Light leasing

LinkedIn +

Vehicle procurement in logistics is changing. But is contract hire still the dominant force in the market? Or are lighter rental agreements piquing more interest? Alex Leonards reports…

Traditionally, contract hire has dominated the commercial vehicle and forklift truck market. But in recent years there has been a growing interest in flexible rental arrangements. The landscape of the market is changing – and suppliers are compelled to keep up-to-date with new customer demands.

Logistics Manager, May 2016

This article was first published in Logistics Manager, May 2016.

And nowhere is this clearer than in the forklift truck market. Terry Kendrew, managing director of the UK’s sole Cat Lift Truck distributor Impact, says that the swing towards short-term rental over previous long-term contracts has been the biggest change he’s seen since the financial crisis.

“Customers appear to prefer the shorter contracts, as such an investment typically matches the nature of their own customer arrangements, which are often of a similar length,” he says. “This means that materials handling equipment suppliers need to be a lot more flexible in their contracts – and a lot more willing to supply a range of equipment as well, as and when required.”

In response to this dramatic shift, Impact has invested heavily in its short-term rental fleet – ensuring it has enough available trucks for customers in all of its key product ranges.

“Being able to supply a variety of complementary brands has come in increasingly useful in this new era of short-term contracts,” says Kendrew. “We know that our customers are looking for a MHE supplier that’s flexible, reliable and understanding when it comes to their specific requirements.”

Kendrew thinks that, as a supplier, it’s more important than ever to ‘really get under the skin’ of a company’s operations. He says that developing a shared plan for materials handling equipment provision, proactive maintenance, and constant revision of the trucks in use, is now vital.

“In fact, I’d say fleet optimisation is absolutely key to ensuring a long-term working partnership,” he says.

In the commercial vehicle market, Jonathan Pearce, head of marketing for Northgate Vehicle hire, thinks that when it comes to vans on the road, contract hire and rental have a very similar market share.

“However it is fair to say that contract hire is more well-known as a long term acquisition strategy,” he says.

But it’s not just the forklift market that is seeing an upsurge in short term rental – the commercial vehicle market is also experiencing a new wave of interest.

“In terms of rental, we’re seeing a huge uplift in demand across the country, and particularly in the South East,” says Colin Melvin, sales director at Fraikin, the commercial vehicle fleet services provider. “People have long said the rental sector is a good barometer for British business; if that’s true then the signs are very encouraging.”

At Northgate, the “soaring” demand for rental has come directly from existing customers that once had contracts, as well as from new clients.

“Rental is all about supply and demand,” says Melvin. “To be successful you have to have the vehicles your customers want to hire, in the right place, at the right time.”



In the last few years, like Impact, Fraikin has put a great deal of focus on its rental services – investing upwards of £13 million on new rental vehicles in 2015, which are now all on fleet.

The growth in rental activity has been linked to the 2008 economic crisis. When the economy crashed, perhaps the flexible and non-committal nature of rental agreements was more appealing to the industry.

But, years later, and with the economy slowly improving, is contract hire once again overshadowing the rental market?

“Overall the LCV market is growing with record registrations in 2015 (375,000) and within this, contract hire and rental companies are playing a significant role, reflecting an overall increase in demand in the market,” says Pearce. “Where businesses have had contract hired vehicles in the past, confidence in the economy may well lead them to look at new fixed term deals.

“But with many companies switching to long term, flexible rental during the post-recession years, we are seeing that they are staying with this acquisition strategy having realised the benefits that come with it.”

It may be that, despite newfound “confidence” in the economic climate, an almost forced introduction to the less traditional rental market has brought its advantages to the fore.

“Unlike contract hire, vehicle hire offers no minimum hire period, and the ability to change vehicle at any point – all with maintenance and breakdown cover included as standard,” says Pearce. “It is a complete and cost-effective solution which gives total peace of mind.”

There is a long-standing view that rental is a short-term, temporary arrangement. But in reality, for many companies, it is a lasting option.

“With vehicle hire, logistics companies can take one, ten or one hundred fit-for-purpose vehicles for as long as they need them,” says Pearce. “Businesses value the fact that they have the ability to flex their fleet to match their business but also that they can predict their costs with long-term flexible rental including all servicing, maintenance, repair, breakdown and replacement vehicles.”

CV suppliers offering contract hire have to make difficult decisions about prices based on predictions. When deciding how much to charge for a contract, suppliers have to forecast how profitable the vehicles will be after they have been used by the company with the contract. In the past, getting this wrong has left whole fleets unsold – never to be used again. It’s a problem that rental hire just doesn’t generate.

“Very few businesses stand still, whether that’s because of business growth, business change (new or changing services) or otherwise, and all of these changes can have an impact on vehicles,” says Pearce. “Contract Hire is a fixed term agreement on a specific vehicle with cost based on vehicle type, contract term, mileage and service packages.

“How do you select a package and price that is future proofed against change and won’t render a vehicle unfit for purpose?”

Pearce says that if a customer isn’t able to confidently predict the future course of their business, it is even harder for a supplier.

“This is where flexible rental products have an advantage over contract hire in delivering that future proofing,” he says.

Despite the advantages of rental becoming progressively apparent, Colin Melvin, Fraikin, thinks that contract hire is still the most popular form of vehicle procurement.

“It’s a simple, easy to plan fixed cost that encompasses everything a fleet needs,” he says. “If you’re a fleet manager, you don’t need to worry about scheduled maintenance costs or repairs for the duration of the contract, and at the end of the contract, there are none of the hassles typically associated with vehicle disposal.”



Vans: Home delivery drives growth

The growth of home delivery has had a big impact on the contract hire and rental market.

“Home delivery is booming, which is fuelling demand for 3.5 tonne vehicles,” says Fraikin’s Colin Melvin. “Our vehicle portfolio takes that into account – we’ve got everything from 3.5 to 44 tonnes, although our main area of activity still focuses around 7.5-18 tonnes as that’s still a huge market.”

Online retailing has greatly influenced the decisions made by suppliers and customers in the industry.

“One of the fastest growing sectors is online retailing where the delivery of goods ‘on time’ is critical to a business’s reputation and success,” says Jonathan Pearce, Northgate Hire. “Ensuring vehicles are as efficient as they can be to reduce costs and employed in the most effective way to maximise productivity is a priority for fleet managers and business owners.

“Telematics is now central to the operations of many businesses who run a fleet of vehicles.

“Telematics can deliver management information that supports customer service improvement, reductions in vehicle running costs and duty of care and driver safety to name just a few.”


Case study: Moving from contract hire to rental


Having formerly acquired its 30-strong light commercial vehicle fleet through successive four-year contracts, United Worldwide Logistics (UWL) swapped to a rental arrangement with Northgate Vehicle Hire. The independent logistics provider, based in Pencoed, Wales, made the move after experiencing downtime costing between £500 and £1,000 per day for periods up to three weeks without an appropriate vehicle.

The company sought to tackle this issue, but it also wanted a competitive, fixed cost, alongside good customer service. Because UWL was growing, it felt it was necessary to look for an option with more flexibility, and an arrangement that would enable it to change or add vehicles to its fleet whenever it needed to.

In the past, UWL contracted vehicles for four years at a time. But with the Northgate rental arrangement, because of UWL’s high mileage requirement, the fleet is renewed every 18 months under Northgate’s policy. This makes the average age of the company’s rented vehicles 22 months.

“We all get along,” said Brian Young, operations manager at United Worldwide Logistics. “It works, it is like a marriage and loyalty is a key factor despite frequent approaches from other fleet options and rental competitors.”

According to Northgate, downtime is no longer a problem for the logistics company. It said that ‘UWL no longer contract hires or purchases any vehicles for its LCV fleet, a decision which instantly improved cash flow by £10,000.’ It has also saved £10,000 a year on service and maintenance costs.

Share this story: