Careful decision proves successful
Apr 1, 2005 12:00 PM, By Mary Davis
THE DECISION in 2002 to lease tractors for Southern Petroleum Inc evolved slowly after a good deal of deliberation, says Jonathan Arnett, owner of the Somerset, Kentucky, company.
“We didn't just wake up one day and decide on leasing,” Arnett adds. “Even though we only operated five tractors at the time, we knew that our bottom line was suffering from excessive maintenance on our old trucks.
“In addition to the maintenance costs, we had the expense of downtime when we had a vehicle out of service and had to meet customer demands by renting a truck or hiring a carrier. And that's not counting the costs for my time and that of my employees who were having to work extra hours to coordinate the situation.”
Estimating that he was spending as much as $48,000 per month on repairs and replacement tractors, Arnett decided the time had come to evaluate the operation to improve efficiency. He hired George Wilson, who was experienced in petroleum operations, and brought in Roger Todhunter, an accountant.
“I told Roger that we had to get expenses under control,” Arnett says.
The team set to work examining the operation, including tractor ownership versus leasing. They considered various aspects of ownership, such as the value of depreciation and truck value at a six-year trading time.
“What we uncovered was an eye-opener,” Arnett says. “We decided that you can't build equity in a truck.”
The team eventually determined that tractor leasing appeared to be the best route for the company to take. After evaluating several leasing companies, Arnett settled on a six-year program from PacLease affiliate, Appalachian Leasing Services.
Charles Hamilton and Bob Calvert of the Lexington, Kentucky, leasing firm met with Arnett and Wilson to work out the details that would eventually lead to a program for five T800 Kenworth tractors. Later, two more Kenworths were added to the fleet, and current plans are to lease another in 2005.
“We told them to give us their wish list and we would work from that,” Calvert says. “We don't have a cookie-cutter approach. We tailor each program to the needs of the individual company.”
They discussed the benefits of leasing, such as providing a single source for handling tractor finance, maintenance, and administration.
“We also understood their demands to service their customers,” Hamilton says. “The attention to the specifics of their operation and our flexibility to customize our lease to each client are some of the primary reasons we believe they chose Appalachian Leasing/PacLease.”
The maintenance provisions receive high praise from Arnett and Wilson. The contract covers preventive maintenance, maintenance plus all parts and labor, as well as 24-hour roadside assistance and towing.
“We determined we could have a new truck, and everything on that truck was covered under the maintenance agreement,” Arnett says.
He adds that soon after the lease program went into effect, he began to get a good night's sleep. He estimates that the lease payments are less than half of the previous maintenance costs. “We saw results immediately.”
“With the PacLease program, we knew exactly our cost of transportation,” adds Wilson. “And even better, we began to see smiles on our drivers' faces as they experienced fewer breakdowns and wait times.”
Another reason the drivers were smiling came from a suggestion by the PacLease representatives that led to each driver's CB call name being painted on the tractor door.
“Even though the drivers already had dedicated tractors, adding that CB call name really gave them ownership,” says Wilson. “PacLease said we should surprise them with the names on the doors, so we didn't tell them until the tractors were delivered. The drivers were really excited about it.”
Another benefit for the company's seven drivers includes tractors specified with AeroCabs. Even though little over-the-road driving time is required, drivers are encouraged to interrupt their schedules and rest in the sleeper cabs if they become fatigued.
The Kenworth T800 is specified with a Dana Spicer set-back front axle that works well for delivery to Southern Petroleum's customer locations that require tight turns. Steering axles also have Dana Spicer ES brakes. The drive tandem includes Dana Spicer axles and MeritorWabco antilock brake systems. Tractors have Alcoa aluminum wheels.
Tractors are powered by 475-horsepower Caterpillar C15 engines and have Fuller Roadranger FRO-16210C 10-speed transmissions. Appalachian Leasing Services/PacLease installed tractor-mounted Roper product pumps.
In addition to vehicle specifications and other lease provisions, PacLease recommended that the company outsource driver training and regulation compliance to Otha Quisenberry at Transport Solutions Transportation Services LLC in Lexington. Training covers Department of Transportation (DOT) regulations and hazmat handling.
The consultant provides a complete array of DOT compliance services, including driver and vehicle file maintenance, drug and alcohol testing, and an employment background screening program. The program gives Southern Petroleum the capability to investigate each applicant, including motor vehicle violations, and criminal background checks and worker compensation records.
Appalachian Leasing Services/PacLease also conducts driver information meetings that include receiving input from drivers on tractor performance and shop service. “I like to hear it first-hand from the guy in the truck,” says Calvert.
All the outsourcing has proved successful, freeing the Southern Petroleum management team to concentrate on customer service, says Arnett.
“That's what we build our business on,” he adds.
The majority of the business, about 70%, entails product deliveries to convenience stores.
Arnett, with his partner Jerry Ikerd, own 10 convenience stores. Another 52 stores served by Southern Petroleum keep the tractor/tank trailer units busy hauling gasoline, diesel, and lube oil.
Southern Petroleum also supplies 110-114 octane auto racing fuel at the convenience stores.
Marinas comprise another 20% of the company's revenue. Although the marina service is seasonal from May to September, customer demand is intense during that time, sparked by the number of people who flood the nearby lakes with fishing and other recreational boats, Wilson says.
Of the 11 marinas the company serves, only two can handle a tank trailer, so Southern Petroleum coordinates a tank truck subcontractor who serves those customers with tankwagons.
Another 10% of the revenue comes from fuel oil transported to local jobber bulk plants and diesel to a few coal mines and school districts.
The majority of the company's operating area lies in and around Somerset and in central and southern Kentucky. A few customers are served in Tennessee.
Drivers park their tractors and empty tank trailers at their homes after finishing deliveries.
They have company-provided Nextel two-way/cell phones and fax machines to stay in contact with the dispatcher. The next day's orders are faxed to drivers each evening. About 90% of the transportation is conducted between 8 pm and 10 pm, Wilson says.
At least 99% of the tank trailers are unloaded at a single stop. The company has encouraged customers to install appropriate-sized storage tanks to make the one-stop deliveries possible.
Looking back on the history of the company, Arnett says it all began when he and a partner built a convenience store in 1988. The company grew as they bought and/or built new stores. Eventually, Arnett and Ikerd acquired the company.
By 2001 they were transporting petroleum products with cargo tanks built by Heil, Fruehauf, and Trailmobile. Most of the tanks purchased over the years remain in service with the fleet.
The newest pre-owned trailer came from Post Trailers in Knoxville, Tennessee, which also handles all trailer preventive maintenance and repairs. The 9,000-gallon Heil trailer is equipped with Civacon bottom-loading adapters and Scully Signal Co overfill prevention.
“Outsourcing vehicle maintenance, as well as making the decision to lease the tractors, has significantly improved our bottom line,” says Arnett.
With operation expenses under control, the company is able to concentrate on additional growth, which Arnett is anticipating. The company grew by about 20% in 2004 and appears to be on track for similar growth in 2005.
“We are always looking for opportunities,” he says. “Most of our business has expanded through word-of-mouth. However, we are careful not to expand so quickly that we extend past our ability to service them.”
With another tractor on order from PacLease, and the current leasing program underway, Southern Petroleum seems positioned to meet anticipated growth for the future.
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