they are so far seeing fewer DPF issues with the newer engines.

In Europe, where Paclease runs about 3,000 SCR units in Germany, there were problems with a particular dosing component, but it was traced back to inferior diesel exhaust fluid with high levels of formaldehyde. "We're not having those issues in the U.S.," he said.

Because the newer engines are getting better fuel economy, Hunter said, higher fuel costs are driving more fleets to consider replacing their trucks. In addition, he said, with an aging driver workforce and a driver shortage predicted to be made worse by new stricter government regulations, such as CSA, "I think aero, premium equipment is going to be very, very important with fleets - they want fuel-efficient vehicles that drivers are comfortable in."

Alternative fuels

Alternative fuels and hybrids are also increasingly popular leasing choices, Hunter said. "We're seeing a lot of interest in food and beverage operations in the hybrids, where you can take advantage of the short distance between stops" to capture the energy.

Fleets that run daycabs, on the other hand, are showing a lot of interest in natural gas, Hunter said. "It's stable in price, and it appears to be plentiful," he noted. The challenge is the higher up-front cost of natural gas engines, he said.

He noted that C.R. England Dedicated Logistics ordered five LNG-powered Kenworth T800 daycabs to put in service with Coca-Cola, delivering syrup to bottlers and customers. "Coca-Cola wants their carriers to be green."