Linehaul Fleet Strategy
Many contractors overlook the importance of a good fleet strategy. In the linehaul space, this becomes especially important since you’re dealing with very large, very expensive pieces of equipment that can make or break your business if something goes wrong. Creating a strong fleet strategy will not only improve the efficiency of your organization but save you a massive amount of money in the long run.
With linehaul trucks (or “tractors” as they are called in this space) you have two primary options: buying or leasing. Either option can be viable with the right strategy, but much of this decision comes down to your financial goals and available capital.
Buying
First, let’s talk about buying your tractors. Many linehaul contractors in the FedEx Ground network do purchase and own their tractors. However, this can be an expensive investment and will continue to become even more expensive as vehicle prices increase. As of 2023, a Day Cab tractor (for solo runs) will cost an average of $155,000 and a Sleeper Cab (for team runs) will cost an average of $183,000. Purchasing even a single tractor, or certainly multiple tractors, can be a massive capital investment.
If you do purchase your vehicles, you must have a strategy to replace those vehicles over time. It is not uncommon to see linehaul tractors with over 1 million miles on them, but we do not recommend running a vehicle for that long. Once a tractor reaches 400,000 to 500,000 miles, we recommend selling the vehicle while it still has a good residual value and using that cash as a down payment on a new vehicle. This allows you to make use of the best years of the vehicle and then offload the truck before the cost of repairs begins to increase exponentially. The important thing is that you create a fleet strategy and stick to it. Regardless of when you choose to sell the vehicle, purchasing a new tractor is a capital intensive endeavor and you need to account for that when distributing your profits.
Do to the capital-intensive nature of buying linehaul vehicles outright, many contractors cannot afford to buy a new vehicle. It also makes it difficult to scale the operation and add vehicles to your fleet. The biggest risk, however, is breakdowns and accidents. Most parts on a linehaul tractor will cost at least $5,000 to fix or replace. A catastrophic event such as blowing an engine can really hurt your profitability and create a logistical nightmare.
Next, we will discuss how long-term leases can help solve some of the above challenges of owning linehaul tractors.
Long-Term, Full-Service Leases
An approach we highly recommend when it comes to linehaul fleet strategy is engaging long-term leases for your trucks. These long-term leases (also referred to as full-service leases) are lease agreements that are inclusive of all repair and maintenance expenses. This decision can significantly improve the profitability of your business and add stability to your operation. Leasing your trucks eliminates a wide range of responsibilities and expenses necessary to maintain your fleet.
How Long-Term Leasing Works
As we stated above, these long-term, full-service leases include all repair and maintenance as part of the lease agreement. There are various vendors that offer long-term tractor leases including Ryder, Penske, and GATR. It’s important to complete in-depth research of each of these vendors before deciding which leasing company best fits your organizational needs.
Once you decide on a leasing company, you will then sign an agreement. With that agreement, your company will receive a brand new, fully compliant tractor and you will pay a monthly lease payment that includes all repair and maintenance for the tractor as part of that lease payment.
This effectively eliminates any unexpected expenses and massive fluctuations to your profitability throughout the year by turning a variable expense into a fixed expense. It also eliminates the need for capital expenses to replace the vehicle. While you do save money initially on repairs when purchasing a new vehicle out of pocket, you also have to raise capital over time to make a massive purchase at the end of the vehicle’s effective life.
Experience Requirements
The majority of full-service lease vendors have a minimum experience requirement. In previous years this requirement has expanded from 1 year to 2 years. This means that companies like Ryder and Penske (to give two specific examples) will not allow you to lease with them unless you have 2 years of linehaul contracting experience. These requirements can change over time, so it’s important to speak to each vendor and understand what the requirements are. You do have workaround options that typically involve the previous owner signing as a guarantor of the lease. If you do have to purchase vehicles until you can qualify for a lease, you will need to account for that expense and negotiate accordingly.
Calculating Your Lease Payment
When signing your lease agreement, you will provide the vendor with an estimated annual mileage. From that estimation, the vendor will determine a monthly fixed charge and a per mile rate based on the annual mileage you provide. Keep in mind that these fees will vary depending on the company and what is stated in the lease.
From our experience, we’ve found that the total cost of a full-service lease vehicle is the same or better compared to purchasing a vehicle when you include the cost of repair and maintenance and the capital expense of replacing the vehicle. The peace of mind and consistency that a lease gives your operation can be invaluable to you as an owner.
Benefits of Leasing
Keep in mind that the services/benefits each vendor provides will vary. Below, are some of the benefits you can receive if you lease your trucks:
You can customize the specifications of the trucks
Add safety technology to meet FedEx Ground standards
Contact the vendor for breakdowns and any performance issues
The vendor will handle all maintenance
A discounted price on trucks
You will never have to purchase another truck
Peace of mind and easy expense tracking
Using Leasing as a Retention Strategy
A long-term, full-service lease can also have adjacent benefits to your driver retention and recruiting as well. It’s no secret that driver retention can be a challenge in this industry due to the high demand for Class A CDL drivers. However, by leasing your trucks you are providing your drivers with new vehicles with the latest technology, and those vehicles are renewed with every cycle of the lease. This is a great way to retain drivers, because your drivers are more likely to stay with your company when the equipment is well-maintained.
You can also outfit the leased vehicles with the comforts linehaul drivers prefer and allow them to help select the features of their future vehicle, such as refrigerators (only really important for team runs). This helps show drivers you appreciate them and value them by providing a quality tractor, knowing that they are going to spend most of their time in that vehicle.
Want to Learn More?
Dive into the world of logistics and delivery routes with our complimentary FedEx Ground Routes 101 E-Course. This course will teach you the fundamentals of delivery routes so that you can decide if this is an industry worth pursuing further. Whether you’re interested in FedEx Ground routes, Amazon routes, Bread routes, or other logistics operations, we are here to help. Enroll now for free and take the first step towards entrepreneurship in the e-commerce space.
