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JUNE 2012 issue of
Rental Management

Cover story: Going Up — Coping with rising fuel costs
Cover story: Going Up — Coping with rising fuel costs
06/05/2012

Fuel prices might fluctuate from week to week or even day to day, but it is clear that the cost of energy once again has been on the rise this year. No doubt the cost impacts equipment rental businesses in many ways and many of you have been through this before, so we asked readers the question, “How are you coping with higher fuel prices?”

The answers from rental store owners and managers varied, but often had a common theme of finding ways to conserve fuel and energy as well as passing on some of the increased cost to customers.

Many have added specific fuel surcharges to rentals while others have raised rates to reflect the higher price for fuel. In the case of machines that run on gasoline or diesel, several rental stores send the equipment out with a full tank and ask renters to return it full. If not, the renter is charged for the fuel.

Here are some of the ways your peers say they are dealing with higher fuel costs.

Robert Pedersen, president, A Tool Shed, Santa Cruz, Calif., says his company adjusts fuel prices for its customers accordingly.

“We give the customer a choice to bring the equipment back full — all equipment goes out full — or they pay our fuel price upon return. We fill up the equipment prior to closing the contract,” Pedersen says, adding that the company has its own above-ground fuel tanks at the facility.

All fees are included in the rental rate, Pedersen says, so that there are no surprises for the customer. As prices of fuel have gone up, A Tool Shed has increased its delivery price and charges a portal-to-portal hourly rate.

Located in California, Pedersen says he has been forced to purchase a few new trucks and retrofit others, not for fuel efficiency, but for air quality control. He says he also is seeing propane-powered equipment becoming more popular in his area.

“We have adjusted our inventory to take advantage of the demand,” he says. The company also has explored the use of solar panels, but Pedersen says the benefits are not yet cost effective to put them in place.

“We have an extensive recycling program throughout our company and continue to work toward a paperless system of operations. We have converted all of our lighting systems to the low-voltage systems with the help of an outside contractor and rebates from the power company,” he says.

Paul Kenyon, managing director of Absolute Group of Cos., Toronto, and American Rental Association (ARA) Region 10 director, says his company recently completed a fuel efficiency audit.

“We tracked each vehicle’s fuel and repair consumption and associated costs over a specified period of time, taking into account the kilometers/miles the vehicle was required to travel. Putting all of this into an Excel spreadsheet allows you to determine average fuel consumption and costs, by fleet vehicle. We then compared this to the vehicle manufacturer’s ratings. Any anomalies then jump off the page at you,” he says.

For information on manufacturer’s ratings, you can look for the individual manufacturer websites. The U.S. government also offers another source, fueleconomy.gov, which offers information about multiple car and truck makes and models, as well as alternative fuels and EPA standards.

“We were quite disturbed by our findings. There are only a few vehicles in our fleet greater than five years old, but they tend to be the larger 5- or 10-ton trucks. Their fuel efficiency is deplorable,” Kenyon says. However, he says the current model of the larger trucks, while more fuel efficient, is not improved enough to warrant the capital expenditure of replacing them, at least not this year.

“While our new controller, Henry Mahdi, a chartered accountant, did our fuel audit, I think any rental operator could probably pull one off themselves,” he says.

“We also learned that alternate energy sources have not really been tried and tested on vehicles of this GVWR [gross vehicle weight rating]. The performance on mid-size trucks running alternative fuels is rather unremarkable in the field and the price point is too high to warrant change, but I believe truck makers are getting the message. I, for one, will invest in renewable energy sources for this type of vehicle just as soon as they are available and can do the job,” he says.

Absolute also is charging a 13 percent fuel surcharge on top of delivery and pickup rates to off-set the price of fuel, which earlier this year was running near $5 per gallon in Toronto.

Paul Phelon, president, Timp Rental Center, Orem and American Fork, Utah, says his company started to charge for fuel on small equipment last year, including tillers, aerators, power rakes and more to compensate for rising fuel costs.

“This year, we raised the cost from $2 per rental if the tank is not brought back full to $2.50 per rental. We also broke out equipment with larger gas tanks, like portable generators, and we charge more this year based on tank capacity,” Phelon says.

Like many rental companies, Timp has increased delivery fees due to increased fuel prices and the company also now has a policy to try and consolidate trips to transfer equipment between the main and branch store.

“We also bought a lift-gate diesel truck that we rent. When it isn’t being rented, we have been using it for deliveries because it has better fuel efficiency,” Phelon says.

In addition, the company uses a clean burn system of heating for the maintenance shop that runs on used oil. “This system has saved us a lot on our winter heating bill and we’re helping the environment by being able to use the remains of our old oil,” he says.

Rob Leiser, owner, Leiser’s Rental & Sales, Easton, Pa., says his company adjusts fuel charges as fuel prices fluctuate. “We have shrunk our local delivery area and raised mileage charge on out-of-local-area deliveries,” he says. “Prices have been more than $4 a gal. in the past and it cuts into our profits, but some of the costs are passed along to the customer the same as many of our suppliers have added surcharges onto shipping costs.”

Leiser says his company uses natural gas and propane for heating, updated its lighting to include fluorescent indoors a few years ago and added motion sensors to some of the warehouse lighting to conserve energy.

Jean-Marc Turcotte, president of Atelier de Location Turbo, Montreal, says his company has converted two pickups to run on propane. “This is a big savings and no pollution,” he says, adding that the company also has increased its delivery charges.

Michael McDaniel, owner, Air Play Party Rental, Mt. Vernon, Wash., says he also is researching how to switch his vehicles over to a propane/gas bifuel system. “The upfront cost per vehicle is around $5,000. I am also looking into propane-powered generators,” he says.

Russ Dagenais, president, Taylor Rental, Wallingford, Conn., and ARA Region One director, says his facility is located on a road with several gas stations, which allows he and his employees to shop for the best price.

“Currently we have added a fuel surcharge to our gas and diesel equipment. If customers receive the equipment with a full tank of fuel and if they return it with a full tank, we credit them back the fuel surcharge,” Dagenais says.

“We also have tried to consolidate our deliveries as much as possible. It is very difficult sometimes to get all the equipment for two or three jobs into one truck, but we try. If we have a smaller delivery, we use a smaller vehicle. It doesn’t make sense to send a large box truck for a delivery of two 8-ft. tables and 16 chairs,” he says.

Dagenais says the company also monitors its delivery charges based on the cost of fuel and labor, raising or lowering the charges as necessary.

“We are looking into installing motion detectors on our repair shop and warehouse lights. One problem is figuring out where to install the motion detectors so they work properly for us. Right now, the mechanics and warehouse personnel will shut off sections of the shop and warehouse lights that are not being used to try and help save on the electric bill. All of our lights in our showroom and shop are fluorescent, but we are slowly changing them to newer energy-efficient fixtures,” he says.

Tony D’Amato, president, D & D Party and Tent Rentals, Toronto, says his company has installed a “smart thermostat” to control heat settings and save on heating costs, but fuel costs in his area have increased by more than 40 percent over last year.

“We did not increase our delivery charge because we feel it is as high as the market will bear and we do offer a discount for customer pickup and return. This is working well,” he says.

Jay Lageschulte, president, S and M Rentals, Phoenix, says his company has raised rental rates as well as the cost for diesel fuel. “We have to pass the added cost on. I don’t think customers want to see any more surcharges, so we are incorporating the costs in rates and fuel. You also have to remember when oil goes up, it drives up the cost of tires and oil changes for the equipment,” he says.

S and M Rentals recently removed the fuel tanks at its facility because of the cost of maintenance as well as insurance, fees and permits. “We had them installed in 1988 and when we got the gasoline tank out of the ground, we found out it was deteriorating from the inside out. We were told that the additives in gasoline eats away at the fuel tanks from the inside,” Lageschulte says.

Peggy DeFrancisco, Taylor Rental, Inverness, Fla., also says her company had fuel tanks removed a few years ago, but it was because it was less expensive to buy gas at the pump than have it delivered in bulk.

“With the addition of ethanol, gas doesn’t store very long, so I’m glad the tanks are gone. We presently use 40-gal. gas caddies and that seems to be working very well for us,” she says.

Also, because of potential problems from ethanol, she says the company no longer stores all of its equipment full of fuel, ready to go.

“We now store seldom-used pieces ‘dry’ and if we have quantities of certain pieces, we’ll keep only a couple of them fueled and the rest ‘dry’ until needed,” she says.

“We have had to raise our delivery rates slightly. Our customers pick up equipment full of fuel and just like the car rental companies, we ask that equipment is returned full of fuel or we will charge the customer,” she says.

As a one-store operation, Kimo Bernauer, owner of A Grand Affair, Davis, Calif., tries to take advantage of combining deliveries whenever possible.

“One step we have taken is to look at the reservations and if we are delivering to the same area on back-to-back days, we will contact the customer to see if we can deliver a day earlier and pick everything up at the same time. This has helped, so we don’t make several trips to the same area. However, when gas prices go up, you always have to take a look at your delivery prices and charge a little more,” Bernauer says.

Another tip, he says, is using a fuel finder app on smartphones to find the cheapest gas when it’s time to fill up any vehicles (see story below).

Buddy Stubbs, president of Busylad Rent-All, Tupelo, Miss., says his company added a fuel surcharge to delivery fees a couple of years ago. “We really have had no problems charging it because customers seem to understand. We also are more cautious in routing deliveries and combining orders to make the trip more cost-effective when we can,” Stubbs says.

Donald Littlefield, president, Sportsman’s True Value & Just Ask Rental, Westbrook, Maine, also now asks that towable equipment be returned with a full tank. “We like to send our fuel out with all of our small equipment. This helps prevent people from dumping their old gas from last year into our equipment. Over time, we realized how much gas we were going through, so to help offset the cost, we decided that any towable item would go out full and needed to come back full. Everything else, we add a fuel charge onto their contract. This seems to work well and we don’t have any complaints,” Littlefield says.

Harold Sater, president, Encore Event Rentals/A&A Tents, Shreveport, La., says his company now uses larger diesel box trucks that get 10 to 13 miles per gal. and hold more weight than cube vans.

“With lift gates on the trucks, we can put more jobs on the truck, make a loop to maximize efficiency and save on fuel. We increased our delivery rates a few years ago when diesel prices soared. We have not changed since then,” he says.

Hal Kodikian, Rental World, Lansdale, Pa., says his company has added a fuel adjustment charge of 3 percent on deliveries and continues to evaluate the percentage to determine if it is adequate to cover increased fuel costs. In addition, he says the company is considering converting the heating of the main location from oil to natural gas.

Ken Bernard, Fun Services, Harahan, La., says it is just a fact of business that as a 100 percent party and event rental store, his company has to deliver equipment before the party starts and pick it up when it ends.

However, he says the company these days does “spend a lot more time on dispatching our trucks and arranging when we will deliver and pick up customers’ orders. We also now have a minimum rental amount and we stick to it. It just doesn’t make sense or cents to deliver $35 worth of tables and chairs.”

Terry Turner, CERP, owner, All Occasions Party Rentals, Knoxville, Tenn., says his company implemented a fuel surcharge for the first time in 2008 and currently charges 3 percent. “We raise and lower it as fuel costs fluctuate. The customers appreciate our commitment to keeping this charge in line with fuel costs,” he says.

“We also have worked hard to make sure we are being smart and efficient in our routing for deliveries and minimized idling during delivery stops,” Turner says.

Brian Jenkins, president, Dallas Party Tent and Event, Arlington, Texas, says his company is trying to hold delivery rates constant and absorbing the increase in fuel costs. “We make sure our routing managers route our trucks to maximize fuel savings, but if fuel prices continue to increase we may be forced to institute a temporary fuel surcharge until prices come down,” he says.

To save energy, Jenkins says the company stresses to employees to turn lights off when not in use. In addition, they use fans instead of turning down the temperature on the air conditioning and have low-energy lighting in the warehouse.

While fuel prices had stabilized or declined in most areas in early May, there always is a chance that costs could increase during the higher demand summer months. If you have advice on how to save fuel that you would like to share with others in the equipment rental industry, send your tips to Wayne Walley at wayne.walley@ararental.org.


Reducing impact

Doug Click, owner, Arizona Hi-Lift, Phoenix, says his company has taken the following steps to reduce overall exposure to the price of fuel and the impact of fuel costs on the bottom line:

  • Due to theft of fuel on job sites, the company has taken measures to lock the fuel tanks on the machines as well as the equipment as much as possible to prevent theft of batteries, vandalism and unauthorized/theft of services use.
  • The company has switched to diesel equipment. “Diesels are much more efficient than gas units and tend to be more durable,” Click says.
  • The company can store 1,200 gal. of fuel and uses fuel additive in the diesel tanks and in the diesel of the delivery trucks to help get the most out of every gallon burned.
  • The company analyzed what service personnel do in the field and concluded that 99 percent of all service calls do not require a one-ton truck with a giant service box. “We switched to Ford Rangers. I just ordered another one,” Click says.
  • The company is diligent in keeping everything serviced. “This is to make sure that we are not losing fuel economy in our vehicles and machinery,” Click says.
  • The company also passes on the added expense to customers. “The industry cannot keep absorbing inflationary costs. What good does it do our customers if we go out of business because of a steep rise in fuel costs? I have not had one complaint,” he says.

Using fuel cards

With fuel costs on the rise, Brian DeCoster, president of Big Ten Rentals, Iowa City, Iowa, aims to make sure that purchased fuel is used in the intended vehicles and equipment.

“If you have more than 10 employees and hand them a credit card or use a charge account at a gas station, then you are likely a victim of fraud,” DeCoster says.

“We use the Wright Express cards and have a fuel card for each vehicle. This allows us to track mileage. Each driver has a unique code. The codes are user-defined and we use birthdays, addresses, Social Security numbers and phone numbers for codes, so although there is no predictable pattern, they are still easy for each employee to remember,” he says.

“Irregularities are usually easy to spot. We also have a card for shop/off-road use, easing the accounting for tax credits. As a Penske Truck Rental agent, we keep a unique card and track fuel refills requiring reimbursement via truck unit numbers. This allows us to reconcile with the agent commission reports,” he says.

“Occasionally drivers will type the wrong mileage, which throws off reports. While these errors are usually easy to unwind, we have found that it is important to show the driver how it adversely affects the accounting. Good practice reinforces that we are paying attention and seems to minimize errors,” he says.

 


 

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Tips from Volvo Rents

Volvo Rents, Shippensburg, Pa., tries to be as diligent as possible on the front end of a rental to communicate fuel charges and the cost associated with returning a unit with less than a full fuel tank.

“We also are as equally diligent on the return to ensure levels for the next renter,” says Barry Natwick, chief operating officer, Volvo Rents.

“The same communication is practiced when delivery rates are involved with a rental. In most cases, we are delivering at a rate that is more efficient and less costly than a customer hiring an outside service. We always have and will continue to offer the ability for customer pickup and we try to lay out our yards to ensure efficiency for the customer doing so. The customer’s time is worth it,” he says.

Most Volvo Rents locations also are equipped with small fuel islands that enhance the efficiency of refueling, he says.

“Purchasing in those limited gallons prohibits us from being competitive with the price at the pump, but the decrease in time associated with getting that unit back to the rent-ready line offsets some of that cost,” Natwick says.

“A large percentage of our facilities in the North have fully adapted to using waste oil as a heat source in the winter and we have begun experiments with solar facilities in the Southwest. Initial response to the solar initiative for our locations has been very positive. Where appropriate we have invested in alternative forms of power in our rental equipment. Propane has always been an option in our rental fleets and our small power and light tower fleet has some initial solar units,” he says.

“Our delivery fleet upgrade also had to match the pace of our location growth. Another benefit of being associated with Volvo is the shared Mack truck brand. We have invested in Mack trucks equipped with automatic transmissions to increase fuel efficiency and decrease driver fatigue creating a safer environment,” he says.


An app for cheap gas

Finding the cheapest gas can be easy if you have a smartphone. There are hundreds of apps you can download that help find the best gas price nearest you. Below are a few examples:

  • The Gas Buddy mobile app is an extension of gasbuddy.com, a website that tracks local gas prices by state and lets you search by city, state or zip code. The app is the free mobile version and it is available for Android, iPhone or Blackberry phones.
  • Fuel Finder is another mobile app, available on iTunes.com, that uses gas price databases to track prices. This app costs $2.99 and is compatible with the iPhone, iPad or iPod Touch.

For more apps for gas prices, check iTunes.com or go to your cell phone provider’s website for more mobile app offerings. Some gas price and mileage tracking apps charge a monthly fee.


Ask a REAP Advisor — Handling fuel costs

Editor’s note: The ARA Foundation Rental Executive Advisory Program (REAP) has more than 30 REAP advisors on hand to help rental store owners and managers with advice and ideas for their business. The ARA Foundation facilitates the program, matching rental stores with an expert REAP advisor, who will communicate by phone, email or fax, or an in-person visit. In exchange for the REAP service, stores are asked to make a tax-deductible contribution of $50 per hour of counseling to the ARA Foundation. An on-site visit costs about $500, plus travel expenses. The program is open to anyone within the rental industry and can include topics from financial, operations and marketing to human resources and regulations. Below is an example of the type of questions advisors handle.

Q: How do you handle the high cost of fuel? We’re not sure if we should go with surcharges, fewer deliveries or more efficient and newer trucks. Is it better to buy or lease delivery vehicles?

John Bibbo Jr., CERP, president, Event Source, Cleveland and Columbus, Ohio: Usually we raise the base rate for fuel rather than adding a surcharge as people complain about being “nickel and dimed.” So the rate just goes up and has to readjust once the fuel costs down. New efficient trucks help. We added five new trucks this year. We purchase all of our vehicles.

For more information on the ARA Foundation REAP program, contact Jenni Venema, association programs manager/ARA Foundation director of development, at 800-334-2177, ext. 236, or jennifer.venema@ararental.org. For more information on the program, go to ARArental.org/ARAFoundation/RentalExecutiveAdvisoryProgramREAP.aspx.
 

 

 

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