Mastering Truck Acquisition with Alex Frum
In this episode of Industry Insights with Route Consultant, we dive deep into effective linehaul truck acquisition strategies and capital management with Alex Frum, owner of Alpha Kilo Logistics. Discover game-changing tips on selecting the right trucks, financing options, and maintenance strategies to boost your logistics business.
Learn about the nuances of leasing vs. financing, the importance of dealer relationships, and the critical role of warranties. Plus, Alex shares his unique approach to maximizing vehicle life cycles and navigating the used truck market. Whether you're a seasoned logistics professional or new to the industry, this episode is packed with valuable insights to help build a stronger, more profitable business.
About Alex Frum
Alex is the owner of Alpha Kilo Logistics, a Transportation Service Provider (TSP) for FedEx Ground with operations in Memphis, TN, Olive Branch, MS and Independence, KY. In addition to his Linehaul activities, he is a co-founder of the Linehaul Summit & Expo and provides consulting services to potential and existing Linehaul Contractors. Prior to becoming a FedEx contractor, Alex spent 15 years on Wall Street managing a fixed income trading desk and serving as a regional branch manager. Alex is a former Army officer and a graduate of the United States Military Academy. He is happily married to his wife of 18 years and has 4 beautiful kids.
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Josh Gregory: [00:00:00] Welcome to Industry Insights with Route Consultant, your front row seat to the fast moving world of logistics and beyond. Each week, we bring you game changing insights, real world strategies and fresh perspectives to fuel smarter investments and build stronger businesses. Join us as we sit down with expert guests to explore emerging trends and pressing topics across a wide range of industries.
This is industry insights. Well, Alex, we have you here. Again, I've trapped you here like we talked about and brought you back. So, uh, today I really, I just
Alex Frum: wanna make sure everybody understands that I have more than one shirt, so you don't think that I, I just keep my, I only wear, whenever I fly into Nashville, I'm only wearing the same shirt over and over again.
Yes.
Josh Gregory: Yeah, we, we actually keep it here so that as soon as you get here, we put it on you and then you're ready to go. You're in your filming outfit.
Alex Frum: Yeah. No, there's only so many ways you can match black and gold. Yeah. And you know, given my coloring. I, you know, I don't want to be [00:01:00] like a yellow, you know, Popsicle.
So I usually go, that's fair. I usually go black with a little bit
Josh Gregory: of gold, you
Alex Frum: know, piping.
Josh Gregory: Yeah. And, you know, I went to Vanderbilt, so I, I'm a big fan of black and gold, so, yeah. Uh, you know, at some point I'm gonna need some alpha, kilo, uh, gear so that I can advertise for you in Nashville. Well, I'm
Alex Frum: a big
Josh Gregory: fan of the Golden Knights.
I. I'm a big fan
Alex Frum: of the Army Black Knight, which are black
Josh Gregory: and gold. Yeah. Yeah. So, well, yeah, and then I went to Wake Forest for grad school, so I just didn't change any colors. Yeah, exactly. So that was nice. Yeah. Well, uh, besides black and gold, I think today we'll talk a little bit about trucks actually.
And, and when I say trucks, I'm talking about like an actual strategy around how to get trucks, what types of trucks to target in, in the line haul space in particular. So, uh, I know there are. A hundred different ways to think about this and what capital strategy, but for you, how do you attack and, and kind of think through your truck strategy?
Alex Frum: Um, so first of all, I'm gonna be, um, truck neutral. Mm-hmm. At the end of the day, it's, uh, my one suggestion to you is determine who you like working with. Mm-hmm. [00:02:00] Whether it's a dealer or a leasing company or a maintenance provider. And then based off of that. Then you can decide what truck you want. Yeah.
Um, at the end of the day, there are, there are differences in nuances between a Freightliner, a Volvo, um, an international Kenworth and a Mac. Mm-hmm. But they're not great enough where they supplant what your relationship is. Mm. With your dealer who can provide you with trucks or leasing options or sourcing, you use vehicles or your mechanic who can repair those vehicles for you.
Mm.
Alex Frum: Whatever you do, just have a strategy in place and make, uh, and think about the long-term impacts. Um, now I do find I finance most of my vehicles because I like owning my trucks. I'm not afraid of the maintenance, and I really, really, really appreciate the accelerated depreciation. So I don't have to pay or I can offset.
Just about 100% of my income and I
don't have to pay taxes.
Josh Gregory: I know plenty of people in the linehaul space that that's like, uh, the depreciation from the vehicles was the number one reason they got into the [00:03:00] linehaul space, so, yeah. Um,
Alex Frum: so, um, but you know, there are a lot of people who are very successful who do leases.
Mm-hmm. I have a couple leases on my books. I have six of 'em. Mm-hmm.
Um,
Alex Frum: out of my 36 trucks I leased six. The reason why I leased was one I wanted to explore and see Yeah. How leasing worked versus financing. Um. You know, I thought might, might be a viable strategy. IDI don't prefer leasing, especially on solo or day runs.
Mm-hmm. I think on teams it's a different status situation because, um, it goes back to the strategy of how long are you gonna own a vehicle. Yeah. Um, so for me, I. Um, I, um, I run both teams and day, uh, day runs. I don't actually run a whole lot at night, but, so, or solo runs. Um, my teams, I look at trying to replace that vehicle every two to three years.
Okay.
Alex Frum: And I try to replace 'em before the warranty expires. Hmm. Um, and the reason why is that I want five EI, I always request an extended warranty. I do five years, 600,000 miles. Okay. [00:04:00] Um, one is that FedEx is notorious on teams of. Really putting your truck to work. Mm-hmm. So the average, oh, uh, the average, um, carrier out there does not do 250,000 miles a year with a track, with a team.
FedEx regularly pushes their teams to 250 to 300,000 miles a year. Mm-hmm. It's just do the math. Right. If you do a 5,000 mile run, you're doing it 52 weeks a year. You're well north of 250,000 miles. Mm-hmm. Um. So if you do 6,000, you're well north of 300,000 miles. So it's just something to think about in the back of your head.
Um, so why I want the warranty is that if I have a breakdown, and we talked about this in maintenance, if I have a breakdown in the middle of nowhere, um. Yeah. You know, between Billings and Fargo, North Dakota, I want to know that I can get that vehicle repaired by an OEM mm-hmm. And that they're gonna prioritize me because I have warranty in place.
Yeah. Um, and that gives me peace of mind and allows me to [00:05:00] sleep
Josh Gregory: at
Alex Frum: night.
Josh Gregory: I think, 'cause I think people forget, there won't, there may be a mechanic in the area
mm-hmm.
Josh Gregory: Who can do normal cars, but the, the odds that it's a diesel mechanic, that it's able to operate quickly and actually repair one of these sized vehicles is low if you don't already know.
And a lot of
Alex Frum: times you actually. I mean, the vehicles are really becoming, uh, very sophisticated. Mm-hmm. So in general, the first step for a mechanic to do any kind of, um, uh, due diligence or, uh, do any kind of analysis of what the fault is, is they're gonna hook your truck up to an iPad Yeah. Or, um, a tablet of some sort.
And it's gonna read through all the faults that have been identified by the cpu mm-hmm. Or the, the Sam. Um, so it's gonna actually tell them. Okay, you have an F nine failure, and then you go to the user manual or the mechanics manual and they'll say, okay, these are your troubleshooting steps if you have an F nine.
And it'll be like, you know, is this yes, no? Is this yes no? Yeah. Is this Yes, no. And [00:06:00] that's what the process is. And so it's all done by tablet. It's all hooked up to, um, the CPU, um, through, usually nowadays it's through, it's through, um. Uh, I think they call it the jbu. Hmm. Which is underneath, uh, at least on freight liners.
It's usually underneath the steering column.
Hmm.
Alex Frum: Um, it's the same place you hook in your, um, your ELD or your better. Yeah. You know, it's a, it's a, it's a. It's a hub. Yeah. Um, so that's one of the reasons why, uh, for teams, I always try to do two to 3-year-old vehicles at a minimum with, um, five or 600,000 mile warranties on 'em.
Mm-hmm. And I, I generally trade out the vehicles around 500,000 miles. Um, so that's why you can do leasing REL Ride or Penske because they can set up programs where, you know, you'll take on this vehicle and do it for two years and then you. You turn it in, exchange and get a new vehicle or you can go the financing route.
Um, I do all 100% Freightliner so I can rotate my team [00:07:00] trucks from being a team truck into a solo position.
Yeah.
Alex Frum: Um. Am I giving up a little bit of fuel efficiency? Potentially though, anecdotally it looks like actually a team truck, uh, even though it's heavier, is more fuel efficient because it's creating a bigger wind tunnel mm-hmm.
As it's driving down the road than a day cab. So you don't give up all, all that much.
Okay.
Alex Frum: Um, uh, the, and then you have to make a choice on like what kind of engine you want or what size engine, and generally you're not pulling heavy loads, so you don't need a tremendous amount of. Uh, engine power, you can go with a, a lower horsepower engine if you want.
Okay. Um, because packages don't weigh that much. You're not moving heavy farm equipment.
Josh Gregory: Yeah. So you've talked about. And kind of your how long you take these vehicles. Yeah, but for solos, well, that's a team for
Alex Frum: solos. Now I estimate that a solo will last you 750 to 850,000 miles. Okay. So if you think about your average solo does somewhere between [00:08:00] 125 and 150,000 miles.
It can do as little as a hundred thousand miles. So if you're doing a 2000 mile run, that's about a hundred thousand miles. If you're doing a 2,500 mile run, that's about 125,000 miles. If you're doing a 3000 mile run per week, that's 150,000 miles. So that's just put you in the ballpark of understanding where you are.
Um, so if you think about it, you know, if I buy a truck, um, I can monetize one, one, I'm depreciating that immediately. Mm-hmm. So I offset my income and then I can monetize that truck over a 6, 7, 8 year time horizon.
Okay.
Alex Frum: And then here's the thing about it. You wanna make sure you know if you do it right, you can sell that truck from next to nothing and then you don't have any depreciation recapture at the end of the day.
So a lot of times when I sell my trucks mm-hmm. I sell 'em for $5,000. Okay, so I don't have to pay a capital gain on, I've had a truck that I depreciated down to zero. I sell it for $5,000. I have a capital gain now of $5,000. Mm-hmm. I have to pay taxes on. [00:09:00]
Josh Gregory: Do you sell it to back to a dealer? Do you do open marketplace?
Where are you doing? I generally
Alex Frum: sell it to a guy who crazy enough, he cuts 'em in half. So he cuts the frame in half. Okay. So it's no longer a truck. Now it's just parts of a truck. Okay. You have a front half and a back half. Yeah. And then he, he exports them to Central America. Okay. 'cause there is a. Um, that was not the answer I was expecting.
No, it's not. It's kind of crazy. And it's, yeah, it, and you know, goes, we're talking about tariffs, right? Yeah. Yeah. So it goes back to the tariff. Like you cannot export. I think the United States has, um, has limits on what you can export to central and South American countries. Okay? So we cannot export a full service tractor to them, but if you cut it in half, but if you cut it in half, it becomes a repair part, and you can export all the wow, all the repair, all the parts of a truck you want.
Okay. Um, so I don't know if it's a limit on the c you know, Costa Rica or Nicaragua or Honduras, or if it's a, a limit on the United States not wanting to exchange technology.
Okay.
Alex Frum: It could be [00:10:00] both, but by cutting the, these guys who literally will cut the vehicle in a half. Yeah. It's like it's literal chop shop.
Yeah. I mean, it's crazy. Yeah. You know, I've, I mean, I've never seen one of my own trucks. Yeah. But I've been to Costa Rica and I've seen. You know, tractor trailers, and it's crazy. You can see the weld marks on the, on the frame. That's hilarious. Yeah. How did you find this guy? Uh, they call you up. Oh, okay. Or, you know, they know, they know who they need to call.
Yeah. Um, or there's, the other thing you can do is you can sell 'em at auction. Yeah. Um, so there is, um, there's a number of different auction places around. Mm-hmm. Um, any city where they auction off. You know, equipment?
Mm-hmm.
Alex Frum: Um, they're kind of crazy. You can buy, I mean, if you wanted to buy a bucket loader, you can buy a bucket loader.
Yeah. And auction for. Cents on dollar. Yeah. It might not work, buy it as is, but you can find it in those locations. And a lot of those same guys are so, like I had auctioned off like a bunch of vehicles. Yeah. And the guy who bought 'em all up called me up and is like, Hey, you don't need to go through the auction and pay this guy come straight to me.
Yeah. You know, [00:11:00] 10% of the auction, uh, I'll just, I'll just take 'em from you. You know, off your hands. That's awesome. Um, and the, the, the one crazy thing about, it's that he generally pays me in cash. And so it's always uncomfortable when I show up at the bank and I'm like, here's $30,000 in cash. Oh, man. You know, like in a bag.
Yeah. It's not like, it doesn't give you a cashier's check. It's literally the, the dollars,
Josh Gregory: like the most cash you've ever held,
Alex Frum: it's so uncomfortable and you had to fill out the forms just. To prove that you're not a money launder or a a drug dealer, and it just makes regular cash deposits. It's just the weirdest thing.
That's great. I mean, I mean, banks are, I mean, they're usually pretty, you know. Yeah. You know, they, they deal with this, I mean, they have a lot of companies that are, I mean, even in this day and age, they have a lot of companies that are very Cash, cash based. Yeah. Cash based. Um, so they're, they're used to it.
It's so, it is a little bit uncomfortable when you go in and be like, Hey, I gotta deposit $30, 30,000 in cash. Uh, and then they sit there and they count it and they have to count it
Josh Gregory: twice. Yeah, that's great. So, so you, you talked some about [00:12:00] how, you know, the end of life for vehicles 850, 750 for teams. Yeah.
Are there any trigger points or is there, what, what would make you decide to extend the life of that vehicle beyond that mileage threshold
Alex Frum: that you said? Yeah, so, I mean, there's a lot of nuances. So one of the things that I like to do is I like to look at. Um, the cents per mile. Mm-hmm. That buying that cost.
And this is something that a, another contractor, um, his name is Jim Voor. He runs out of Pennsylvania. Mm-hmm. Um, he's kind of been, um, he's, he's an ex Wall Street guy like me. Yeah. Um, that, you know, looks at it, you know, tries to boil everything down into a cents per mile. So if you think about it, if you buy a truck, we're just gonna use round numbers to make the math easier.
Yeah.
Alex Frum: If you buy a truck for a $100,000 Dollars and that truck is gonna run a hundred thousand miles, then that cost to own that truck is $1 per year. Now if you monetize that over, say seven years mm-hmm.
You
Alex Frum: know, you're assuming that you're gonna be able to run it for seven years and you're gonna do 700,000 miles, then that ownership of that truck is 7 cents [00:13:00] per mile.
Okay. So that's just the way to think about it. So what I will do at that point, where the end of life is. Mm-hmm. usually. What you're losing the truck for at that point is that the engine is going bad. You know, 750,000 850,000 miles, you generally need to replace the engine. You don't need to replace the frame.
Um, I've never actually, I've had trucks to go over 2 million miles and I've never actually had to replace a transmission. Okay. You'll have to replace the clutch. Yeah. Um, but the transmission. I don't know what Eaton Vance or Detroit or whoever, the, the other big, whatever magic they're doing, they're, they're amazing.
So you'll rarely ever have to replace the, uh, that, I mean, you'll probably have to replace a one box. Okay. Which is the, it's kind of crazy. The, the DPF system, the diesel particulate, uh, yeah. Filter system that, uh, removes all the diesel particulate from the engine. Um. The actual system is called a one box.
'cause it's one box that does everything because it's one box. Yeah. Clever. So you, you'll probably have to replace that around somewhere between [00:14:00] 600,000 and a million miles. Okay. Um. But in general, what happens is that around seven 50 to eight 50, the engine, your, your injector rings are getting, uh, worn out.
Your cups are getting worn out. The, the head cylinder mm-hmm. Or the head gasket might be blown, or the head is becoming loose. Your rockers might be, you know, no longer efficient or the actual cylinders might be loose, and so you're not getting, you know, really great suction on the, you know, the combustion mm-hmm.
Of the engine. And so you need to replace the engine. So an engine. Um, you can buy an engine from Detroit or Freightliner, or from Volvo or from Mac or whoever and they, or, or from Cummins, and you can just drop it in. Mm-hmm. And it costs about $40,000. Okay. So in general, it's usually more efficient to go out and buy a used tractor at that point of cost of buying because you're getting both an engine and you're getting.
Um, all the, the tractors. Well,
yeah,
Alex Frum: but you know, in times when the used truck market is really, really expensive, think the pandemic. Yep. You know, just going out and buying an engine and [00:15:00] replacing the engine is, is a, is a very efficient way to do it. And so I've done that in the past.
Mm-hmm.
Alex Frum: Done that, you know, comparison of, okay, this is what a new truck costs, this is, or this is the timeline to wait to get a new truck.
Mm-hmm. Like right now, it's a very attractive time to buy new trucks. There's no wait time to buy one.
Yeah.
Alex Frum: Um, but when there's a long lead time. Um, or if there's delays, like think about the pandemic, um, then it might make more sense to buy, to go into the used truck market to buy trucks. Now, if the used truck market gets really, really expensive, um, then you can look at just replacing the engine or replacing the components that you need to,
yeah.
Alex Frum: Um, so I mean, that's all the math that you have to do. You wanna look at, okay, how if I replace the engine and I expect to get three, four years outta this engine. Okay, so the engine costs $40,000.
Mm-hmm.
Alex Frum: I've already monetized the cost of that tractor. Um, I'm already estimated that I'm paying 10, 15, 20 cents per mile for the maintenance because it's an older truck.
But now if I put that engine in there [00:16:00] and I expect to buy an engine for $40,000 and install it for 40,000 or whatever that number is, yeah. But we'll use 40,000. Um, and I'm gonna run it for, say. 400,000 miles. Mm-hmm. You know, so you bought a truck for $40,000, you're running it for 40 400,000 miles.
You're paying effectively a, you know, 1 cent per mile. Yeah. It makes a whole lot of sense at that point of time. Yeah.
Josh Gregory: Yeah. And. So when is there another consideration as well around financing rates? Because I know that there were people who, when, as rates have been high in the past few years, said, okay, it makes more sense to try to extend the life of this vehicle rather than finance a new one because it's so expensive.
Yeah. So interest rates make a big
Alex Frum: deal. Mm-hmm. Um, so the. The truck prices, obviously we've gone from appro approximately 120,000 to 160,000 for a so for a day cab between 2019 and 2025. Mm-hmm. You know, while that increase has been great, um, the technology on the truck and the fuel efficiency you're [00:17:00] getting kind of makes up a lot of the difference.
Mm-hmm. Um. Or not all the difference, but some of the difference. But what, what's become more expensive, obviously, is interest rates going from 1.5% to six point half percent. Mm-hmm. Um, or actually, you know, truck acquisition. So when you're buying new trucks, if you go to a bank to finance it, the cheapest place to finance trucks is through a bank.
Mm-hmm.
Alex Frum: The second cheapest place is to go through the OEM, um, non-bank financial system. So pack our financial, Detroit Financial. Mm-hmm. Hmm. I think it's actually Daimler, uh, for Detroit or for Freightliner. Volvo is Volvo, um, or Toyota or whoever. Um, that's the cheapest place to go. Uh, so the cheapest is bank.
So think of Bank of America, JP Morgan Chase, bank of Montreal. Uh, from there, the second cheapest is going through the OEM financing arms. Mm-hmm. So pack our, um, Daimler Volvo. The third is to go to third party. Um. Non-bank [00:18:00] lenders like AP Finance. Yeah. Um, or else. Um, and then the fourth is actually the leasing companies.
Mm-hmm.
Alex Frum: The leasing companies don't want to tell you this, but they usually, they're not a bank. There's a rate baked in, so they, there is a rate baked in. Mm-hmm. Um, you can generally back into it. Mm-hmm. It's, it's a little bit. Complicated. Um, it takes some, takes some knowledge of understanding how, what, what is the amortization schedule, how to build the amortization schedule, and then how to do the Monte Carlo simulation to solve for what the embedded interest rate is.
Mm-hmm. Based off of the premium and and interest premise that you're making. So that'll be our next session, right? Yeah. And then pulling out like all the ancillary costs that they bake into it. Yeah. So you just want to get to this, the, the premium and interest payments. Mm-hmm. Uh, excluding all the, the costs that they attach to it.
Um, you can figure out what the embedded interest rate is in the lease, but generally, like if I'm financing at, so if I go to a bank. Say right now, um, I go to a bank, I get 7.5%. Okay. [00:19:00] If I go to an OEM financing company, um, all things being equal and they're not running any incentives, they're probably somewhere around eight to 8.5%.
Um, you go to AP Finance, they're probably somewhere around 10 to 11%. Mm-hmm. You know, they're gonna make a hundred or 200 basis points of. Of, um, margin themselves. Yeah. Because that's where they're making their money on fin uh, facilitating you. So they go to the bank where, because they can get the financing and you can't.
Mm-hmm. And then where they're making their money is on the margin differential between where they borrow versus where they lend to you. Yeah. And then the leasing company is the same kind of thing, but you know, they're gonna. They're, they're gonna charge the same amount roughly as what a non-bank financing company is gonna be.
Yeah. So you're looking at, you know, AP Finance or a rider or an REL or a Penske is probably gonna be around that 11 to 12% embedded financing cost. Yeah. So I, [00:20:00] and it seems like a lot, um, but you're, the business can sustain it.
Josh Gregory: Yeah. Does it, have you found that you always do banks, that you do OEMs or that are pros and cons beyond just the rates when you're trying to decide that option?
Uh, I,
Alex Frum: I, um, I've done, I've done pretty much only banks. Okay. Over the last four or five years. I have done some, um, OEMs when they're really, really aggressive. So like, when they're sitting on, you know, when, you know there are times when OEMs will do 0% financing.
Okay, well then yeah, it's like of
Alex Frum: course, so when you, when you get that 0% financing, yes.
It makes a track, uh, makes it a sense. Or when they're running incentive plans. Mm-hmm. Um, 'cause a lot of times you'll know when they are because your salesman is really trying to encourage it because they're usually getting a kickback themselves mm-hmm. For encouraging to get into it.
Yeah.
Alex Frum: But otherwise, you know, the salesman doesn't care.
It doesn't do anything different. Now, one thing to understand is you need to read the fine print. Mm-hmm. Um, there's [00:21:00] usually. Termination penalties for terminating early, and you need to understand what that is. Um, and they, they're quite expensive, um, especially in bank financing because what happens is now we're getting into the plumbing.
Um, banks don't keep. You know, your loan on their books, what they're gonna do is they're gonna repackage it and put it into what they call an asset backed security.
Mm-hmm.
Alex Frum: Um, so it's gonna be sold to a bunch of investors, probably, you know, remember that South Park video, you know, where you see, um, uh, God, it's the, he goes up to the bank and it's during the financial crisis and like, you're gonna deposit a hundred dollars in.
You know, I put it into a Japanese money market fund and poof, it's gone. You know, it's kind of like the same thing. You know, you go to the bank, right? And you're lending them, you're borrowing money from them, and they take your money and they're packaging up and they sell it to, yeah. You know, some investor in Germany or in the, in the, in the Middle East.
Yeah. That's what they're doing with it. Okay. So. There is a pre, they, you know, the investor wants to buy a five year security that's yielding 6%. Mm-hmm. They don't want you [00:22:00] prepaying this investment at year two or year three. Yeah. Because they expected to be able to invest this money for five or six years.
Yeah. So there's gonna be some prepayment penalty. There's usually, um, you can negotiate the prepayment penalty and you usually wanna do, you're never gonna be able to get it to zero, but you can do an amortization schedule, so the prepayment decreases over time.
Josh Gregory: Okay.
Alex Frum: Um, and I usually structure it because I'm predicting what I'm gonna.
Prepay my vehicle. So I usually try to hit it at around the two and a half to three year mark. I'm trying to get it as close to zero as possible.
Okay.
Alex Frum: Um. Leasing, it's really expensive. You know, they're early expecting, get out early to get out early. They don't want you to get out early. Now the nice thing about lease is that you can usually get somebody to assume your lease, and that's attractive.
Mm-hmm.
Alex Frum: So when you're going through your acquisition strategy and you're looking at, you're willing to buy used trucks, look at that used. Lease market. Mm-hmm. You know, talk to Ariel. Oh, okay. Talk to Ryder and say, Hey, are there any leases that I can assume? And you might get a pretty good deal
Josh Gregory: because, so they might have a list of people [00:23:00] who have said, I'd like to get out of this early Yeah.
But I don't wanna pay the prepayment penalty. And they'll see, let, let me see if I can find anybody. Yeah. So they, they actually will have that list. Okay. That's a, that's a good call out. Yeah.
Alex Frum: And it's kind of, it's kind of fun because then you might be able to get the guy who's trying to get out of the lease.
Yeah. To maybe, yeah. Subsidize you a little bit. Yeah. Like I'll cake on $50 per month of this lease just to get out of it because usually they're exiting the business
Josh Gregory: and otherwise they're stuck with the full lease cost. Yeah. Okay. That makes sense. So, so we talked about the, the places you actually go to finance it, but where do you actually typically go to find these vehicles used or new, different places?
Uh,
Alex Frum: so, um. So like we talked about the, the leasing companies. Mm-hmm. So REL, Ryder Penske, they have stock Yeah. Are the primary leasing companies. Um, RE L's really great because they actually understand the FedEx system. Yeah. Ryder's pretty familiar. I've never done Penske, so I don't have any comment. Yeah.
Um, there are some guys who are really successful with Penske, especially Dallas, Florida markets. Mm-hmm. So, I mean, that's a viable option to look at, um, on the. [00:24:00] Uh, when I'm buying new trucks mm-hmm. I'm generally going to the dealers that I have relationships with. So it's either fi a, um, in the Ohio vat, river Valley Fi a Freightliner, and in the tech in the Memphis, Arkansas, Texas markets.
I'm going to tag Truck center.
Mm-hmm.
Alex Frum: Um. And the nice thing about them is that, you know, I have a great relationship with them. They prioritize me, they prioritize my servicing of my vehicles. Um, I've negotiated national service rates mm-hmm. Or labor rates with them, so it's great. Yeah. So I'm a. A preferred freight liner.
It's kinda like a Miles Plus card, you know? Yeah, yeah. Like I'm not only United or a Southwest member, but I'm a Freight liner preferred member. So. Nice. Yeah. You know, I get to go stay in the Freight liner Club when my truck is down, but no, they give me like a preferred rate, so like I'm get, I know what my labor rate is gonna be.
When I'm getting work done in Billings, Montana or in Spokane, Washington. Yeah. That's nice. Um, which is nice. Um, and then they prioritize my vehicles. Like my [00:25:00] vehicles come in, they scan my vin, they know that I'm a priority mm-hmm. Customer and they, they'll, they, they take care of me. Barbecue. Yeah. Um, like it happened yesterday night, like one of my trucks went in for, uh, got Derated.
Mm-hmm.
Alex Frum: Um, we found a, uh, freight liner dealership that was running 24 7. They're not freight liners will run extended hours, but they don't always run 24 7 like a TA or a Loves does. But this one did. Um, and so we brought it in. They, they, they, they got us in within two hours. We were out on, back on the road within four.
Nice. So it was perfect. Yeah. Um. So, uh, so I go to the dealers, you know, I, I have a dealer in Memphis, olive Branch, and I have a dealer in mm-hmm. Um, Northern Kentucky. Uh, where I do, uh, most of my acquisitions from when I'm use, when I'm looking in the used market. Um, uh, my dealers also have used trucks.
Yeah. But then there's a, a company called Select Trucks. Mm-hmm. Um, I think they're associated with Freightliner. Um, and they source a lot of fleets. Mm. So, like when JB Hunt or when Old [00:26:00] Dominion, or. You know, uh, XPO wants to dispose of their fleet. Um, you know, they're disposing of a thousand trucks. Yeah.
And so select will truck will come in and buy, you know, 50, a hundred, 200 trucks at a clip. Um, or they'll facilitate the transaction of XPO or somebody selling all these trucks and acquiring new ones. So there's usually a fleet of them. And the nice thing about buying trucks from. Large fleets like this is, they're usually really well maintained.
They have a set standard of, okay. Yeah. Okay. Every truck comes in at 40,000 miles. It gets PMed. Um, you know, while they do expect their truck drivers to do, uh, pre-trip inspections, a lot of times they have mechanics who just walk through the fleet and check everything. Mm-hmm. So I've had really good experience where I, where that happens.
And you can usually get some pretty decent deals. Not always, but like when they, when, when the fleets come in and they get renewed. Mm-hmm. And you can talk to the big dealerships about finding out when this [00:27:00] happens, you know, they're flush with a lot of trucks and so there's usually an opportunity for you to buy good deal, you know, you know, a bunch of trucks for relatively inexpensive amount of money.
Yeah. Now, one thing I do do. Um, because select trucks is associated with Detroit or Daimler. Yeah. Um, and you can do the same thing with Volvo. Um, is, uh, you can buy an OEM extended warranty after market. Oh. Even from that. Okay. So what I'll do is I'll go to select trucks and I'll buy a, what they call a, a max warranty.
Mm-hmm. So it's a three year, 350,000 mile warranty. Okay. Um, and it extends the life of the original warranty that I already bought, and it covers the engine and the after treatment. That's great for you. Um, and if you want, you can also get a, um, what, what is called a chassis warranty, which covers all the electrical components.
Mm. And so those are really attractive to do when you're buying a used truck. Mm-hmm. It's really worth the money because. You know, you're getting one thing, you're getting a, you know, you're getting a CER certified pre-owned.
Mm-hmm.
Alex Frum: Um, so you get buyer's assurance for 90 days, [00:28:00] and then you usually get one year's worth of like any major components, breaks down.
And then on top of that, then you have the engine and after treatment. So like if you have, you need know one box, um, you have, you know, you know you blow a turbo mm-hmm. You know Freightliner, a Volvo's gonna repair for you free of charge. So those warranties from the OEMs. Are really worth their waiting to go.
I would never, um, my experience, um, it doesn't, uh, it is not worth it to get a third party warranty mm-hmm. On a tractor trailer, like, um, you know, going to premium 2000 or whatever. The different companies are called, it's not worth it, but the OEM worth it, OEM, aftermarket warranties are worth their weight in gold.
Josh Gregory: Okay. Yeah. And I, you know, all of that sounds great. The, the pre-owned, the, the warranties, you can get the No, like knowing that they have done pre-inspections and they've taken pretty good care of these at least once they've received it. Yeah, but I was gonna ask 'em the flip side, have you waited it at all into the, you know, [00:29:00] Craigslist, Facebook?
Used marketplace at all? Have you gone in
Alex Frum: that path? No, I have not. I have not. Uh, some guys will, there are a lot of guys who will do that. Mm-hmm. And they've had great success. Um, you know, I just don't wanna take the risk. Yeah. It's not the, uh, the juice is not worth the squeeze. Yeah. To me, um, I am more than willing to pay the extra, a little bit of money to buy a truck from OEM Mm-hmm. Like no matter what truck I've bought, um, I always find a fault. In the used. In the used in the used market, you always find something wrong. There's something within 90 days. And so I've always been able to take that truck back to, you know, fi a or tag or whoever the OEM and say, Hey, you know, I just bought this truck from you and this went wrong.
And they repair it free of charge. Yeah.
Josh Gregory: And that alone is worth it. Yeah. Yeah. So I think the only other question I have here is, does it ever make sense? And have you ever had success using rentals?
Alex Frum: No, I've never. Um, so there's a couple things. One, so Ryder has a program where mm-hmm. They will mm-hmm.
Um, [00:30:00] provide you, you know, rental reimbursement Yeah. If your truck goes down, um. I think that's the biggest crock because at the end of the day, FedEx requires you to have an ELD. Yeah. And a camera in every truck. Um, you also need to have D-rings and pen hooks. Well, when you get a rental from Ryder, unless you happen to have a rental ELD and a rental or a, a temp ELD and a temp camera, that truck is worthless for you anyways.
Yeah. And then you can't do anything at FedEx because you don't have D-rings and pin hooks. You can't even move a dolly around. Yeah. So it doesn't do you any good. Uh, so for me. Um, you know, that's one. So the, you know, rider offering that is just, I, I always negotiate that away because it's not worth it to me.
Yeah. Um, I actually have a rider truck that's down right now. It needs one box. Um, so, um, that being said, uh. Um, and riders repairing the truck, no problems. Yeah. But I didn't take the rental option. Yeah. And I don't want it.
Yeah.
Alex Frum: But rentals my under, so the, [00:31:00] the for, there are some contractors that are successful with rentals, but remember that you need to have a camera and an ELD mm-hmm.
To be able to put into that rental to make it work. Yeah. Um, and I've never found. When I've done the math
mm-hmm.
Alex Frum: You know, the cost of a rental ELD and a cost of a rental camera, you know, when they're unused, kind of wipes out any profit margin that you're gonna have on that rental truck. Um, so when, when it gets to peak, um, you know, I have 36 trucks.
Mm-hmm. I dispatch 30 during peak, I will dispatch 36 trucks. I will have no spares. Um, it's risky because. You're gonna have a truck, you generally have trucks go down for maintenance. Mm-hmm. But I'm getting 100%, you know, utilization. Utilization
Yeah.
Alex Frum: Uh, during that period of time. Um, and I'm willing to roll the dice.
Mm-hmm. But that's how I, you know, bulk up. Yeah. Uh, the other thing I do a lot of times is I do a lot of my acquisitions in the fall preparing for Prepar Peak, and then I will do my
Josh Gregory: disposals in January, February. Yeah.
Yeah.
Josh Gregory: Um. [00:32:00] That makes sense. Yeah. And I, I've seen similar things from the rider rentals.
Yeah. So, so, perfect. Uh, yeah. I, I think, you know, there's a lot of things you can think about when it comes to acquisition and capital strategy and, and like we've talked about, there's, there's a couple of different ways to do it and be successful, but I think a lot of the things you've highlighted around really thinking through the math, having some options, the OEMs and the, the warranties tied to 'em or, or birth their weight, uh, in gold.
And I think all of those are important tips to think about as your. Building your own strategy? Well, I mean, I
Alex Frum: think, I mean we've talked about it in the past, like you have your four pillars. Mm-hmm. You know, safety, service, availability, and finance.
Mm-hmm.
Alex Frum: You know, in your financials you need to be, as an owner, it's your job to be a master of your balance sheet.
Yeah. Okay. There's really effective ways to manage your balance sheet. Um, and you know, there's no 100% right way to do it. You know, you can do leasing, you can do ownership, you can do capital leases, you can do operating leases.
Mm-hmm.
Alex Frum: Whatever you decide to do, make sure you go into it with a plan. Have that conversation with that accountant so you understand the tax implications and [00:33:00] how it's going to impact your bottom line.
Yeah.
Alex Frum: You know, but I mean, either any of those options are effective to get really good cash on cash returns, you just need to understand the implications and make sure that you stay the course.
Yeah. What you don't want to do is say, Hey, I'm gonna be this kind of guy, and then midway through your jumping ship. To a different plan and then you've just messed up your tax strategy for the next five years.
Josh Gregory: Yeah, yeah. And it, it always comes back to, you know, we talk about it as a capital strategy and it has to be a strategy.
It can't just be what feels right or what feels right to next week or what the other guy was doing, just 'cause it seems like it, maybe it worked. You need to really think that through from the beginning. 'cause it does impact so much of your business. And that's
Alex Frum: where it's really important to have that strong relationship with your accountant.
Like I talk to my accountant. I mean, we text weekly. Yeah. Um, he doesn't do my bookkeeping. I do. Or my wife does my bookkeeping for me. She's an employee of my company. Um, she's my CFO. But, um, he does reconcile my books on a, on a quarterly basis and we do quarterly. Um. [00:34:00] Tax assessments, conversations Yeah. Or whatever conversations to understand the implications.
Yep. Um, and to predict where we're going to go. So I have a good sense by December, or usually actually by October, of what my taxable or my net tax, um, impact will be. Mm-hmm. And so I can make a decision, like, do I want to buy another truck? Yeah. I mean, I'm, you know, I, I try to do the bulk of my acquisitions in, um.
In, you know, in the fall before peak. But there might be a time where I'll be like, Hey, you know what? If you buy another truck right now, um, you can offset. You know, some more income.
Mm-hmm.
Alex Frum: And you'll probably be, you know, in, uh, tax neutral.
Yeah.
Alex Frum: Or, you know what, if you buy another truck, you're gonna actually get a refund.
Josh Gregory: Yeah.
Alex Frum: So, like last year I ended up buying two used trucks in December. Mm-hmm. Just to put myself into a better taxable situation. And so I knew I needed two used trucks. 'cause I, yeah. It's not like you're buying 'em just for fine. No, I, I needed new, two new trucks, but the question was whether I [00:35:00] bought 'em in December or I bought 'em in January or February, I knew that FedEx was expect, I mean, I, I.
FedEx had told me I was gonna run some temp runs for a very long time period. Mm-hmm. And so I knew that I didn't wanna, um, this was going to change my operating efficiency. Um, and so I needed to have those trucks on so I could have spare capacity after peak. Yeah. And so I just decided to buy 'em in Jan, December instead of January.
Josh Gregory: Yeah. Yeah. It, it always comes back to talk to your accountant. Yeah. It just has it, especially if you have. You know, this is your first time owning a business. Yeah. There's so many things that you can get wrong and seem small, but have huge tax implications. Well, it's, it's a really
Alex Frum: big deal when you're
Josh Gregory: doing
Alex Frum: leasing.
Josh Gregory: Yeah.
Alex Frum: So really understanding the difference between a capital lease and an operating lease is really, really important. Um, understand that leasing companies don't have a tremendous amount of capital leases to, to share. Mm-hmm. Or to lend or to lease to you. Um, and they're gonna charge more, but there are advantages to having a capital lease.
But you [00:36:00] also have to understand what are the implications. At the lease termination. Mm-hmm. With your lease situation.
Josh Gregory: Yeah. Yep. And, uh, you know, there, if there's gonna be nuance, everyone's gonna be different. Yeah. But like we've talked about, it's just something that you need to think through and needs to be part of your strategy.
Exactly. Perfect. All right, well thank you Alex, for talking through, I know it's a nuance conversation. There's a lot to, to work through, but I appreciate your insights on all of it. It was my pleasure.
