fINaNcE

Some economists say that we are on the cusp of another recession, and if the USA goes into recession then we will follow. We are told that we will not have a property bust in Ireland or a potential bank collapse, but in a period of strong residual value for all types of transport equipment one must ask the question if this bubble is going to burst. The advantages of having some element of the transport fleet on an operating or contract hire basis has to be looked at in order to hedge the business against a potential decrease in asset values.

Looking at the 30% to 40% increase in new product costs, a transport business owner should consider some strategy to put some of this risk back onto the supplier to counteract any marked decrease in assets values in the future. The value of second hand assets will be dictated by demand and the cost of new units, and if some reversal of new cost escalates, that will have a knock on effect.

With the potential for significant interest cost increases, this may again push manufacturers to support contract hire to shift their products from sales yards. Having a balance sheet free of substantial debt again may be a wise strategy if opportunities appear for investment in good value premises or warehousing. Having a financial strategy that keeps all options open is wise and prudent and a strategy that the multi-nationals always adopt.

Many successful haulage businesses take the viewpoint that units and trailers are items that the business needs to operate but does not want to own after a four or five year payment period. Therefore they opt for an operating lease (unit or trailer for a designated period with no maintenance), or contract hire (unit or trailer for a designated period along with full maintenance and the option of replacement plant, if required). The benefit of these types of equipment rental is that the liability and asset do not appear on the balance sheet, one can clearly see the costs per month instead of a depreciation, with interest calculations being part of the monthly accounts. Additionally in the case of contract hire, all costs excluding tyres and damage repairs can be assessed monthly.

The reason distributors can offer very competitive rates for these types of asset rental is that they normally have low cost of capital from the manufacturer and they are building a pool of second-hand vehicles and equipment. In relation to contract hire, the distributor has the above two advantages along with the ability to generate business through its workshop and have a detailed service history for future vehicle and equipment sale.

The benefit to hauliers that did use operating leases or contract hire with equipment returning to distributors over the last two years, is that they will not suffer the decrease in asset values and subsequent loss on disposals if values of assets materially fall. Distributors’ in-house leasing companies may have greater access to funds than the Irish financial institutions. The fact that they are supporting and increasing the market share of their brand in the region, along with the ability to sell the units on return, means their in-house leasing packages will be more cost effective, with finance more readily available.

Irish hauliers have a belief that owning the asset after four or five years allows “free use”. While one may have short term cash-flow benefits over a very short period of time, it becomes obvious that reliability, service costs, and fuel economy factors dictate that if units are in use on a continuous basis, an operating lease or contract hire agreement over the most productive and cost effective life span of the unit makes the most financial sense. If one believes that older units are more appropriate due to low usage or the inherent reliability of the vehicle, then dealers will agree a fair end of lease residual purchase option.

Donal Dempsey, Dempsey & Assoc. Chartered Management Accountants, was the independent observer for the event. Text: Donal Dempsey – donal@fleet.ie

Three Charities benefit from 24-Hour Tractor Charity Run 2022 – Roberts Cove Vintage

Many of Ireland’s leading road transport companies and their suppliers came together to support a unique charity fund-raising initiative by Roberts Cove Vintage to host a 24-hour sponsored Vintage Tractor Run. The main beneficiaries of the round-theclock drive were St. Vincent de Paul, Conquer Cancer and Suicide Aware.

Dungarvan Transport, which was one of the event sponsors had father and son Diarmuid and Tomas Horgan participated in the relay for two hours. Most interesting was that the Massey Ferguson 135 with Diarmuid behind the wheel, was the first tractor Diarmuid ever drove, 57 years ago. The idea was the brainchild of Wesley Taylor Express Tyres and it was independently observed by Dempsey & Assoc. Chartered Management Accountants.

Contributing firms were Dungarvan Transport, Martin Ryan Haulage, D.J. Downey Ltd, Olympic Haulage, Mullally Haulage, M & J Kelliher Oils, D. Dennehy Commercials, Munster Vehicle Sales and Tarrant International Transport.