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Tank leasing gets fresh attention

AS THE tank truck industry bounces down a rocky economic road, trailer leasing has become an increasingly important part of management strategy. Even some large tank truck carriers have found a place for leased equipment in their fleet mix.

Groendyke Transport Inc leased six rubber-lined trailers this year — the first tank leasing it has done in 10 years. The trailers are on a six-month lease to meet needs of a new chemical customer, according to Don Querciagrossa, Groendyke vice-president of equipment & maintenance.

Richard Jousma, president of Ozinga Transportation Systems in Markham, Illinois, sums up the importance of tank trailer leasing to his company in this way: “We can grow or shrink our operations quickly with leased equipment. More transport bids are negotiated on a yearly basis, and leasing has helped us adapt to that. Leasing makes our bottom line look better.”

Lessors say tank trailer leasing by fleets has been on an upswing for about five years now. Leasing experts suggest that the market is undergoing some fundamental changes, both short-term and long-term, that are driving the fleet demand for leased equipment.

“One short-term reason is that banks have become more reluctant about loaning money to some fleets to buy new trailers right now,” says Rich Parrillo, president of Matlack Leasing LLC. “Banks have plenty of money to loan, but they seem to believe the tank truck industry has become too risky.”

Even when tank truck carriers get financing, they are delaying new equipment purchases. “The current economic environment favors leasing because of economic issues and world events,” says Ralph Nappi, president of Transport Resources Inc. “Fleets have become cautious, and they are using leased equipment to test new markets and to provide protection with regard to shorter contracts from shippers.”

John Olsta, leasing manager at The Jack Olsta Company, credits nervousness about the economy for the surge in leasing interest that he has noted over the past 18 months. Olsta predicts a fresh surge of tank trailer leasing once the economy picks up. “When it gets busy, fleet equipment that was sidelined awaiting maintenance or just parked will have to be overhauled before being put back into service,” he says. “Leased trailers will fill in the gaps enabling the fleets to meet obligations without interruption.”

Regardless of the current motivations for tank trailer leasing, many in the industry believe that leasing should play an active role in any tank fleet's management strategy. What percentage of a fleet should be leased? Estimates range from 20% to 50%.

Tank leasing is becoming a mainstream fleet management strategy, according to Parrillo. Everybody is looking at leasing today. An important advantage is that leasing gives even the smallest fleet an opportunity to run relatively new equipment without a major capital investment.

“I don't think we're going to see as much carrier ownership of tank trailers as in the past,” says Boyd Duckett, president of Southern Tank Leasing. “In the future, companies will need a greater ability to quickly adjust fleet size to meet changing business conditions. This is a key strength of leasing.”

Seasonal business is a good candidate for leased tank trailers, according to Nappi. He suggests that fleets can benefit from leasing equipment for business that runs counter to the primary focus of the operation.

Leasing challenges

While the long-term outlook appears promising, trailer leasing companies tell Modern Bulk Transporter that they are struggling with many of the same economic issues that afflict their customers. The biggest problems: too many companies competing in the leasing market and too much equipment.

It's hard to come up with an exact number of tank trailer leasing providers. Not only are the ranks of the leasing specialists growing, but they are competing head to head with tank trailer manufacturers and some tank truck carriers. Some of the carriers, such as Quality Carriers Inc, have established leasing divisions.

By all accounts, there are at least 50 tank trailer leasing specialists in the market today, and the total is growing. The market remains quite fragmented, but some players (Baker Tanks, for instance) have tried to build a coast-to-coast network. However, even the small players can have a nationwide presence in a compact industry such as the tank truck sector.

By recent industry estimates, the roadable leased tank trailer fleet in the United States stands at 4,000 to 6,000 units. These are the tanks that are targeted at fleets. Leasing companies also continue to supply large numbers of tank trailers that are specifically intended for plant storage.

“It's hard to determine an accurate number for the overall leased trailer fleet,” Duckett says. “Due to fleet shutdowns, mergers, and downsizings, a tremendous amount of equipment has flooded into the leasing sector over the past two years or so. As an example, we at Southern Tank Leasing bought 1,200 of the Matlack trailers when that carrier shut down. The best 500 of those are now being leased out to fleet customers.”

Equipment glut

Regardless of the total lease fleet size, there is too much equipment for the amount of business right now, Nappi says. A significant number of lease trailers are parked right now waiting for an uptick in business activity.

The excess capacity in tank trailer leasing has been beneficial for fleet customers. Lessors say this has been one of the softest markets they have experienced, and it remains extremely volatile.

“This is the softest leasing market in three or four years,” Parrillo says. “Rates are flat at best.”

Jim Ward, president of Quadrel Leasing, says softness in the tank trailer leasing market is a reflection of the general malaise seen across the US economy. Contributing to low lease rates is the tremendous amount of excess equipment in the industry.

Perhaps half of the overall leased tank trailer fleet is placed with customers right now, according to Duckett. In a strong economy, it would be closer to 85%.

“Leasing activity is up and down right now, and lease rates are down 20% to 25%,” Olsta says. “We don't see any big improvements this year, but we have been able to place about 80% of our lease fleet.”

Promising indications

How long will the leasing rates remain soft? Probably until the economy strengthens. There are signs that the economy wants to grow, and that is bringing encouragement for tank lessors.

“Activity levels have improved in the past couple of months,” Parrillo says. “More fleets are calling to ask about lease quotes.”

Nappi adds that 2003 has started out better than last year, which was very slow. All indications are that the economic improvement will continue.

It is noteworthy that most of the quote inquiries are for short-term leases. Day rentals and short-term leases are becoming the norm for the industry. Customers want to lease equipment month-to-month or season-to-season. The typical tank lease today runs less than a year.

“That's quite a change,” Duckett says. “We were doing multi-year leases back in the 1990s when the tank trailer builders couldn't keep up with demand. Fleets couldn't get new equipment fast enough, and builders had lead times of six to eight months. Leasing was one of the only options for fleets to keep up with business growth.”

Standard equipment

While much has changed, the type of equipment that dominates the tank trailer leasing market hasn't. While there is some leasing of dry bulk and petroleum trailers, demand is highest for chemical tanks.

The standard unit is an insulated, heated DOT407 or MC307 trailer with a 7,000-gallon capacity. Some of the leasing companies are seeing increased demand for multi-compartment chemical trailers, and some customers are requesting specialized outlets and other hardware.

While the chemical tanks are fairly standard, the lessors that provide them aren't. Fleet managers need to do their homework before selecting a tank trailer lessor. Good communication is crucial.

The customer needs to ask questions that go beyond price. While getting the right price is important, lessees sometimes put too much attention on that and not enough on the equipment that they are actually getting.

Is the lessor knowledgeable about federal regulations and vehicle specifications? If the lessor will service the tank trailers, are shop mechanics qualified to work on code tanks? Make sure the lessor is providing safe, well-maintained equipment that meets code.

Is the lessor customer friendly? Will he nickel-and-dime a customer with additional charges when equipment is turned in off-lease? It's important to find out what turn-in charges apply before any contract is signed.

To minimize misunderstandings, the customer must provide as much information as possible on the cargo to be hauled and how the tank trailer will be used. The more information, the better.

Fleet managers need to visit leasing company locations to examine the equipment being offered. “Customers need to check out leased equipment just like they would when purchasing used tanks,” Duckett says. “Make sure it's something you want to put your fleet name on. Look for damage such as pitting and corrosion. If you miss it, you're going to pay for it.”

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