There is no direct answer to this question. Whether a trucking company decides to own or lease its trucks depend on several factors. Their transportation needs, financial position, overall growth strategy, and so forth may inform their decision.
For instance, a company that requires highly specialized trucks due to the business's nature, but lacks the financial capacity to buy the vehicles at the beginning, may opt for a finance lease. This type of lease gives them the option to purchase the truck at the end of the lease contract.
Other companies prefer acquiring their fleet through full-service leasing, whereby the leasing company also offers vehicle maintenance and servicing. In this case, the trucking company makes a monthly payment that includes the lease charge plus all other truck-related costs.
As is expected, either of the choices - buying, finance leasing, full-service leasing has its benefits and limitations. Some companies opt to buy and lease at the same time, while others prefer leasing over owning.
Here is a brief rundown of each of the three options.
Owning
Owning is mostly preferred by companies with a small fleet and who anticipate a long trade cycle. This is because the cost of replacing the trucks is capital intensive. Owning also gives them the depreciation advantage, which leaves them in a better financial position.
As they own the trucks, they can dispose of them whenever they wish, thereby providing a significant cash inflow for the business. Owning also gives them the benefit of using the truck however they want, whenever they need it, as there is no mileage limit like leasing.
Finance Leasing
As earlier mentioned, finance leasing provides a convenient means of acquiring a truck when you don't have the capital to buy. Then, later on, you can buy the truck at the end of the lease. At this point, you purchase the truck at the residual amount (initial cost less the depreciated amount), so you still get a good deal by retaining it.
The downside of finance leasing is that it does not offer you the flexibility of the owning option. Your mileage is often capped to a specific limit above which you incur penalties that may add up with time. Similarly, ending the lease mid-term can turn out to be expensive (which is also the case in full-service leasing) as the contract requires you to pay certain charges.
Full-Service Leasing
Most trucking companies prefer full-service leasing, especially those with a large fleet, for the many benefits it offers. Unlike under the owning or finance leasing option, in full-service leasing, maintenance and servicing responsibility remains with the lessor. This is because leasing companies offering full-service leasing also provide fleet management services. On the accounting front, this option doesn't come with the depreciation benefit, but the monthly lease payment is a tax-deductible expense.
Even in the trucking industry, technology is evolving pretty fast. New truck models are constantly phasing out older ones. Companies that opt for the leasing arrangement have the advantage of upgrading to more recent models whenever their lease terms expire. In full-service leasing, they don't need to keep an in-house technical team to help run the technology. The fleet management company takes care of this side of things, thereby eliminating the lessee's staff costs.
Drivers also prefer new trucks, so trucking companies that keep upgrading have better employee retention levels. Though this option has its share of downsides like capped mileage, zero equity as the trucks belong to the lessor, etc., most trucking companies prefer leasing their trucks instead of buying, while some own and lease at the same time.
At Wilmar Inc, we provide trucking companies with the latest truck models that guarantee efficient and smooth business operations. Our fleet management solutions are highly customized to suit your business needs no matter your field. If you are shopping for a reliable partner in your trucking business, talk to us today.
