Wall Street Transcript Interview with Kevin W. Sterling, Senior Vice President and Senior Equity Research Analyst in the Transportation Services Group of BB&T Capital Markets: Commercial Rental and Leasing Gains as Equipment Costs Rise

Wall Street Transcript

67 WALL STREET, New York - January 18, 2013 - The Wall Street Transcript has just published its Staffing, Outsourcing and Rental & Leasing Services Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Workforce Flexibility Requirements - Growth in Temporary Staffing Demand - Secular Trend Toward Temporary Staffing - Strong Demand For IT Staffing - Growth in Equipment Leasing Adoption Rates - Consolidation Potential in Fragmented Industry

Companies include: Ryder System, Inc. (R), FedEx Corporation (FDX), United Parcel Service, Inc. (UPS), Expeditors International of Wa (EXPD), UTI Worldwide, Inc. (UTIW), Hub Group Inc. (HUBG), Pacer International Inc. (PACR), Kirby Corporation (KEX), Rand Logistics, Inc. (RLOG), Atlas Air Worldwide Holdings (AAWW) and many others.

In the following excerpt from the Staffing, Outsourcing and Rental & Leasing Services Report, an expert analyst discusses the outlook for the sector for investors:

TWST: This is for our upcoming focus on rental and leasing. Where is your attention focused in this space?

Mr. Sterling: Most of my attention is on the truck leasing segment. I follow Ryder System (R), which is the largest truck leasing company in the United States. Ryder also has a fairly large commercial rental division. Additionally, I pay attention to the broader leasing and rental market in terms of overall truck supply and the impact on rates.

TWST: What's going on in the truck leasing space, given kind of a lackluster economy?

Mr. Sterling: A lackluster economy can show up in the commercial rental business, which is what I consider spot business - day-to-day or week-to-week business. We saw some softness in commercial rental in June and July, but since then, we have seen commercial rental pick up, which I believe may be attributed to the recovery in housing. The leasing environment has been pretty steady. A key metric that I look at is lease miles driven per unit per day, and that metric continues to increase each quarter. This metric tells me that leasing customers are staying fairly busy, which like the recent improvement in commercial rental may be tied to an improvement in construction and the housing market.

Additionally, if you look at the cost of new trucks, the price continues to go up. Since 2004, the cost of a new Class 8 tractor has increased almost 30%. Therefore, leasing is more attractive when factoring in the cost of new equipment. Additionally, maintenance costs are rising as well, adding another attractive element to leasing, as the lessee does not have to perform maintenance - it is the responsibility of the lessor. When factoring in the cost of new equipment plus rising maintenance costs, I believe the lease environment will remain strong.

TWST: Is that a good thing, given the growing complexity of these trucks?

Mr. Sterling: One of the primary reasons that maintenance costs have been rising is due to the complexity of trucks driven by emission standard changes and other regulatory changes. It is a complex environment for technicians to perform routine maintenance, and technicians have to go through a lot of training and certification. Therefore, leasing is an attractive option as a way to outsource the maintenance function instead of buying expensive new equipment and maintaining that equipment.

Additionally, you are starting to see natural gas vehicles gain some traction...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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