In the logistics and transportation industry, businesses are continuously reinventing their strategies to optimize their operations while minimizing costs. One strategy that has gained prominence in this industry is chassis leasing. A chassis is a terminology used interchangeably with trailers or semi-trailers.
Chassis leasing is a practice whereby a company engages a leasing company to use one or more chassis (usually a skeleton chassis, container chassis, or intermodal trailer) for a specific period of time.
By opting for chassis leasing, typically through a daily or term lease, businesses can avoid the upfront costs of purchasing these trailers and instead pay a monthly fee for their usage. However, like any business decision, chassis leasing comes with its own set of pros and cons that need to be carefully considered.
In this article, we will delve into the advantages and disadvantages of chassis leasing and discuss other related topics in the realm of logistics and transportation. So, if you are considering leasing intermodal trailers for your business, we encourage you to read on, so that you’ll be able to gain valuable insights to make an informed decision.
What Is Chassis Leasing?
As mentioned above, chassis leasing refers to the practice of leasing a chassis, which are trailers on which intermodal shipping containers are mounted for transportation. Instead of purchasing chassis outright, businesses can opt to lease them from specialized leasing companies.
This arrangement allows businesses to avoid the upfront costs associated with purchasing chassis and provides flexibility in terms of fleet size and configuration. Chassis leasing is particularly common in industries that rely heavily on container transportation, such as port facilities, shipping, and intermodal trucking.
When certain businesses opt to lease chassis instead of buying them, they can focus their capital on other areas of their operations while still having access to the necessary equipment for container transportation.
Types of Leases
Generally, every lease provider offers different leasing options. However, there are two primary types of chassis leases, which are daily and term leases. Let’s take a closer look at what these two different leases entail.
Daily leases involve short-term agreements typically ranging from a few days to a few weeks and are suitable for businesses with temporary or seasonal transportation needs.
Daily leases often come with higher rates due to the shorter leasing timeframe. This is something to consider when budgeting for your transportation needs. Furthermore, these leases are only offered for standard chassis. Businesses that have specific requirements may need to explore other leasing options.
In this arrangement, chassis maintenance is the responsibility of the lessor. They are responsible for ensuring that the chassis is in good condition prior to the leasing commencement and for fixing any repairs that may be needed.
Daily leases are often available in strategically located chassis pools. These pools are typically located near container depots or industrial, commercial, or manufacturing sites for easy accessibility. It is also noteworthy that drop-off locations for daily leases are usually the same as where the chassis was picked up.
Finally, daily leases can usually be booked ad-hoc, meaning that advanced booking is typically not required and is processed on a ‘first come, first served basis’. This flexibility can be beneficial for businesses with fluctuating transportation needs.
Therefore, businesses that are in need of a chassis for short-term projects or have unpredictable transportation demands, may find that daily leases are more suitable.
Term leases on the other hand are more suitable for businesses with consistent or predictable transportation needs. These leases can range from a few months to several years and often come with fixed monthly payment terms.
Long-term leases provide stability and can be customized to meet specific business requirements, such as chassis configuration and maintenance services. Term leases also allow businesses to enjoy significantly lower costs for their leasing needs.
With longer leasing periods, businesses can take advantage of reduced rates, making it a cost-effective option. It’s important to distinguish that term leases typically require advanced bookings.
This is to allow leasing companies to fulfill any specific requests such as customization or modifications to the leasing terms. Moreover, when it comes to term leases, the lessee (the business that is using the chassis) is normally responsible for any maintenance and repair when the contract starts.
Advantages & Disadvantages of Chassis Leasing
Chassis leasing, in comparison to buying trailers, comes with its set of advantages and disadvantages. Understanding these pros and cons can help you determine whether chassis leasing is the right choice for your business.
Chassis leasing can make sense for you by offering you some of the following benefits:
- Lower Upfront Costs – One of the main advantages of chassis leasing is the short-term cost savings. Leasing chassis eliminates the need for large upfront investments, allowing businesses to better utilize their capital and maintain a healthy cash flow. Additionally, maintenance and repair costs are occasionally included in the lease agreement, further reducing expenses.
- Flexibility – Chassis leasing offers businesses the flexibility to adjust their fleet size and configuration based on their varying needs and expectations. This flexibility is particularly beneficial for businesses that experience fluctuations in demand or those with project-based transportation requirements.
- Up-To-Date Equipment – Leasing chassis allows businesses to access the latest and most technologically advanced equipment. Leasing companies often update their fleet regularly, ensuring that businesses have access to well-maintained and efficient chassis.
However, there are also some drawbacks that should be considered. Let’s further explore these below.
- Higher Long-Term Costs – While leasing a chassis can provide short-term cost savings, it may result in higher overall costs in the long run. Monthly lease payments can add up over time, and businesses may end up paying more than the actual value of the chassis.
- Dependency on Leasing Companies – When leasing trailers, businesses become dependent on leasing companies for supply, maintenance, repairs, and replacements. This reliance on external providers can sometimes lead to delays and disruptions in operations.
- Lack of Customization – Leased chassis may not offer the same level of customization as owned chassis. Businesses may have to compromise on certain specifications or configurations to align with the leasing company’s available inventory.
When Chassis Leasing Makes Sense for Your Business
Chassis leasing can be a beneficial option for businesses in certain situations. Aspects to consider are frequency of usage, travel distance, repair and maintenance, transportation needs, and more. Let’s delve a little deeper and explain each of these considerations.
Frequency of Usage
When considering the equipment needed for transporting intermodal containers, the frequency of usage is a crucial factor to take into account. For instance, if transportation activities occur less frequently, such as once a month, owning intermodal trailers may not be necessary.
Owning chassis in this scenario may lead to them sitting idle for most of the month. Instead, the option of leasing a chassis would be more practical and cost-effective. In addition, the frequency of usage also determines the quantity of equipment required.
If a large volume of containers needs to be transported within tight deadlines, a larger quantity of chassis would be required. This could mean either owning a larger chassis fleet or considering a hybrid approach of owning and leasing.
So, by considering the frequency of usage and the quantity of equipment needed, businesses can make informed decisions about whether to own or lease a chassis. This ensures that they optimize their resources and efficiently meet their transportation needs.
The distance covered during transportation can have a significant impact on expenses. In the case of haulage, where short-distance transportation is involved, leasing might be the more suitable option. Leasing chassis for such operations can provide flexibility and cost efficiency.
Conversely, chassis leasing may not be the most cost-effective choice when it comes to long-haul trips where trailers are away from their yard for multiple days in a row. In these scenarios, the expenses associated with leasing can add up significantly.
Furthermore, leasing a chassis long-term would usually place the responsibility of repairs and maintenance on the lessee. So, by carefully assessing the transportation travel distance and the specific requirements of your operations, you can decide whether leasing a chassis is the right choice for your business.
Consider the duration for which the trailers will be away from the yard and factor in the potential costs associated with leasing. At the end of the day, considering these factors will help you determine the most cost-efficient option for your transportation needs.
Repair & Maintenance
When it comes to chassis leasing, another important thing to consider is the level of involvement you want in terms of maintenance and repair. If you prefer a hands-off approach, daily leasing or term leasing that includes repairs and maintenance might be the more suitable option for you.
While leasing costs are generally higher, the responsibility of maintenance and repair falls on the lessor, allowing you to focus on other aspects of your business. However, if you opt to own your own trailers, it’s important to note that the responsibility for maintenance and repairs will fall on you as the owner.
Maintaining and repairing your own trailers can be a significant undertaking, requiring a dedicated team or the know-how to outsource these tasks effectively. Furthermore, you must factor in the overhead costs associated with hiring skilled personnel or outsourcing repairs.
Ultimately, you must carefully weigh each option’s pros and cons and consider your business needs before making a decision.
Seasonal Transportation Needs
If your business is heavily project-dependent, experiences fluctuations in demand, or has seasonal transportation requirements, chassis leasing can provide the flexibility to scale your fleet as needed.
Leasing chassis allows you to have access to the necessary equipment during peak periods without the burden of maintaining unused chassis during off-peak times.
A business must ensure a good return on investments (ROI) when considering any investment. When it comes to investing in a chassis, it’s important to recognize that it requires a higher capital investment that needs to be carefully factored into the business’s overall working capital.
However, it’s not just about the upfront cost. You must also consider the potential utilization and savings that can be derived from owning a chassis, as this will determine whether the investment will yield returns within a reasonable timeframe compared to leasing it.
If your business has limited capital or prioritizes the allocation of funds to other areas, leasing a chassis can help conserve cash flow.
One of the most crucial aspects of owning a chassis is ensuring that it complies with all Department of Transportation (DOT) requirements and is road-safe for both the driver and other road users.
This means performing regular inspections, maintenance, and documentation to ensure that the chassis is always in roadworthy condition. You must also stay on top of licenses and permits, ensuring they are up-to-date and that all necessary paperwork is always complete.
Failure to comply with these regulatory obligations can lead to penalties, fines, and even the suspension of operations. This can have significant financial and operational repercussions for your business.
However, leasing a chassis can alleviate some of the regulatory burdens, as the leasing company is responsible for maintaining compliance, ensuring proper documentation, and most other legal aspects involved.
Testing New Markets or Business Expansion
If your business is entering a new market or expanding its operations, leasing a chassis can be a cost-effective way to establish a presence without committing to long-term investments. Leasing allows you to assess the market demand and adjust your fleet size accordingly.
Co-Founder & Writer
About the Author
Andrew is a multi-business owner with over 10 years of experience in the fields of logistics, manufacturing, operations, training, and education.
Being the co-founder of freightcourse has given him the ability to pursue his desire of educating others on manufacturing and supply chain topics.