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All the right reasons

“Predictability is the key,” says Frank Shean, president of Valley Pallet.

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“Predictability is the key,” says Frank Shean, president ofValley Pallet. “Full-service leasing of our tractor fleet lets us understandand know our costs. That alone is extremely beneficial when it comes tobudgeting and setting rates on business for customers.”

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Headquartered in Salinas, Calif., Valley Pallet operatesfrom eight locations, six in California and two in Arizona. The 22-year-oldcompany’s 300 employees provide pallet manufacturing and distribution andthird-party logistics services to more than 300 customers in a wide range ofindustries. Today, while the bulk of its business

––more than 70%–– is selling new and reconditioned palletsto the fresh produce industry, the company also builds pallets formanufacturers, repairs pallets for a pallet leasing company and manages palletprograms for major retailers.

Hodgepodge

As Valley Pallet’s business grew, Shean notes, the need forreliable transportation became increasingly essential to its ongoing success.“Over time,” he relates, we had purchased over 20 different makes and models,mainly five- or six-year-old used trucks that were coming off leases. It was ahodgepodge of equipment, from pickups to flatbeds to tandem-axle tractors. Asthe fleet grew, it was also aging, and we were handling all maintenance andrepairs in-house, everything from oil changes to engine and transmissionoverhauls.

“When we really started to review our fleet,” Sheancontinues, “we determined that at least three or four of our 28 vehicles werebroken down at any given time. We were still paying for insurance and licenseson those trucks and the maintenance costs were mounting. We were also employingmaintenance personnel, equipping and running a shop, and paying all the coststhat are associated with a vehicle service operation.

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“We were running our trucks for ten years and averaging $1,000per month in maintenance expenses per truck,” Shean says. “We never knew frommonth to month what our maintenance costs were going to be. Then, when we wouldhave to replace a truck, the cycle would start all over again.”

Comfort level

In 2002, Valley Pallet decided to switch to full-serviceleasing for its tractor fleet. After considering various suppliers, the companysettled on Coast Counties Truck & Equipment Co., the local PeterbiltPacLease franchise.

“We were partial to Peterbilts for their quality and CoastCounties had been supplying us with service and parts at its Salinas and SanLeandro, Calif. locations for many years,” Shean explains. “The decision was asmuch about our comfort level and relationship with them as it was aboutanything else.

“Most importantly,” Shean continues, “there were clearfinancial benefits associated with a leased fleet. First, our costs each monthare now fixed so we can budget for that amount. At the same time, our costs arelower. Comparing three years of fuel economy and maintenance expenses to thePacLease pricing told us quite a story.

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“What it came down to,” Shean adds, “was we would save$150,000 per year if we were on a full-service lease program with new vehicles.Those savings resulted from reduced maintenance expenses, a 35% to 40% increasein fuel economy and not having to staff, equip and insure a maintenanceoperation. On top of that we could also eliminate $20,000 in parts inventory.”

Easy decision

In the end, Shean says full-service leasing was an easydecision to make. Not only would the company save money but also the savingsmeant capital could be allocated to other parts of the business. “With thisscenario we not only had more control over our spending, but we had money toput into our operations and inventory. The vehicle leasing and maintenanceprogram freed up cash to put back into our core business.”

The switch to leasing initially brought 16 new tractors intothe Valley Pallet operation under a five-year full-service agreement. Thecompany sold 21 trucks through PacLease at that time, Shean notes, butproductivity actually improved with the smaller fleet because the trucksweren’t breaking down.

“Instead of owning 21 trucks with three or four of thosefrequently broken down,” Shean reports, “with PacLease we were running 18leased vehicles that are always on the road. And if we do have a problem with atruck, PacLease provides a replacement vehicle.”

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Leasing also brought a fairly standardized fleet of vehiclesinto the Valley Pallet operation, and it meant the company was operatingequipment that was specified to meets its needs. Today, the fleet of 29 2007Model 379 Peterbilt tractors includes six single-axle day cabs, 19 single-axlesleeper equipped units and four tandem-axle day cabs. 

Added benefit

“Our fleet of late model, well-maintained tractors is notonly more efficient,” Shean points out. “An added benefit is the boost indriver morale. When we decided to lease new trucks, driver morale shot up. Wedo a lot of interstate highway travel and frequently have 1,200-mile trips. Ourdrivers hated making those runs in our old equipment. Now, they ask for thatroute so they can drive one of the new vehicles. With the shortage of driversin the industry, anything you can do to retain the good drivers you have paysoff.”

Valley Pallet’s relations with its customers have alsoreceived a boost from the switch to dependable leased vehicles. “Before, if wehad a breakdown, the downtime was extremely stressful,” Shean says. “In thisbusiness the way to stand out is by providing better service and competitivepricing. Newer, leased equipment lets us deliver those things better than everbefore.

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“We’ve built our company around providing outstandingcustomer service,” Shean concludes. “We really don’t have time to worry aboutkeeping our fleet running productively and efficiently. Today, our equipmentsays that we’re making the commitment to serve our customers in the best waypossible, and doing so at a lower cost.” 

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