Equipment leasing

Scope

A lease agreement is a contractual relationship in which the use of equipment is granted for compensation by the owner to a carrier for use in regulated transportation of property for a specified period of time.

Regulatory citations

• 49 CFR Part 376 — Lease and interchange of vehicles
• 49 CFR 376.11 — General leasing requirements
• 49 CFR 376.12 — Lease requirements
• 49 CFR 390.21(e) — Rented CMVs and leased passenger-carrying CMVs marking requirements

Key definitions

• Lease: An agreement that creates a contractual relationship in which the use of equipment is granted for compensation by the owner to an authorized carrier.
• Lessee: Usually the carrier, the lessee is the party acquiring the use of the equipment, with or without a driver, from another.
• Lessor: The party granting the use of equipment, with or without a driver, to another.
• Rental: A short-term lease.

Summary of requirements

Reasons for selecting leasing over purchasing include:

• Possible tax advantages
• Asset control — minimize assets on books
• Constant equipment replacement
• Transportation (and investment in transportation assets) is not part of the company's core business
• Desire to outsource all vehicle issues i.e., maintenance, replacement decisions, etc.
• Capacity flexibility

One of the main disadvantages to leasing is at the end of the lease; the carrier has not gained an asset. Carriers typically have the option to purchase the vehicle at an adjusted price at lease end, but they will not own it until then. Most for-hire motor carriers do not lease because they desire to have the assets. Private carriers on the other hand, many times lease to avoid having assets that are not part of their core business.

Leasing equipment can provide any carrier with the ability to add or decrease capacity to match customer demands. Carriers involved in industries that are prone to seasonal swings (both for-hire and private) will many times lease equipment on cycles that match their customer demands.

Financing. Financing the purchase is also a substantial consideration. In some cases, the carrier may get the best package directly from the manufacturer. In other cases, the best financing option may be a financing company that specializes in financing carrier equipment. Finally, the carrier may receive the best financing package from the bank or financial company that is already financing other portions of the company.

Financing can be handled much like the equipment process:

• First, decide what you want, and then get dealer proposals. In the case of financing this will require you to settle on a cost per unit.
• Once this is settled on, approach the various financial institutions for their proposals.
• Remember to consider all costs when reviewing financing packages. Interest, payment fees, loan charges, and other fees all need to be considered.