Willie Paterson, chief executive of Asset Alliance Group, says average contract terms could shift from five years to just two years by 2019.

It’s no surprise that the majority of large commercial vehicle fleets in the UK are almost 100% off-balance sheet when it comes to funding their assets – reinforcing the popularity of contract hire and operating leases in this sector.

The tide is shifting when it comes to how suppliers must structure their deals, with logistics firms favouring contracts with shorter periods of commitment – to mirror the deals they are winning with their own customers. In the next three years the average contract term could reduce to just two years.

Fleets tell us they still want the benefit of five-year funding – which is widely viewed to be the most efficient – and that they will probably keep the asset for five years. However they are increasingly only prepared to sign a rolling three-year or one-year contract, and then extend. That way they can return the asset quickly if a decline in business dictates.

As well as gearing up to support fleets with an appetite for shorter-term commitments, we’re exploring opportunities to change the way fleets with seasonality approach their funding too. This could well lead to the introduction of a ‘variable price per kilometre’ structure, rather than a flat monthly rate. After all, if a customer’s fleet is not as busy in the summer as it is in autumn and winter, then why would business owners want their cash flow to be any different?

We’re currently running a series of simulations to peg vehicle usage with cash flow – we believe it has phenomenal potential in the market with certain types of operator.

Significant growth

In April, our group announced it was poised for growth and future acquisitions after securing a £75m revolving asset-based lending deal led by Royal Bank of Scotland and supported by HSBC. The agreement strengthened our approach to purchasing, refinancing and procuring vehicles and trailers for its clients – using its own funds and purchasing power to supply multi-brand assets on any combination of contract hire, operating lease, finance lease or hire purchase.

I think our approach is unique and proving popular. We’re one of the fastest-growing companies in our sector and this considerable finance package is helping to ensure our growth continues apace.

What makes Asset Alliance Group attractive to investors – an initial panel of more than 12 banks competed to secure its business – our investors have a lot of confidence in us because there’s such a clear differentiator between how we operate, and how the banks’ own asset finance divisions operate.

We understand the commercial vehicle world inside and out, and particularly issues around depreciation, so we set our own residual values. Many banks do not, and they will often make a desktop calculation based on a percentage of capital – which could be a long way out in several years' time.

Across our four brands, Asset Alliance, Total Reefer, ATE Truck & Trailer Sales and Forest Asset Finance, we’ve assembled a band of specialists who apply genuine asset knowledge to the lending market. Winning the Royal Bank of Scotland and HSBC’s backing was the ultimate proof in the robust, reliable and fit-for-purpose nature of our business model.