The revenue outlook for truck leasing firms is undergoing a shift as truck operators begin to re-assess the economics of long-term leasing opportunities, according to Fitch Ratings.
Demand for short-term commercial truck rentals has been relatively strong since the economic downturn, but demand is expected to shift to longer term leasing solutions.
Healthy commercial truck rental demand and good used vehicle sales have boosted operating results for truck leasing companies since the economic downturn, Fitch said. Much of this strength has been influenced by customers' reluctance to sign up for long-term leasing contracts (often five years or more) in favor of shorter term arrangements that preserved flexibility and kept costs down in a period of continuing demand uncertainty.
However, as truck fleets have aged, and newer, more fuel-efficient trucks have become available for long-term leasing solutions, the key growth drivers for firms such as Ryder and Penske are expected to shift away from commercial rental markets, Fitch said.
As commercial rental demand has slowed in recent months, leasing companies have reduced the size of their rental fleets through more aggressive sales of used vehicles and by trimming rental fleet capital expenditures. Ryder indicated at a recent investor conference that in 2013 it expects to spend significantly less than this year's level of approximately $500 million on commercial rental fleet capital exenditures.
Despite the expected decline in truck rental demand next year, long-term leasing contract volumes are likely to pick up as lessees weigh the benefits of locking in lower operating costs and better fuel efficiency in new trucks being leased to them over a longer term.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.