Dawsonrentals is one of the UK’s largest CV rental firms, and one of the few to offer the full range of vehicles from vans to trucks and trailers and the full range of services from daily rental to contract hire and leasing. An early adopter of Euro-6 to allow its customers to try before they buy, more than 30% of its truck fleet is now Euro-6.
Dawson Group MD Stephen Miller (pictured, left) is optimistic about 2015 after a year of recovery in 2014.
“Like everyone else, we had a tough time in the recession, and it went on longer than we anticipated,” Miller says. “But rental is always an early barometer of things getting better or worse. We saw the green shoots at the start of last year, and we had a very positive 2014. And it has carried on into 2015.
“There is an air of confidence out there. But what's changed since the last recession is that I don't think people are going to switch to start buying again. A lot of people have had their contracts shortened, so they haven't got the five year contracts they enjoyed in the past. There's no point owning a truck or a van - just use it, send it back, and if there's a problem, pick up the phone and get someone else to sort it out for you.”
Despite still being known as Dawsonrentals, two thirds of the company’s truck business now is in longer term contract hire.
“We've had a good discussion internally about our name being Dawsonrentals,” says Miller. “Because people think ‘it's a truck hire company that you can rent a truck for a day, a week, a month’. The majority of our business for trucks is contract hire and that's really where we want to aim the business. Whereas our van business is very much the reverse of that - it's a short-term solution.”
“We don't like doing daily or weekly business. So we tend to find people having vehicles for three to six months up to a year. That's still short-term rental. But we're not having to bring the truck back and clean it every day; it's just too labour intensive to make it economic.”
Miller defines contract hire as any period over a year for a truck and two years for a trailer. The average contract length has been getting shorter since the recession. “When I first came to the business, 10 year contract hire on a trailer wasn't unheard of. Now, it is unheard of. First it went to seven years, then five years, now most operators now are looking for something up to three years.”
Even within these shorter hire periods, operators are looking for more flexibility to cope with an uncertain world.
“We are very flexible,” says Miller. “If someone wants something for 26 months, we'll arrange a 26-month agreement. We've other agreements where a customer might take 50 trucks from us, but wants the flexibility to return 10 quickly, with a weeks' notice. We accommodate that. The days where you charge a penalty were someone to suddenly terminate, they're diminishing.”
Buy outright
Dawson can offer this flexibility because it has the scale and resources to buy vehicles outright and manage its own disposal programme.
“We bear all the risk,” says Miller. “Dawson Group actually buys everything. We fund it with cash. Every time we buy a product, we've got to think about operating it and selling it at the end. We choose when we come to sell the assets. Something that we've become adept at very recently is selling things a lot quicker. We're now turning vehicles within their second year.
“The manufacturers sell more volume to us that way, and maintenance costs are lower. We offer our customers a better age profile of equipment so the vehicles aren't breaking down. We don't have our own workshops so can't run vehicles that are four or five years old. Some of our competitors have got their own workshops and it's cheaper for them to repair the vehicles. We tend to sub out all of our maintenance and run a young age profile. We couldn't run an old fleet of trucks and make money.”
Dawson has a long-standing relationship with Mercedes-Benz on both trucks and vans, though it also buys from MAN and Volvo. The company also has around 100 Iveco light trucks and buys VW and Ford vans.
“We tend to have two or three major manufacturers and keep to that,” says Miller. “We don't buy Volvo tractor units, just rigids.”
John Fletcher, MD truck and trailer (right), says Dawson will not buy other marques just because a customer wants to try out another vehicle.
“Other contract hire companies would take that kind of view,” he says. “We do that homework for ourselves and we work out which is the best truck to operate within our model. The reality is there's a certain type of truck and that fits with our business, that maintains the brand integrity and the ability to re-sell.”
“If you dilute the number of manufacturers you work with, you obviously dilute the buying power and the after-market support you get. Then you've also got headaches when it comes to remarketing it because you're spreading yourself too thinly with too few vehicles to populate those categories.”
Dawson’s fleet currently stands at around 3,800 trucks and 5,200 trailers. While 2,800 of the trucks are still tractor units, it is growing its rigid distribution truck fleet as the pallet networks continue to boom.
“We've grown our rigid fleet quite strongly in the last two years, at the same time as maintaining our presence in the tractor market place,” Fletcher says. “Everybody wants curtainsiders at the moment. Since the coming out of the recession, the pallet networks are very much in vogue so curtainsider rigids are in big demand.
“Refrigerated is still in good demand, as are dry freight boxes. On the refrigerated side, it's now much more about rigid fridges, as the supermarkets go smaller scale, plus the Aldis and Lidls that are starting to become more popular.”
Car transporters
In addition, Dawson has added almost 300 car transporters to the fleet.
“We've managed to make that a very steady business,” says Fletcher. “If we were doing just doing short-term rental, it would be all about the registration change. But having the two changes a year has actually flattened that out quite significantly for us.
“It's a very hierarchical marketplace where you've got the top end, the OEMs, then you've got a mid-tier of well-known operators, and then a subsidiary tier of subcontractors. We have an offer for each of those as the life of the asset progresses.”
In the tractor segment, Dawson has a higher proportion of the fleet on short term rental, with 40% being on contract hire. Tractor rental has always been a notoriously difficult market to make money in and, despite the economic recovery, this remains the case.
“We've got to work hard,” Fletcher agrees. “We've got three points of contact with the truck: the price we pay for it, how much we can maintain it for, and how much we can sell it for. Each one of those we have to constantly work on to maintain the margin for the business. The overhead we carry and the amount of support, engineering and compliance that we deliver, they come at a cost. Yes, there is money in it if you do it properly, but there's equally a big risk in it if you don't.”
While vehicle hire remains Dawson’s core business, many operators have slimmed down their technical departments in the recession and are looking for more than just the truck or van.
“We do everything from the tyres, the maintenance and the O-licence inspections to telematics and driver training,” says Fletcher. “Everything can be encompassed, in the package. It really is completely turn-key. All the customer is doing is putting in the fuel and the driver in the cab, and insuring it.”
But unlike some other contract hire firms, the company has stopped short of supplying drivers to avoid competing with its customers.
“We've stayed away from that,” says Fletcher. “That's back-door being an operator, and that's not where we want to be. The operators are best at that and put an awful lot of time and investment into that. We put ours into the asset side of the business.
“Over the past three or four years, improved driver training with the Driver CPC meant the amount of vehicle damage was declining. It's just started going back up again now as we see more agencies in play, and fewer experienced drivers in the marketplace.”
Flexibility
While own account operators whose main business is not transport remain a key target audience for contract hire and rental, the big 3PLs also see value in the flexibility of hiring as well as buying at least part of their fleet.
“Third party logistics is still a very important part of what we do,” says Fletcher. “We recently completed a large order to supply trailers to Wincanton and DHL is a very significant revenue stream for us. They need flexibility to allow them to tender on shorter contracts without having the exposure. If you look at the life-cycle of their contracts, it's the right approach.
“The fundamental principle of leasing and contract hire is matching the term of your acquisition to the term of your contract, which is what we do best.”
Dawson ordered its 1,000th Euro-6 Mercedes-Benz truck at the CV Show in April from the previous show in 2014, and almost a third of its truck fleet is now Euro-6. But being one of the early adopters of Euro-6 was part luck as well as judgement, Fletcher cheerfully admits.
“We were unsure about Euro-6 and truth is we bought a lot of Euro-5 vehicles at the end of 2013, which we thought would see us through most of 2014,” he says. “We did a good job, and we'd hired all of those out very early on. So we had nowhere else to go and ordered 100 Euro-6s from MAN in September 2013. They came on 1 April. We did a lot of pre-marketing, including advertising in your paper, and it had a very positive impact. A lot of customers thought ‘give it a try’ and they were all out the door by 28 April. Gone.”
“The Group board kindly agreed to us to buying another 100 from Mercedes-Benz. That was a good experience and now we have 1,000 on fleet or on order. This was speculative. This isn't something we've done because this customer has come to us and asked for this truck. We've speculated and pushed these into the market. We saw last year that we were able to demonstrate pretty significant fuel savings and the operational shift to Euro-6 wasn't as big as people thought.”
While Euro-6 trucks have proved more fuel efficient than their predecessors, they do cost Dawson more to buy and maintain.
“Maintenance costs have risen,” says Fletcher, “and there is a question mark with Euro-6 that nobody can answer yet. In three or four years time the DPF [diesel particulate filter] will need replacing. We were given prices of anything from £6,000 to £12,000 for a new system but then some people are saying they can change the cartridge for £1,200. We really don't know the answer to that.
“We've seen some early operating issues with lower mileage and around town operations. Certainly in the lighter vehicles it's not ideal. But on the long-run vehicles that are doing lots of miles they've not missed a beat.”
Euro-6 price hikes
Purchase prices are at least 10% higher on Euro-6, according to Miller.
“Everything costs more, and we haven't passed all that on,” he says. “I think the manufacturers were a bit greedy to start with and their expectations were a lot higher. Those expectations have come down but it's still a big cost.
“I've got to say it was a bit of luck that we had to get into Euro-6 a lot quicker. We didn't commit to a lot of Euro-5s like some of our competitors. It was the right thing to do. There was a lot of mischief from the manufacturers, a lot of misinformation.
“We had a solution. We came up with this campaign ‘try before you buy’, and it was probably one of the most successful campaigns we've done because people just said, ‘let's do that then’. Then they found out it's not so bad after all, and they've gone on to do their own thing or stay with us.”
Dawson may never find out the cost of replacing DPFs, as the average age of its truck fleet is just 22 months. This is partly to ensure maintenance costs remain low and predictable.
“Within the first couple of years, most of the maintenance is covered by warranty,” says Fletcher. “So we don't have any great big surprises. The other thing is that when it comes to remarketing a 22 month old vehicle still has some warranty with it.”
At the current rate of replacement, Dawson’s truck fleet will be close to 100% Euro-6 by the middle of 2016. But that could be sooner as Miller explains.
“We're free to sell a vehicle whenever we want to,” he says. “So after nine months if we want to sell a truck, we'll sell the truck. We get customers ringing us saying they've had a truck for 12 months and they're thinking about buying it. Which is fine. We've got a finance facility for that so we can fund it for them as well.
“But that decision on when it comes to selling the vehicle is about when we want to buy them as well. If we can buy 500 vehicles at the right price, and we don't want to increase the fleet size by 500, we've got to sell an amount of vehicles. We'll look at the fleet, and we'll sell a section of it. It's a bit like a conveyor belt. We like buying things.”
Steady growth
Fletcher expects his truck fleet to grow steadily in 2015 as the market improves.
“It's not going to grow exponentially this year,” he says. “But it's going to grow in line with the expectations of the group and the general economy. There's a rule of thumb that leasing, rental and contract hire grow slightly faster than the rate of economic growth. Whether it will be as much as 10% I doubt, but it will not be far off that.”
If making money from tractor unit hire can be difficult, renting trailers is even tougher, with cripplingly low rates blighting the sector for the past decade. But Fletcher says his 6,000 strong trailer fleet does make a margin, albeit a small one.
“Is there the same money to be made in trailers as there is in any other asset that we operate? No,” he says candidly. “But it is profitable. The margins are tiny, the risks are huge, and trailers are such a long-life asset. Trying to gauge what is going to happen to a trailer you buy today in seven or eight years' time is really difficult.
“I think ultimately we'd like to get the trailers to be similar to the trucks, and we'd hold them on a much shorter cycle and see them into a used marketplace a lot earlier. We've made big steps towards doing that over the last two to three years. We've disposed of probably somewhere in the region of 2,500 trailers, and renewed most of those. We have just completed a large purchase of fridge trailers which is a massive investment. By the end of June this year we'll reach our 2,500th trailer from Lawrence David, which we'll have acquired over the last two years.”
Trailer rates
Recouping this investment will take time, Fletcher acknowledges.
“There's a big step between what the market's been used to paying and what they have to pay now,” he says. “We've not quite got to where it needs to be yet to justify the level of investment that we've made. But we're not far off and we're pushing them in the right direction.”
While there have been some casualties in the trailer rental market, TIP has been reinvigorated under its new Chinese owners and the market remains very competitive.
“It's tough,” Fletcher confirms. “You might find for a few months you've got a bit of breathing space, but it won't be long before someone's nipping at your heels and you're back to where you were before.”
Unlike truck rental, which requires high levels of professionalism and compliance, trailers are easy for small back street operators to buy and hire out.
“That's always the danger,” says Fletcher. “This guy turns up, he's got no overheads. He buys a used 2006 trailer for £3,000 or £4,000 and if it makes £70 or £80 a week, he's probably quite happy with that. He's not had to put any money into compliance systems or overhead, the people, the training, all the other things that we do.”
Fletcher would like to buy all British trailers, but he concedes “it's not always the best solution for us”, and Dawson remains a big customer of French fridge trailer builder Chereau.
“Chereau and Dawsonrentals go back a long way,” he says. “You walk in our yard now and compare a 2002 Chereau trailer with something else that might be five or six years younger and you will say the Chereau is the better trailer.”
Miller adds: “We bought our first Chereaus in the 1980s. The Chereau just stands the test of time. That rear frame they've got, why other manufacturers haven't copied it, I just don't know. When we come to sell them, customers always go for the Chereau. I'll say Chereau are the only manufacturer that can deliver a trailer for a 10-year life in a rental fleet.”
Longer semi-trailers
Dawson argued strongly that the trial of longer semi-trailers should have been open to the hire companies, but the DfT ignored their approach.
“We said to the government that if you opened it up to the rental and leasing companies, we could have bought a number of these trailers that we could have spread those across a lot more operators,” says Fletcher. “A lot more people would have got to see the value of them and the government would have got their information back quicker on the validity of the project. Needless to say, we didn't get much traction with this.”
Dawson has however invested heavily in doubledeck trailers, taking delivery of its first refrigerated unit back in 2000 and now having over 600 on the fleet.
“Doubledecks have been growing and growing,” says Fletcher. “In the last four or five years, they are increasingly what people are looking for. That's whether it's dry freight or refrigerated.”
While the rates for doubledecks are better than for vanilla single deck curtainsiders, they are expensive to buy and maintain.
“They're a bit like Ferraris,” says Miller. “They're very expensive, and can be quite temperamental. It's a very different sell to an operator than a standard box, because if you've got a moving deck, particularly in a fridge vehicle, there's an element of downtime that people have got to expect. They need careful maintenance and they are not for the faint-hearted. It was a brave decision for us to go into that and now, after 15 years, we've served our apprenticeship with doubledecks.”
Dawsonrentals vans
At the other end of the scale, Dawsonrentals now has a fleet of over 4,500 vans based at seven locations.
Gareth Jones, MD vans (below), explains: “We start at a car and go up to a Luton with a tail lift. That's where John takes over with truck and trailer.”
Jones came to Dawson in February 2014 from heavy haulage and crane hire firm Ainscough; before then he was with Northgate for 16 years, where he was appointed commercial director in 2006.
Jones says that having dedicated van centres rather than piggybacking on the truck sites is important to ensure the staff have the necessary light commercial expertise.
“Vans is a highly transactional business,” says Jones. “On a busy day, we're probably doing in excess of 200 transactions before 8.30 in the morning. The needs and demands are slightly different. You've got a very legislative-led environment in trucks. Things like six-weekly inspections, O-licensing - all that good stuff that you get in the truck world, you don't necessarily get in the van world. So you need to deal with it in a different way.”
The UK van market has grown rapidly in recent years, partly fuelled by the online shopping boom that shows no sign of abating. “I can only see the market getting bigger for vans,” says Jones. “I can't say it's completely recession proof, but it's a good model. It's a non-specialist asset that can be moved around and exported, and it is seen as a barometer for the UK economy.
“I'd probably put the van market at about four million. And it's growing. New registrations are up. The vans business has grown year on year, and I'd say it's outstripped the market.”
The van hire and leasing market remains dominated by the large car rental firms, but Jones says a specialist like Dawson can offer professional van users something extra.
“There are three big differentiators for Dawsonrentals vans,” he says. “Dawson Group is a privately owned, family business. It's been around for over 80 years and it's stable and sustainable. That's really important as there has been a lot of volatility and mergers in the market. People are quite nervous. Then you've got the market leader, which is a PLC [Lex Autolease, part of Lloyds Bank]. They are, to some degree, governed by whatever the demands of the City are each year.
“The second part is product quality. We only buy the best products available in the market. We have a fantastic relationship with Mercedes-Benz, VW and Ford. We don't buy cheap vans, and the average age of the fleet is less than 12 months.
“Then the third part is service excellence. That really is a differentiator. If you look at our statistics this year, our first-time fix rate is about 87%, our average breakdown attendance time is 75 minutes, and our mechanical VOR has been less than 1% all year.
“Some rental companies will push a specific product based on what's available at any given time, because it is lower capital cost and a cheaper rental price. We don't operate like that; we're focused on up-time.”
Dawson relaunched its vans business, ditching the Hiregate brand, in 2013, since when Jones has been focusing on getting the network and support structures in place rather than growing the fleet.
Different direction
Miller says: “We appointed Gareth because Dawson needed a different direction for the van business. Whilst we didn't grow last year, there has been a massive switch in the customer experience and the service options available.
“If you asked me a year ago about the size of the customer we wanted, I would probably have shied away from some of the larger fleets because it would have embarrassed us. Now we could take on any size of fleet.”
As on the truck side, Dawson will be an early adopter of Euro-6 when it comes into force for light commercials.
“We buy what we think are the right products so as and when Euro-6 comes into the market, we'll take it because we want to keep that average age of fleet low,” says Jones. We're not going to stockpile old product; we'll always take the latest product that's available, the same way truck and trailer have.
“We're going to buy over 3,500 vehicles and sell around 2,000 this year. We are quite happy with the age of the fleet.”
Jones also believes now is the time for Dawson to make its first foray into electric vans.
“We're not just looking a diesel and Euro-6,” he says. “We're looking at things like hybrid technology. Dawson will shortly put some electric vehicles onto the fleet, for urban work.”
Dawson is also looking to innovate in its service as well as vehicle offering.
“Our service is more than just four wheels and an engine,” says Jones. “You can get four wheels and an engine off anybody. We're not doing it with everybody, but certainly on fleet partnerships, we're trying to come up with more innovative ways to add value.
“It is about van usership versus ownership. If you think about lot of big companies like construction firms and utilities, or the Royal Mail, that run fleets in the UK, it's not their core business activity.
“We want to get more people from the ownership to the usership model and contracts are shortening. Years ago, you'd get a seven year framework contract, and you could do a 36-month contract hire and probably have a second spin. Whereas now a lot of those contracts are three years with a two year extension. So there are more people interested in flexibility than actually owning the assets.”
