To buy, or not to buy? These are not your only options. Long-term leases for heavy equipment such as tank trailers and tank chassis are often an affordable alternative to buying and will reduce some risk exposure. This article explores the advantages and disadvantages of both leasing and buying. When in doubt, consult a chassis leasing company such as Penn Intermodal Leasing, LLC for assistance with understanding lease options, and to make an informed purchasing (or leasing) decision for your business. However, every company’s situation is unique. Consult your planning, legal and accounting personnel to assess an equipment acquisition strategy specific to your business.
Are you considering buying a new chassis? Purchasing a used chassis? Or, leasing a chassis? First, consider the product. Will it be the same product, or might you need flexibility over time to accommodate a variety of related products? How much (what volume) will be transported in each load? How soon will you need the equipment and how often are shipments scheduled? Will you need a single chassis, or a fleet of chassis to accommodate this volume? Acquiring multiple units may result in lower per-unit costs.
Consider what the equipment will be used for- regional hauls, local transport, or primarily storage and in-plant movements. Next, consider the expected length of time the equipment will be in use; a few months, a few years, a decade or more? Business conditions are unpredictable. Make your best forecast.
Most importantly, consider the current financial condition of the business such as; capital reserves, cash flow, interest rates, borrowing capacity and risk tolerance. We will explore these considerations in more detail below:
- Financial Risks
- Life-cycle Costs
- Opportunity Costs
Financial Risks of Chassis Leasing vs Buying
To a business owner, the financial health of the company is of paramount importance. Leasing a chassis offers the ability to spread payments out on a monthly basis preserving capital for other uses. This is comparable to financing a purchase and making payments on a loan. Although a loan still requires a down payment upfront and will only cover a portion of your purchase.
However, with a chassis purchase, the company owns the asset and the loan is shown as an outstanding debt for the company. This is partially offset by tax-advantaged depreciation. Typically, the total cash outlay for an equipment purchase in use for a long time period is lower with an out-right purchase and you have the benefit of depreciation. The asset may also be used as collateral that can be strategically leveraged to secure additional capital and used to fund projects to meet business objectives.
The primary risk of purchasing an asset is the term of the purchasing commitment. If business conditions change, and the equipment is no longer needed, it may be returned at the end of the lease term. In the event of a downturn where the equipment is still needed, but at a lower utilization, a leasing partner, might even be willing to adjust terms until business improves.
In addition, companies often lease newer and more reliable equipment then they could afford to purchase. Newer equipment is often lighter, more durable and incorporates the latest safety and comfort features. Thus, the equipment is economical to operate and driver satisfaction improves.
Cost of Ownership (TCO) for Chassis Leasing vs Buying
What is the total cost of ownership for buying vs leasing a chassis? The primary considerations of upfront capital requirements and the term of the commitment were addressed above. This leaves on-going maintenance, insurance and storage costs.
Initially, these costs will be the comparable for purchased or leased equipment and depending on the terms of the lease. However, as equipment ages maintenance costs for non-routine repairs will increase. In addition, a company that purchases equipment now assumes end of life risks and may be stuck with older units, limited resale opportunities and storage or disposal costs, but they may have had several useful years after the equipment has been paid off.
Buying a chassis requires a higher upfront cash outlay, but the total cost will be lower than a long-term lease. If conserving capital is a high priority for your company, then leasing a chassis is your best option. However, those with the cash who desire to reduce the total cost of purchase will want to buy their equipment outright.
Opportunity Costs of Chassis Leasing vs Buying
It is particularly important for supply chain and logistics professionals to quickly access equipment to meet the rapidly changing transportation needs of their customers. Deals can be won or lost depending on equipment and driver availability.
The larger the company, the more people that need to sign off on large purchasing decision. Once a purchase is approved, orders for new equipment may be subject to manufacturing schedules and delays. Leased equipment is readily available when and where you need it, and lower upfront capital without a long-term commitment can streamline purchasing approvals.
Want more information for your chassis purchasing decision-making process, contact Penn Intermodal, LLC at 1 (888) 909 – PENN.
Lease or Purchase from Penn Intermodal Leasing LLC, a Chassis Leasing Company
Penn Intermodal Leasing LLC, an experienced chassis leasing company, partners with you to identify the optimal chassis configuration for your freight, seeking to minimize transaction costs and get your freight on the road faster. We understand evolving transportation trends and new industry developments. Penn Intermodal Leasing, LLC’s knowledgeable, responsive, and courteous sales professionals will find a lease plan that is right for you. If you are interested in purchasing a chassis, lease purchase plans are available upon credit approval. In addition, we periodically sell older units from our fleet. Those interested in purchasing an older model can join our mailing list here chassis for sale or contact us at call 1 (888) 909 – PENN for a current list of available chassis models and their locations.
April has been working with Penn Intermodal’s Sales and Operations team to educate clients on the benefits of leasing chassis for bulk liquid storage and transport since 2012.