Keep an eye on contracts

Almost every manufacturing, logistics or warehousing business you can think of requires materials handling equipment – and the effective running of the forklift fleet is a vital factor in a company’s ultimate success.

If a company is cash-rich it might be the right decision to buy equipment outright, but increasingly at Impact Handling we are seeing customers who want to acquire their machines on contract hire or short term rental.

It is when entering into contract hire agreements that customers really need to be aware of the fine details which could have a huge effect on the price they pay for their trucks.

Be clear

Contract hire customers need to know whether they are agreeing to a fixed price or a variable rate deal.

The variation on rates is usually by an annual escalation and is most commonly attached to the retail price index (RPI), so if you’ve signed a five year variable rate contract for a truck, costs can escalate during that period, adding up to a substantial increase, which can come as a big shock if that’s not what you thought you had agreed to. Having said that they generally start at a lower rate.

For suppliers, variable rates are preferable as an annual increase helps to balance rising operating costs. It’s commonplace today to find the majority of suppliers offering contracts with an escalation clause and it is important to be aware of this, to avoid any nasty surprises.

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Before a business signs on the dotted line it is also important they know if they are agreeing to a fixed term or minimum term contract. This may seem obvious, but many customers overlook the little details that can end up causing them no end of hassle further down the line.

Generally fixed term and minimum term contracts run for the same amount of time, usually 60 months. But some contracts allow for a minimum term, meaning after the initial 60 months the contract continues and won’t terminate until a customer or the supplier gives notice – that notice period could be three or even six months.

In order to adequately budget how much you are going to spend on your forklifts it’s essential to know if you have a fixed or minimum term contract, otherwise you could think it is ending and find yourself having to keep on making payments.

Select the right supplier 

A good supplier should offer a flexible contract that helps its customers should their business needs change. At Impact Handling, we’re doing this all the time.

For example, a customer may have signed a contract for a truck to be used for 40 hours per week, but if the truck is regularly operating 50 hours, the customer would be faced with paying a huge excess. We prefer to renegotiate the contract to accommodate the increased usage early on, as it saves our customers money. We do of course adjust downwards as well if the usage is out of line with the allowable contract hours.

Some contracts can trip up customers with their rigidity, stating a truck can only be used for a certain length of time in a certain application, but we prefer to take a far more flexible approach, revisiting their operation and adjusting the terms to suit. 

It is also essential for companies which are planning to acquire machines on contract hire to be aware of damage penalties or out of contract charges. Accidents which result in damage to machines can end up hurting the company’s bottom line. A way to avoid this is to find out what’s included in the supplier’s service level agreement and work closely with them to ensure trucks are maintained properly and the risk of damage is reduced, eliminating costly charges.

Choosing the right materials handling agreement is a decision that should not be made lightly. At Impact Handling we know it can be difficult for customers to forecast their precise requirements years ahead, so that’s where our flexible and personalised contracts help them get the right deal, without having to worry about hidden clauses.