Plant & Works Engineering

Forklift options

Published:  21 March, 2007

Forklift trucks are relatively high cost pieces of capital equipment that have a predetermined working life and variable running costs. Many companies are unsure when it comes to financing decisions for such equipment. Cash flow implications, asset utilisation, service, running and maintenance costs must all be understood.

The total cost of a forklift truck is, of course, a combination of items. The initial purchase price is like the tip of the iceberg: Running a forklift truck is similar to running a car - you incur costs which increase with the level of use. Servicing costs and consumable costs increase. And, the more you use your truck the more likely you are to damage it - so add in running repairs. Then you factor in the truck's residual value, which drops as running time increases and you are beginning to get the picture.

Initially you might think – I"ll rent one and give my local dealer the problem. They can supply me a truck that they like so long as it does the job. After all they are the experts. In return I know how much my truck is going to cost me every month. Simple, but is this really going to get you the best deal?

A lift truck industry maxim suggests that the dealer principle that runs the top of the range Mercedes will have a business that hires more trucks than it sells. Conversely the dealer principle whose business sells more trucks is found driving a van. So, is more money made hiring trucks than selling them, and if so how can this be?

Forklift trucks can be hired casually or for a fixed term, casual hire being more costly. For longer, fixed term arrangements leasing is another option. Hire and leasing remove the need for funding and its cash flow implication. However, the downside of these arrangements is that the cost is fixed, so if you are not using the equipment you are still paying. Twenty hours a week is reckoned to be the trigger point, less than this buy, more than this look very closely at hire.

Hiring a forklift truck takes many guises:  

  • Short-term hire for immediate needs - generally taking a used truck from the dealer’s hire fleet. This can be expensive but extremely flexible.
  • Short-term rental - where you make a commitment to rent for a term of up to twelve months with the arrangement including maintenance and you probably receive a new truck.
  • Contract hire, for longer terms - say up to seven years, including full maintenance and where you will start with a new truck. 

During the period of a short term rental or contract hire arrangement you use the truck and have it maintained by the supplying dealer. Routine maintenance will probably be covered but consumable items, tyres, batteries oil etc, will be charged for. Accident damage certainly won’t be covered so, you pay as you go along or have the truck repaired just before it is de-hired.

De-hiring the truck is when the total cost of the arrangement will be seen. Often trucks that have been well used will have significant wear and tear or damage that is not covered by the contract. This will have to be rectified, at your cost, before the truck can be returned. This is where the dealers’ choice of truck will have significant implications. Take for example the common 2 tonne counter balance truck. A regularly replaced item would be its overhead guard. For a Samuk R20D it would cost you £450, for some competitive machines nearly £2500.

The de-hiring costs are often used by a dealer as a bargaining point on the replacement truck or term extension. If the trucks you have on contract require repair, the bill it could be waived or reduced if you hire your next trucks from the same dealer.

Renting though does have it advantages. Fixed costs during the contract is one, flexibility is another. Even if a fork lift truck has a ten year operational life can you really be confident that your business and its equipment needs won’t change over ten years? If it does, hire gives you the flexibility to react to the change.

Different businesses will finance their forklift trucks differently based on their circumstances. Utilisation is a key issue. If the truck is being utilised less than 20 hours a week maintenance costs will be low and you could argue that buying the truck will gain you an asset with a good residual value.

Over 20 hours a week and the hire agreement with maintenance included will be attractive because you can budget for the fixed monthly cost. Also you have the flexibility of changing your fleet after say three years to reflect changes within your business. Beware the de-hiring costs though – they may lock you into an arrangement with a dealer or manufacturer that proves to be less attractive over time.

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During the period of a short term rental or contract hire arrangement you use the truck and have it maintained by the supplying dealer