To Rent or To Purchase? Weighing Forklift Acquisition Options
For most readers in the supply chain, deciding between renting or purchasing a forklift comes down to two questions: what’s the cost, and how long will I need it?
In most one-off applications, that’s about as complicated as the decision needs to be. However, once the application scales up to large forklift fleet sizes and extended time periods, choosing to rent or buy morphs into a more crucial operational consideration. With that said, business managers can easily navigate their options and arrive at the best solution for their organizations when armed with the information we’ll provide below.
As with any capital asset decision, managers start by identifying the problem they’re primarily trying to solve. Is the core challenge facing the business one of capacity, cash flow, something else? Once the main reason is fully vetted, managers will then be able to devise an answer on if they should rent or buy a new forklift.
To put this into perspective, let’s list out the main motivating factors that drive a business to need additional forklift capacity:
- Financial – businesses should always have a baseline operating cost metric established for their forklift fleet, and when costs exceed this baseline, managers will know they need to act. In some cases, companies facing an extended downturn need to divest unused owned lifts and replace them with short-term rentals to free up capital. In other cases, companies with too many long-term rentals can purchase lifts to cut rental fees.
- Accounting – as a different spin on the above item, some companies will choose between rental and owned forklifts as a matter of improving their accounting (tax and earnings) position. For example, a company that experiences a windfall year may wish to reinvest earnings by buying out rented forklifts. Also, some companies choose to sell owned lifts immediately at the end of their depreciation schedule to get them off of the books.
- Capacity & Reliability – when business is doing well, material handling companies may consider adding forklift capacity just to meet demand. For minor upticks, existing forklifts might be sufficient in number but low in reliability, perhaps due to old age or outdated technologies. For major upticks, raw forklift numbers (or operator headcount) may be insufficient.
- Performance – performance wraps up several topics including efficiency, effectiveness, adaptability, and uptime. Across these fronts, a material handling business may find itself not keeping up with its internal performance KPIs and decide to examine solutions through augmenting their fleet. Meeting performance expectations also includes acquiring lifts that serve different use-cases better than existing trucks, such as renting an oversized lift for high-weight loads or purchasing an outdoor-rated lift dedicated to yard duties.
- Safety – there are cases where a safety audit or post-incident follow-up requires a business to evaluate new rental or owned forklift options in order to satisfy an imposed expectation. Most often this involves acquiring new safety features for insurability, replacing out-of-compliance units, stepping up to industry or customer standards, or addressing specific safety hazards.
Comparing Forklift Rentals vs Purchases on Key Decision Points
Through the above list of reasons concerning why businesses may need to acquire new forklifts, fleet managers will gain a clear picture of the business problem that they’re trying to solve.
With this objective firmly in mind, now managers can compare renting and buying a forklift by these key decision points:
| Decision Point | Rent | Own |
|---|---|---|
| Initial Investment | Low initial investment cost – rental and delivery costs only (plus sales tax where applicable) | High initial investment cost – full purchase cost (plus sales tax where applicable) |
| Business Demands | Preferred option for businesses with fluctuating demand and limited capital | Preferred option for businesses with stable, predictable demand and available capital |
| Utilization | Ideal for project-based, sporadic, or seasonal utilization | Ideal for ongoing, frequent utilization |
| Time Horizon | Short Term – typically rented in day, week, or month blocks | Long Term – often owned and depreciated over 5-7 years |
| Service & Support | Maintenance and service work is the responsibility of the rental company | Maintenance and service work is the responsibility of the buyer |
| Ongoing Costs | Higher – rental fees quickly exceed the cost of ownership over extended rental periods | Lower – direct ownership costs less over time after the initial outlay |
| Insurance | Rental lifts are usually covered in the short-term by existing business comprehensive policies, or by elective coverage sold by the rental company | Purchased lifts must be added to existing business comprehensive policies or to new vehicle, asset, and/or inland marine policies |
| Procurement Ease | Forklifts can be rented after a simple application and credit extension | Forklift purchases take more time and effort, especially when financing |
A Word About Rental Agreements
Being in the industrial equipment rental business, we routinely field questions from customers about how rental agreements can meet their business’ specific needs.
To us, there seems to be a perception in the industry that rental agreements are relatively rigid, perhaps even presenting a “take it or leave it” image. While we can’t speak for all rental companies, our perspective is in fact the opposite – that rental agreements provide near-ultimate flexibility and customization that can be tailored to any individual business’ requirements.
In our world, rental forklifts by their very nature serve emergent, right-now, tactical business needs, and so for this reason must be elastic in order to be of any value.
How elastic? Let’s answer that by defining the main customizable elements in a forklift rental agreement:
- Duration – rental agreements can be written for single-day, week, month, or multi-month terms, typically with longer terms offering increasingly competitive pricing.
- Payment – in general, rental lifts are billed on a cash-basis or on a credit-basis. Cash customers pay for rental lifts upon signing the agreement, whereas credit customers are invoiced for rental lifts on an agreed-upon billing cycle after signing the agreement. Credit terms are based on a customer’s credit worthiness and can be negotiated, where early payments may earn a discount, and extended terms may include a small carrying fee.
- Usage Limits – rental agreements are typically written for unlimited usage, but there are options to establish a usage limit (often expressed as hours of use) that can reduce the rental’s cost.
- Delivery & Return Conditions – practically all rental agreements provide for delivery and return transportation of the lift to the customer’s location at a fixed additional cost. Customers can elect to transport the lift themselves and avoid this cost. Other return considerations can often be included, such as the rental agency providing equipment cleaning at an additional cost should the customer not be able to do so themselves.
- Rent-To-Own – when discussed ahead of time, rental agreements can also include rent-to-own clauses that allow customers to bank a portion of their rental fees towards buying out the lift to own at the end of their rental term.
Through these options and more, rental agreements can truly become a practical solution to real customer challenges, operation managers to precisely address their demands with extreme fidelity.