Ian Vallely

Hire education

Features
6 mins read

Is upgrading your forklift truck fleet on your 2016 shopping list? Ian Vallely looks at what’s on offer from major FLT suppliers and gives an expert guide to adding more value to your hire deal

On the basis that there’s nothing you can’t rent or lease, the hire business has the distinction of being the biggest industry in the world.

Of course, being big doesn’t protect it from the vagaries of a turbulent market. But progressive businesses do more than simply respond to external change; they drive it from the inside too. That’s precisely what right-thinking forklift truck suppliers are doing, and it’s paying dividends for factory managers in terms of more flexible hiring options and better finance deals.

The typical rental period for a forklift truck is five years with anything from zero to three months’ advanced rental as a deposit. However, there are exceptions to this general rule.

Craig Johnson, marketing manager of Jungheinrich UK, explains: “Customers are looking for a full-service solution at a fair price. The actual lease period depends upon the truck type, its expected usage and the level of service required. In most cases, five years is appropriate, but for more heavily worked trucks or those operating in a harsh environment, three years would be the norm. Light usage, or for trucks operating on a site with a resident engineer, a seven-year term may be feasible.”

The length of the lease comes down to pragmatism. As Martyn Fletcher, president of the Forklift Truck Association (FLTA), points out: “The ideal formula should seek to maximise the usefulness of the truck before either party incurs the cost of repetitive breakdowns.”

Lease rental is by the far the most popular method of acquiring a truck in the UK because it allows customers to plan budgets with confidence while also maximising financial flexibility.

Indeed, many businesses prefer to avoid using their own funds to acquire equipment and instead enjoy the benefits associated with finance. Jon Buckley, head of network sales at Linde Material Handling (UK), explains: “In the UK, 80% of handling equipment sold is purchased through contract hire with maintenance.

“This allows businesses to acquire new equipment with low initial outlay, avoiding tying up capital and offers fixed repayments, including maintenance schedules, which can be tailored to mirror the cash flow of the business.”

Furthermore, the contract term can be designed to match the economic life of the equipment. Buckley again: “In most cases, no other forms of security checks are required to support lending, unlike traditional business banking facilities.”

None of the people Works Management spoke to when researching this article were able to give a typical rental price. The FLTA’s Fletcher explains why: “There are between 700 and 1,000 variations for almost every type of truck (accounting for mast, height, aisle width, etc) so [providing a typical rental price] is impossible.”

Tony Wallis, commercial director, Toyota Material Handling UK, agrees. Asked whether he could provide a price for, say, a fleet of five trucks on a five year rental, he responds: “No we can’t and the reason is simple. Every site and every business should not enter into a sale or rental programme unless a full site survey is completed and the true requirements assessed.

“This is an increasing issue in our industry. We are discovering more and more competitors quoting remotely and this leads to incorrect specifications that have both productivity and safety concerns.”

He says the widely held belief that capital is the most expensive part of purchasing is a myth: “Customers should consider the whole life costs plus what the service coverage and guarantees are for uptime, response times and first time fix rates. A poor purchase decision can create huge costs in terms of productivity, performance and operator motivation.”

Look past the price tag

Sally Baker, marketing manager Briggs Equipment, warns that buying on price alone is a short-sighted approach to materials handling management: “It is a decision likely to backfire in light of growing customer demand for longer rental/lease contracts. When it comes to fleet expansion or equipment upgrade, an evaluation of lifetime costs enables fleet managers to arrive at a meaningful figure and facilitates comparison.”

The cost of rental is linked to the number of hours the truck is operated so many factory bosses must be tempted to play usage down to get a better deal. However, for Fletcher, any short-term gains this achieves will quickly be outweighed by significant long-term costs: “Let’s say you’re doing 40 hours, but for the sake of a good deal, you tell your hiring company you’re only doing 20. It means a low monthly payment… until it catches up with you.

“When your contract comes to a close, your true usage will be revealed and you’ll face a large bill for those unexpected hours – at a higher rate.”

So, be as realistic as possible to minimise excess charges. Jungheinrich’s Johnson says: “For existing customers, we can look at historic rates of usage and then make adjustments according to predicted changes in work patterns. But basically, it’s all to do with residual values, which depends on the marketable value of a second hand truck. If the forecast hours are out of kilter with actual usage, the contract can be flexed.”

For Toyota’s Wallis, underestimating hours and service requirements can easily result in more breakdowns and lost productivity as well as higher costs. He adds: “Good contract management and telematics will eliminate this. The other major impact can be operator safety and this leads to injuries, which, in worst case scenarios, are fatal and no cost savings can bring back a fatality.”

The benefits of a site survey

A servicing/maintenance package is often included in the rental price. However, Fletcher has this warning: “Before choosing your servicing and maintenance, make sure that your truck is suited to your application. A very accurate site survey will match you up to the best type of equipment and will consider environmental factors (for example, is noise an issue?), fuel types and user preferences.”

A responsible lift truck company will insist on performing the site survey in the presence of the user. From there, you can select the best package available. You may choose service support only, which covers routine maintenance, but where you pay for breakdowns. However, rentals are typically arranged with all-inclusive maintenance which covers everything except damage, abuse, neglect and theft.

It pays to consider the penalties for truck damage within your lease deal, says Toyota’s Wallis: “Most lease deals do not include customer truck damage and therefore it is an unpredictable additional cost. But managers can work with their teams and their supplier to reduce the risk of damage to trucks. We try to work with our customers to reduce damage.

“We have programmes for drivers to make them aware of the cost to the business; we also have truck management systems that identify shocks to the trucks which can identify the driver, the time etc… Good contract management and truck telematics can provide real-time information to help you understand areas for improvement in your operation.”

In the case of Jungheinrich, there are no penalties, as such, for damage to a leased truck. Johnson says: “Our engineers make regular inspections of the truck throughout the hire period and will highlight any necessary repairs. A condition of hire is that the trucks are covered by insurance – this should be protection enough.”

The FLTA has published a guide called Fair Wear and Tear (http://bit.ly/1Sb6xmS), which explores this issue in more depth.

Useful contacts

Top tips for renting

  • Offer the supplier full access to your operation/application and provide detailed information.
  • Determine the weight the forklift must lift and carry, and the lift height required. Identify the environment and ground surface(s) the forklift will be driven on. Calculate the amount of time the forklift is required to complete the job and set a budget.
  • Rent from a reputable hire company – Forklift Truck Association (FLTA) members abide by a common code of practice that defines a national set of ethical and safety standards (see http://bit.ly/1ZJ6LSO).
  • Check that the rental agreement does what it says. So, for example, is full battery cover and lifetime power guaranteed? Does full maintenance actually mean full maintenance? Ask about optional equipment if your application requires attachments.
  • Decide on the most appropriate rental contract – see the box (‘A new lease of life – types of hire’). The rate per day is lower when you rent for longer periods of time.
  • Read the terms and conditions thoroughly to see what is included in the cost of rental and what is not. Check service levels/provision and, importantly, be realistic when assessing your hours of usage.
  • Check your company’s insurance policy to verify coverage.
  • Treat the forklift as though it were your own because the hire company will assess charges for rental units that are returned damaged.

A new lease of life – types of hire

Short-term: If you need a truck, maybe to meet a surge in demand, replace a vehicle being repaired, or to try new types of equipment before to buy, then short-term hire might be the answer. The term can be anything from a day to several months; in some cases, it’s open-ended.

Long-term: This is simply a longer version of the short-term contract. By signing up to a longer period of hire it is possible to get reduced rates and better long-term availability of the equipment.

Contract: This is sometimes called long-term rental, but should not be confused with long-term hire, according to the FLTA. There is an agreement for the provision of specific equipment for a set contract period, typically three or five years. The equipment user pays a fixed monthly or quarterly rental, but the equipment remains the property of the organisation financing the arrangement.

Other terms: Other terms may be used by different suppliers. The FLTA offers the following examples:

  • Hire purchase or lease purchase – a form of finance resulting in ownership by the user.
  • Purchase and hire back or buy-back and re-rent – a hybrid scheme involving the purchase of the user’s existing trucks.
  • Stand-by rental – a form of guaranteed casual hire.
  • Flexihire or flexible rental – a flexible form of long-term rental.