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Wed 8 Aug 2007 03:02 PM

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Reasons to rent

With many extras now included, rental deals have never looked so attractive to fleet managers.

The massive growth of logistics activities in the Middle East has driven a considerable boom in the rental market for commercial vehicles. Indeed, the number of companies leasing their vehicle fleets, rather than purchasing them, is constantly increasing throughout the region, creating a lucrative opportunity for rental companies.

Avis, the internationally renowned brand, has long established operations in the Middle East, with offices now located in countries such as Saudi Arabia, Lebanon, Kuwait and the United Arab Emirates. It first entered the region over 20 years ago and has experienced a period of significant change in terms of market demand.

 

A growing number of companies are opting to lease their commercial vehicle fleets, simply because it allows them to concentrate on core activities. - Aftab Alam

"A growing number of companies are opting to lease their commercial vehicle fleets, simply because it allows them to concentrate on core activities, without the hassle of worrying about issues such as maintenance and insurance. We take care of everything, they just drive," says Aftab Alam, fleet manager for Avis in Dubai and the Northern Emirates.

"Our customer feedback suggests that the maintenance issue, in particular, is viewed favourably by companies choosing to lease instead of purchase. After all, the maintenance of commercial vehicles can take a little longer in the workshop compared to passenger vehicles. You cannot expect a same-day service and, of course, for every day a delivery van is out of service, the company risks losing a lot of business. The financial implications can be huge, but with a rental service, you get a replacement vehicle straight away and continue as normal. It's a lot simpler and hassle free," adds Alam.

This opinion is particularly relevant to logistics companies, which now form a major customer base for Avis, together with the FMCG (Fast Moving Consumer Goods) market. The company is also attracting a large amount of business from UAE governmental departments. "We have signed a contract with the Department of Health in Dubai," confirms Alam. "As part of the agreement, we are providing approximately 50 refrigerated vans to them, so it's a major deal for us."

The range of commercial vehicles currently being offered by Avis is diverse, starting with the smaller, half tonne capacity vans to the large ten tonne delivery trucks. These can be customised to suit the individual requirements of each customer, such as temperature controlled storage conditions for food manufacturers or cosmetic retailers.

"We always strive to meet a customer's demand, regardless of their specific requirements," says Alam. "Even if the customer is looking for something not included in the Avis fleet, we can purchase a suitable vehicle especially for them. This is done during the initial stage, when we meet the customer and discuss their requirements. We'll make recommendations based on this information and make sure the vehicle is available and customised, if needed. For example, if the customer needs a chiller unit in the van, we will happily arrange that for them."

Demand for certain types of vehicles has increased over the years, especially as government regulations have tightened in regard to the transportation of products. "Earlier, companies used to transport items, including foodstuff, in open pick ups, but there are more restrictions now. They need to transport foodstuff in covered pickups, which should have a certain temperature. They cannot just use any vehicles to transport the goods anymore," says Alam.

With average fleet rental contracts lasting between one to four years, companies in the Middle East seem to have preference towards certain vehicles brands too, such as Mitsubishi and Isuzu.

"These manufacturers are particularly popular in this region, although it again depends on the customer requirements. Occasionally a company will request a specific model and brand, which might be perfect for their needs. On the other hand, we can also use our expertise to recommend an alternative, which might be more fuel-efficient or require less maintenance. Of course, this benefits us too in the long run, because less maintenance will reduce our operational costs," identifies Alam.
As the market for commercial vehicle rental continues to flourish, in parallel with the market for passenger vehicles, Avis is currently amidst a major five-year expansion plan throughout the Middle East. As part of this growth, its fleet has already increased by 20% during 2006 and the company is planning to have 20,000 cars in the region by 2010.

"I believe the growth we have experienced will continue in the future, especially with the developments in Jebel Ali Free Zone and the forthcoming Dubai Logistics City. These projects will eventually drive demand for fleet rentals and open the door for growth potential," says Alam.

"Of course, this puts Avis is a great position. Customers are looking for a company that is well established, can provide excellent support and operate with a good network. We offer all of these things and our network covers the whole United Arab Emirates, with offices in every emirate. So, if a customer breaks down, we can send someone quickly and fix the problem. On the other hand, if a rental company only has offices in Dubai or Abu Dhabi, it could take hours to reach the customer," he adds.

"We'll support the five year expansion place with a focus on high quality standards and a well-positioned pricing strategy. We will also open new workshops and offices throughout the region, covering the entire United Arab Emirates and beyond," he concludes.

 

Fleet dilemma: buying versus rentingWith so many businesses in the Middle East reliant on effective fleet management as part of their service, the decision of whether to own or outsource your fleet is a crucial one.

Fleet ownership has traditionally been seen as the preferred method in the region, with businesses opting to own and control the management of their vehicles inhouse. However, an increasing number of companies are turning to professional fleet management suppliers to provide them with cost productive methods of looking after their vehicles.

For most companies, the decision of whether to own or lease is essentially a financial one. "Companies must always ask themselves which option will provide the best return on their investment," explains Ed Simpson, logistics mentor at Australia's Logistics Consulting International. "For example, a retailer may decide that rather than investing funds in fleet ownership, putting the funds into merchandise that they can sell yields a greater return on investment."

The size of a company is one of the major factors behind the decision of whether to outsource fleet management. Simpson argues that the larger the company, and the more developed a region, the more likely they are to favour outsourcing and leasing of fleets. "Larger companies tend to focus on their core business or core competency. You never outsource your core business or competency," he explains. "So, if you are a large retailer and your core business and competency is selling, you may find internal fleet operations a distraction".

In many ways, the benefits of outsourcing your fleet management appear to be better suited to the current competitive financial climate than ownership. By outsourcing part or all of the day-to-day management of their fleet, companies can instead focus more on the internal strategic and management issues relating to their core business. There is no need to get tangled up in the time-consuming issues that are insurance, repair and maintenance, accident management and vehicle disposal or re-sale.

Whether companies prefer to manage their own fleet inhouse or outsource all or some aspects of their fleet management, at the end of the day it's all about what is best for each respective company. For the most effective fleet management, there is no single solution, as Simpson concludes. "Each business, in each industry, in each region, must weigh the factors that apply to them - and make the decision that is right for them."

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