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Taking the strain
Page 24
Page 25
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When is contract hire not contract hire? According to John Ball, MD of Fraikin, most of the time. Andy Salter finds what on earth he's talking about.
Discussing what exactly is meant by contract hire seemed a good place to kick off an interview with the chairman and managing director of a well-known contract hire company. Little did we know the issue is something of a bone of contention between those in the sector!
John Ball, Fraikin's UK head honcho, gets frustrated when people refer to contract hire when in fact they mean something quite different. It's not just a matter of semantics; Ball contends that the market has been misled by certain quarters and their descriptions of their service offering.
"Speak to customers about how they operate their vehicles and often they'll say they have them on contract hire, when in fact I'd say they lease the trucks," he says. "I saw a well-known truck manufacturer's brochure recently, adver tising a contract hire package. Yet, when you read the terms of the agreement it included vehicle funding and road tax, but it excludes maintenance.To me that's not contract hire, it's an operating lease."
Driver behind the wheel
Ball describes contract hire as payment for use for a dedicated vehicle for a fixed term.-Someone,ideally us.provides a customer with a truck and all they have to do is put a driver behind the wheel and fuel in the tank," he explains. "There are three elements to vehicle operation: funding, maintenance and administration. If all three are fulfilled then it's contract hire, if not then it's something else.
"Truck manufacturers in my experience don't do contract hire, they do funding with a repair and maintenance package, with only bits of administration. Furthermore, very few manufacturers will do contract hire on the whole truck. It comes back to the reason for them being in this market to move metal. In order to improve registrations of their vehicles, they need to move chassis. As a result, the body becomes the customer's responsibility, not the providers." Fraikin's package takes care of the whole vehicle, body and all,says Bail.
According to his information Ball reckons somewhere in the region of 25% of all commercial vehicles registered above 3.5 tonnes in the UK are operated on pure 'contract hire'.That's increased steadily over the past five years from a figure Ball estimates at around 20%. During that period Fraikin has been through the hands of Iveco as an owner and has seen its vehicle pare rise from 1,400 in 2000 to the current 2,000 units in operation at the back end of last year. Fraikin's growth during that period has been organic, but in order to satisfy the growth expectations of the company's current owners Eurazeo, Fraikin is this year on the acquisition trail. "We have to start accelerating the growth of the company in the UK," Ball says. -Generic growth on a parc of 2,000 vehicles won't be fast enough, so we must look at growth through acquisition where appropriate.
Service for our customers
"It won't be a scramble to grow the parc, and any target must make sense in terms of adding value to our business.They must give us consistent service levels to our customers and fit with our business."
Ball classes Fraikin as a company focusing on the higher end of value-added service. It looks to find solutions for its customers rather than participating in negotiations which start with price; this, he says must be reflected in any firm that Fraikin looks to buy: "Clearly any acquisition target has to share the same culture. It makes no sense to take a company that has grown rapidly on a low price offering. What we're buying is a customer base, so we need to he able to support that base. The strategy is to develop the business at a faster pace and get to a more sensible critical mass."
As expected Ball wasn't in any mood to divulge potential targets: when we pressed him for a third time and received a terse "no comment" accompanied this time with a glare, we thought it best to move on!
Back to contract hire. In the early '90s this was the buzzword of the industry; the panacea to all its ills. No more worrying about running trucks for operators,just focus on moving goods and making money. Many operators, lured by the prospect of new trucks at unbelievably low prices dived in, only to receive burnt fingers further down the line. So how does Fraikin convince a cynical industry of the benefits?
"The customer must ask himself: How important is running my trucks to my operation?" Ball says. "Running trucks can be an extremely complex business. It's simple for us, because it's all we do, but often customers don't have the critical mass to bargain for best rates: furthermore claiming warranty can be difficult and confusing as can the administration of the vehicles. Our fleet of over 2,000 trucks gives us the economies of scale, but for an operator with 30 trucks particularly if doing his own maintenance and supporting a workshop he loses those economies and it's a distraction.
Solution that suits them
"I would he misleading myself if I thought Fraikin was unique, but we pride ourselves on understanding the business of our customers and offering them the solution that suits them."
Ball says that for any customer relationship to succeed then it has to be open about its business: "Our line to a customer is let us at least understand your business; if a prospective customer doesn't want to make that first step they're unlikely to be a good customer. The type of customer we have success with are those looking for a solutions-based service, as opposed to 'how do I fund my trucks' which itself is a very crowded market."
Fraikin, whil e number one in Franc.e, remains a bit player in the UK, though on this evidence that appears likely to change. "There is now an owner in place who appears committed to the company and there's a clearly defined strategy for growth.There seems little doubt Fraikin will make acquisitions this year, though with rumblings from other players in this sector that they are preparing to do the same, it could be an interesting and hectic few months. •