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Warehousing

Rightsizing your forklift fleet in uncertain times | 2020-10-14

Since February, the Covid-19 pandemic has caused unprecedented growth in demand for medical supplies, groceries, household goods, and e-commerce fulfillment and delivery, leaving some companies struggling to keep up with demand. Other businesses saw demand suddenly plummet, leading to layoffs, bankruptcies, and temporary or permanent closures.

This volatility has had a profound impact on warehouse and distribution center operations, including forklift fleets. “Some customers couldn’t get enough forklifts because their throughput tripled, while for others, demand nosedived and they had trucks sitting idle,” says Bill Byrd, senior manager of national accounts for Toyota Material Handling. “That threw a complete monkey wrench into their planning.”

Lift truck fleets generally remain fairly static year over year, so many were not prepared for a sudden change in circumstances. According to manufacturers and dealers, though, there are steps forklift fleet managers can take to not only respond to their current situation, but also to prepare for volatility they may confront in the future. The following are some of their suggestions.

  • Make more use of rentals. When demand went haywire, interest in forklift rentals shot up, mostly from fleets that needed to quickly add operators and trucks to handle increased volume. But interest has also come from those in the opposite predicament. “More people are looking at renting instead of buying or leasing because they don’t know what the next five years [will bring],” says Tom Duck, vice president and general manager of Clark forklift dealer Tri-Lift NC Inc. “They’re asking, how can I have flexibility so I can still afford to replace equipment when I need to, even if my business doesn’t hold where it’s at?

When considering rentals, says Dan Zinn, director of sales for Crown Equipment Corp., start by looking at what he calls the “core fleet.” “Even taking into account the ups and downs of seasonality … what is the core business you can always count on? Use leasing to build the fleet to that need and meet fluctuating needs by supplementing with short- or long-term rentals,” he advises.

Having an appropriate balance of leasing and rentals will help to protect against unwanted costs if there’s another economic downturn, says Craig Brubaker, senior vice president of operations at Alta Equipment, a dealer of Hyster equipment and services. Leased equipment is locked in for the full term (usually three to five years), and there are steep penalties for returning trucks early. Long-term rentals have lower cancellation penalties and may offer more flexibility with respect to returns, while short-term rentals usually have no penalties. If business volumes are volatile, a mix of 60% fair-market–value leases supplemented with 20% long-term rentals (one to five years) and 20% short-term rentals (from one day to a few months) may be advantageous, he suggests. The level of volatility and/or the desired degree of flexibility will ultimately drive the ratio and mix of options, he adds.

Forklift dealers can offer their customers more rental options and flexibility than third parties can, Duck says. In addition to short-term rentals, his company, for example, offers terms of two to three years, with a lower rate and minimal penalties for turning in equipment early. The dealer also offers five-year rentals that are similar in length to a lease but come with discounted rates and allow for downsizing a fleet without penalties.

  • Take a fresh look at leasing options. Authorized dealers may be willing to negotiate flexible leasing arrangements with established customers, says Matt Stein, sales and iWarehouse manager at Arbor Material Handling, an authorized Raymond sales and service center. An example of this type of customer-specific program is a usage-based arrangement he characterizes as “a hybrid between a lease and a rental.” The program, which has gained popularity in the past few years, combines some long-term commitments with the flexibility to reallocate equipment if the vehicles meet certain criteria.

Brubaker, the Hyster dealer, mentions three additional lease types that offer flexibility. A “budget lease” allows fleets to take delivery of new equipment now and defer payments until 2021. “Power by the hour” leases charge customers based on actual equipment usage, rather than on projected use. He also points to Hyster’s Freedom Advantage lease, which is structured as two multiyear terms and permits the customer to end the lease after the first, longer term if business circumstances change.

Leasing equipment from an authorized dealer together with a fleet management system allows the vendor to utilize data to analyze operations and determine whether a different type of lease would make financial sense, says Tina Goodwin, director of fleet management for Yale Materials Handling Corp. For example, because Yale’s optional Fleet Optics program tracks and monitors users’ utilization and maintenance, “we can point out when [fleets] are over- or underutilizing the equipment” and suggest extending or shortening the lease in response, she says. “We can help customers save money by determining, for instance, that the optimal life of a lease may be three years instead of five years, because we can see that there will be more expenses in years four and five than expected because of changed circumstances.”

  • Use technology to optimize fleet deployment. In times of uncertainty, a fleet management program that includes telematics is a valuable tool. Fleet technology “helps customers see what they were not able to see before,” Arbor Material Handling’s Stein says. Because they measure utilization and how and when forklifts are being used, managers can make data-based decisions to reallocate equipment, either inside the current facility to balance utilization or to another facility where there’s a shortage. Since the pandemic began, “more customers have been looking for that kind of information, … and we’re seeing increased demand for telematics systems,” he says.

Goodwin notes that during the pandemic, forklifts at some businesses have seen unusually heavy use as operators strive to keep up with unexpectedly high demand. Fleet management technology can help users save money by alerting them when trucks are likely to exceed the maximum weekly hours allowed under their lease; managers can then rotate equipment to even out usage and avoid being charged overtime, she says.

  • Pay extra attention to maintenance. Facilities that have experienced a spike in volume, especially those that are essential businesses, need to keep their trucks running as many hours as possible and, thus, are laser-focused on preventive maintenance and reactive repairs. Those that have experienced a downturn in business, meanwhile, are carefully watching their maintenance costs, says Yale’s Goodwin. She’s seeing more interest from the latter in flexible “time and material” programs, where customers pay for reactive repairs when required and have periodic maintenance done only when needed based on actual utilization, rather than on a more traditional fixed maintenance schedule.

Byrd says there’s a silver lining for fleets that find themselves with idle equipment because of the pandemic: Now is a good time to conduct a comprehensive review of the state of your fleet and to carry out both planned maintenance and preventive repairs. That way, equipment will be in optimal shape when business starts to recover. (Don’t forget to include power sources and related equipment, such as batteries and chargers, in your maintenance review, he adds.)

  • Limit specialized and customized equipment. The more specialized lift trucks in your fleet, the less flexibility you’ll have to meet unexpected demand with equipment that’s already on hand. For that reason, Crown’s Zinn recommends limiting the number of specialized assets that serve a single purpose and see little or irregular use. “When possible, try to configure equipment to handle multiple tasks and maybe make minor adjustments for special uses—for example, by using attachments,” he says. Choosing a slightly higher-capacity truck than you might otherwise specify can provide the flexibility to handle heavier loads than usual, he adds.

Another drawback to using a lot of specialized or customized lift trucks: “If you have somewhat unique specs, that can hold you back from using short-term rental assets when they’re needed,” Toyota’s Byrd observes. However, a dealer might be willing to invest in unique or specialized configurations for established customers who will regularly rent that equipment, such as during peak seasons.

ASK YOUR DEALER

Each expert we spoke with offered this recommendation: If your circumstances have changed or you have a challenge to overcome, explain the situation to your lift truck dealer. Ask what standard options are available and whether a more flexible arrangement might be possible. A well-capitalized, highly professional forklift dealer will have the knowledge and resources to set up flexible plans, including customized programs. “We work closely with customers to understand their business, and we know there isn’t a one-size-fits-all solution,” Alta Equipment’s Brubaker says. (How has the pandemic affected what fleet managers are asking lift truck dealers for? See the accompanying sidebar.)

Although there are fewer face-to-face meetings nowadays, the importance of open and frequent communication remains, says Stein. “We’ve changed how we connect and communicate, but that shouldn’t change what we can provide to clients,” he says.

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