Mar/Apr 2014 • volume 2 • issue 2 | www.canadianequipmentfinance.com
LENDING REPORT: Insights into Alternative Financing Solutions When traditional solutions just won’t work Railroad Report: Issues in Rolling Stock Mining In a Tough Economic Environment Tech: The User Experience Telematics Report PM40050803
contents March/April 2014 Volume 2 Number 2 Publisher and Editor-in-Chief Steve Lloyd steve@canadianequipmentfinance.com Editor Karen Treml karen@canadianequipmentfinance.com Creative Direction / Production Jennifer O’Neill jennifer@canadianequipmentfinance.com Photographer Gary Tannyan Advertising Sales Mark Henry mark@canadianequipmentfinance.com Brent White brent@canadianequipmentfinance.com Chantal Goudreau chantal@canadianequipmentfinance.com For subscription, circulation and change of address information, contact
ELFA REPORT: Equipment finance companies in almost all industry sectors are reporting a strong first quarter. The ‘Monthly Leasing and Finance Index’ shows economic activity in the equipment finance sector is up three per cent on the year. Delinquencies edged upward while monthly losses reached historic lows. Credit approvals totaled 77.8 per cent in March, an increase from 75.3 per cent the previous month. The ELFA says the March data provides evidence of a strong first quarter looking back and a positive forecast for future activity. »5
ELFF FORECAST: Investment in equipment and software is forecast to steadily increase over the next six months as economic conditions solidify and business confidence continues to recover. Investment in equipment and software is expected to grow 4.2 per cent in 2014. This forecast reflects a strengthening economy and positive trends in equipment investment – and aligns with data from the Equipment Leasing and Finance Association’s ‘Monthly Leasing and Finance Index’ and the foundation’s ‘Monthly Confidence Index’. »9
FEATURES
Mining In a Tough Economic Environment While risk is part of doing business, is it possible to navigate the ever evolving economic landscape while at the same time mitigating your risk? »16
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User Experience – Achieving Happy Customers How optimizing your web presence across multiple platforms can provide a positive user experience. »26
The Lending Report
Telematics Report
Today’s businesses are increasingly considering different methods of financing. Factoring and asset-based leasing are two financing solutions that are seeing a growth in popularity. What do they offer and who do they serve? »10
Fleets can achieve both operational efficiencies and cost savings with telematics technology. »28
Also Publishers of
Resilience defines a business’ ability to survive. »18
Canadian Treasurer www.canadiantreasurer.com
Direct Marketing www.dmn.ca Financial operations www.financialoperations.ca Made possible with the support of the Ontario Media Development Corporation Ontario Interactive Digital Media Tax Credit
A round up of news shows an uptick in the industry. »6
your Business:
Payments Business www.paymentsbusiness.ca
Contact Management www.contactmanagement.ca
NEWS:
EVENTS: Issues In Rolling Stock Anyone who has been around the railroad industry knows that derailments are a part of railroading. If you are concerned about the risk in regards to the tank cars you own, you can avoid falling over the cliff by digging into the details related to the construction of your cars. »20
Find out where to go and what to see in 2014. »29
Observations: An Appraiser’s Tale.
To those of us in the equipment appraisal arena, ‘refurbished’ opens up a whole new range of interpretation. »30
canadianequipmentfinance.com | March/April 2014 | CANADIAN EQUIPMENT FINANCE
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Can you help our readers: • Create a strong financial structure and healthy economic ecosystem to ensure capital and cash flow keep their engines running? • Determine who their customers should be, how they can reach them most effectively, and how they can turn data-driven marketing into profitable sales? • Build efficient and effective financial systems to enhance payments and billings between their companies and their customers and vendors? • Convert all the data and information they collect from every contact point into tangible benefits that increase revenue and reduce costs? • Equip their companies with the tools, technology, systems and hardware needed to manage their operations, to create new services or products, and deliver them to their market? • Manage their customers with smoothly functioning support departments that are properly staffed and equipped to solve problems, foster loyalty and retain customers? • Make any or every step in that chain better, faster, cheaper, and more profitable?
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EFLA Report
New Business Volume Up in First Quarter of 2014 By William G. Sutton, CAE
quipment finance companies in almost all industry sectors are reporting a strong first quarter of the year. The Equipment Leasing and Finance Association’s (ELFA) ‘Monthly Leasing and Finance Index’, which reports economic activity from 25 companies representing a cross section of the $827 billion equipment finance sector, showed their overall new business volume for March was $7 billion, up three per cent from new business volume in March 2013. Month-over-month, new business volume was up 30 per cent from February. Year to date, cumulative new business volume increased six per cent compared to 2013. Credit quality metrics are mixed,
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with delinquencies edging upward counterbalanced by monthly losses reaching historic lows. Receivables over 30 days increased to 2.1 per cent from 1.8 per cent the previous month, and were up slightly from two per cent during the same period in 2013. Charge-offs were down at a new all-time low of 0.2 per cent from 0.4 per cent the previous month. Credit approvals totaled 77.8 per cent in March, an increase from 75.3 per cent the previous month. Sixty-five per cent of participating organizations reported submitting more transactions for approval during March, an increase from 53 per cent during February. Another positive sign for the industry is the trend toward increased hiring during the past 10 months. The March data provides evidence of
a strong first quarter looking back and a positive forecast for future activity. The Federal Reserve recently hinted at continuing a monetary policy that will promote a sustained low interest rate environment at least for the foreseeable future, which is giving the business community a reason to feel confident about the overall trajectory of the U.S. economy and make capital investments in their businesses. Separately, the Equipment Leasing & Finance Foundation’s ‘Monthly Confidence Index’ for April was 65.1, remaining at the highest index level in two years for the second consecutive month. William G. Sutton, CAE, is President and CEO of the Equipment Leasing and Finance Association and President of the Equipment Leasing & Finance Foundation.
News
Shell Canada Introduces Commercial Fleet Card Program NASHVILLE – Shell Canada Products has launched a joint commercial fleet card program in Canada, in partnership with Electronic Funds Source LLC (EFS), a company providing innovative and customized payment solutions. The Shell Fleet NavigatorTM/mc commercial card, leveraging the EFS payments platform, offers broader acceptance for Canadian fleets with more than 1,200 Shell branded retail locations across Canada, combined with over 800,000 Canadian MasterCard acceptance locations. “MasterCard’s superior payment network will provide fleet customers with the quickest, easiest, and safest way to pay,” says Betty DeVita, president, MasterCard Canada. “Our leading acceptance footprint in Canada means convenience and consistency when it comes to fueling. We’re thrilled to work with EFS to bring such an innovative product to Canadian fleets.”
The card allows Canadian fleets to define their own fuel networks from any Shell or non-Shell fuel station in Canada where MasterCard is accepted. This allows fleets to better manage routes and gain efficiencies while also controlling fueling costs. The EFS payments platform provides Shell Canada fleet customers with dynamic prompting and reporting, along with unique and innovative controls when the card is used at participating Shell retail locations. “Having a global oil and gas company put their trust in EFS to deliver the right solution for their business needs in Canada speaks volumes for how EFS is approaching the industry,” says Scott R. Phillips, president and chief executive officer of EFS. “We are honoured to partner with Shell and MasterCard on this exciting new commercial card program and look forward to mutually developing unique solutions that will transform payments.”
send press announcements, please direct them to Treml, Editor, at karen@canadianequipmentfinance.com 2 ToKaren canadianequipmentfinance.com | March/April 2014 | CANADIAN EQUIPMENT FINANCE
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News Digest
Auction Breaks Multiple Company Records EDMONTON – Ritchie Bros. Auctioneers, the world’s largest industrial auctioneer, sold more than $143 million of trucks and heavy equipment in Edmonton, AB on April 23 - 25, 2014, making it the largest Canadian auction in company history. “As a Canadian company that has been holding auctions in Alberta since the 1960s, to hold an auction of this magnitude here is something very special, something we are very proud of,” says Jim Rotlisberger, regional sales manager, Ritchie Bros. Auctioneers. “With a record amount of equipment from a record number of sellers, the auction attracted a record number of registered bidders both on site and online, which resulted in a very active bidding environment with strong prices all three days of the auction. Thank you so much to all our amazing sellers and buyers for continuing to put their trust in Ritchie Bros. and the unreserved auction process.”
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More than $96 million of trucks and equipment was purchased by Alberta buyers while participants from outside Alberta purchased more than $46 million for 32 per cent of total gross auction proceeds. Over 5,500 of the bidders participated online and purchased more than $64 million of equipment online. Equipment in the auction was sold for more than 870 sellers, including a large selection of heavy equipment from Lakeshore Contracting Ltd., an Oil Sands contractor based in Fort McMurray, AB. “I recently decided to retire from the contracting business and brought all my equipment to Ritchie Bros.’ spring auction in Edmonton because it’s such a big event and it turned out great –results were better than I expected,” says Michael Cardinal, owner of Lakeshore Contracting. “Not only did I sell, I also bought a 2007 Robinson R44 in the auction for a helicopter company I run with my family up in Fort McMurray.” The recordsetting selection of heavy equipment and trucks included approximately 190 excavators, 170 compactors, 145 crawler tractors, 80 articulated dump trucks, 75 loaders, 55 agricultural tractors, 175 truck tractors, and more. Highlights from the unreserved auction include a 2013 Surefire Tridem Twin Fluid Pump Trailer on a 2012 Kenworth T800 Sleeper T/A Truck Tractor that sold for $1.5 million. A luxury equestrian property located in Bluffton, AB was another highlight, selling for $2.62 million.
CANADIAN EQUIPMENT FINANCE | march/April 2014 | canadianequipmentfinance.com
Manufacturing Sector Sees Improvement April data pointed to another positive month for the Canadian manufacturing sector, with the latest survey pointing to higher levels of output, new business and employment, according to the RBC Canadian Manufacturing ‘Purchasing Managers’ Index’ (RBC PMI). A monthly survey, conducted in association with Markit, global financial information services company, and the Supply Chain Management Association (SCMA), the index offers a comprehensive and early indicator of trends in the Canadian manufacturing sector. Adjusted for seasonal influences, the headline index registered 52.9 in April, down slightly from 53.3 in March but above the neutral 50.0 value for the thirteenth successive month. All five component indices had a positive influence on the RBC PMI in April. The drop in the index since March mainly reflected slower rates of output and new business growth. Nevertheless, supply chain disruptions persisted, leading to longer delivery times and another rise in backlogs of work. Meanwhile, manufacturers noted that input costs were pushed up by the weaker Canadian dollar, which in turn contributed to a solid increase in factory gate charges during the latest survey period. “Though we saw a slight dip in April, it is encouraging to see Canada’s manufacturing sector continued to grow for what is now the thirteenth month in a row,” says Craig Wright, senior vicepresident and chief economist, RBC. “Our bottom line continues to be that a strengthening U.S. economy alongside a more competitive Canadian dollar will support improving conditions for Canada’s manufacturers in the near-term.” The index reflects changes in output, new orders, employment, inventories, prices, and supplier delivery times. Key findings from the April survey include: ◉◉ Output expanded in April, but
News Digest at a slower pace than in the previous month. ◉◉ Job creation hit a five-month high. ◉◉ There was a sharp rise in average cost burdens. Manufacturers in Canada signalled that growth in production eased for the second month running in April and was slightly slower than the average since the survey began in late 2010. The moderation in output growth reflected a slight slowdown in the pace of new business expansion in April. Volumes of new work from abroad increased only marginally in April and the rate of expansion eased over March. Companies that reported a rise in new export orders generally cited exchange rate depreciation and stronger underlying demand from the U.S. Delivery times from suppliers lengthened in April, which manufacturers attributed to logistics bottlenecks and, in some cases, ongoing disruptions from adverse weather conditions. The latest
deterioration in vendor performance was one of the sharpest seen over the past two-and-a-half years. As a result, backlogs of work accumulated for the third month running and some manufacturers sought to increase their pre-production inventories in April. Stocks of finished goods also rose during the latest survey period. Greater production requirements and resilient confidence about the economic outlook supported job creation across the manufacturing sector. The latest rise in employment levels was the fastest since November 2013, but still slightly weaker than the historical average. April data indicated a further sharp rise in average cost burdens within the manufacturing sector. The rate of input price inflation eased since March, but was still one of the fastest recorded over the survey history. Meanwhile, the latest survey pointed to a solid rise in factory gate charges, which extended the current period of output charge inflation to eight months. Manufacturers widely
linked higher output prices to strong cost inflation in recent months. Regional highlights include: ◉◉ All regions posted an increase in manufacturing output in April. ◉◉ Quebec was the only region to register a decline in new order volumes. ◉◉ Ontario reported the sharpest lengthening of supplier delivery times. ◉◉ Alberta and British Columbia continued to record the fastest pace of input price inflation. “April’s survey highlights that the manufacturing sector is experiencing improving business conditions, although output growth moderated slightly since the previous month” says Cheryl Paradowski, president and chief executive officer, SCMA. “Exchange rate depreciation has helped support export sales, but higher import prices are pushing up cost burdens, while adverse weather conditions and logistics bottlenecks have placed pressures on supply chains in recent months.”
canadianequipmentfinance.com | March/April 2014 | CANADIAN EQUIPMENT FINANCE
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News Digest
GE Capital Canada Expands Vendor Finance BURLINGTON– GE Capital Canada, a long-time provider of wholesale and retail financing for commercial trucking, construction, and office imaging equipment manufacturers, announced an agreement with Life Fitness International Sales, Inc. to offer financing to health clubs and gyms across the country that want to buy Life Fitness equipment. The relationship with Life Fitness marks GE Capital Canada’s first vendor program in the fitness equipment industry. “We chose to join forces with GE Capital to make equipment purchases more affordable for our commercial customers,” says Michael Gallagher, senior director of customer financing at Life Fitness. “Having financing options means gyms can get the equipment they want when they want it, while keeping more of their cash on hand.” “Since 1985, we have been developing vendor financing programs to help manufacturers across industries grow
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their businesses,” says Paul DeMarchi, senior vice-president and leader, vendor finance at GE Capital Canada. “Today, through these programs, we have relationships with 20,000 commercial customers. We combine industry knowledge, vendor program expertise, and financial capabilities to develop solutions based on manufacturers’ specific business concerns.” GE Capital Canada helps drive incremental product sales by offering innovative financing solutions to equipment manufacturers, distributors, dealers, and resellers. In addition, its customized business intelligence tools provide manufacturers with the data necessary to identify new selling and upgrade opportunities that may generate repeat business and expand business relationships. Life Fitness is the global leader in commercial fitness equipment. The company manufactures and sells
CANADIAN EQUIPMENT FINANCE | march/April 2014 | canadianequipmentfinance.com
strength and cardiovascular equipment under the brand names Life Fitness and Hammer Strength and distributes its equipment in more than 120 countries. Headquartered outside Chicago, in Rosemont, IL, Life Fitness is a division of Brunswick Corp. With 17 offices throughout Canada, GE Capital offers a wide variety of financial products and services to address commercial financing needs in many phases of a business’ lifecycle. From equipment finance to working capital and growth financing to large asset-based and restructuring loans, we apply our wealth of industry expertise to develop custom solutions for your company. Some of the industries in which we specialize include transportation, construction, manufacturing, aerospace, automotive, mining, energy, wholesale, retail, and restaurant and hotel franchise financing.
Forecast
Equipment and Software Investment Forecast to Grow 4.2% in 2014 By William G. Sutton
nvestment in equipment and software is expected to grow 4.2 per cent in 2014, according to the Q2 update to the ‘2014 Equipment Leasing & Finance U.S. Economic Outlook’ released by the Equipment Leasing & Finance Foundation in April. Investment in equipment and software is forecast to steadily increase over the next six months as economic conditions solidify and business confidence continues to recover. The foundation increased its 2014 investment forecast to 4.2 per cent, up from 3.1 per cent growth projected in its ‘2014 Annual Outlook’ released in December 2013. This forecast reflects a strengthening economy and positive trends in equipment investment – and aligns with data from the Equipment Leasing and Finance Association’s ‘Monthly Leasing and Finance Index’ and the foundation’s ‘Monthly Confidence Index’. We know the cold winter had some negative impact on the economy; however, with reduced policy uncertainty, stronger economic fundamentals, and replacement demand, we remain optimistic about growth.
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Key Findings Some key findings from the foundation’s report include: ◉◉ The U.S. economy is expected to grow 2.8 per cent in 2014, the fastest pace since the 2008-09 recession. ◉◉ The severe weather this winter may have trimmed GDP growth by a full percentage point, but it is expected that some of the loss will be made up in subsequent quarters.
◉◉ Equipment and software investment grew at an annualized rate of 8.9 per cent in Q4 2013, following modest growth of 2.2 per cent in Q3. ◉◉ Credit supply continues to improve and credit demand has rebounded for all business sizes. ◉◉ Equipment and software investment is expected to steadily grow across most verticals, according to the ‘FoundationKeybridge U.S. Equipment & Software Investment Momentum Monitor’, a newly expanded addition to the outlook report. According to the ‘Momentum Monitor’, which tracks 12 equipment and software investment verticals: -- Agriculture machinery investment will likely see slow growth in the first half of 2014 as both farm yields and commodity prices ease. -- Construction machinery investment will see stronger growth later in the year, but the year-over-year growth figures will appear weak due to a high base year effect. -- Materials handling equipment investment will experience slightly stronger growth over the next three to six months. -- All other industrial equipment investment will likely see moderate growth over the next three to six months as the manufacturing sector’s competitiveness improves. -- Medical equipment investment will grow, but at a more moderate pace than in the second half of 2013. -- Mining and oilfield machinery is currently decelerating, but looks to rebound later in the year. -- Aircraft investment will likely slow after a strong Q4, and growth will be about average for the year.
-- Ships and boats investment will likely continue at a below-average pace over the next year. -- Railroad equipment investment will improve from its recent contraction toward modest growth. -- Investment in trucks will exhibit highsingle digit growth over the next three to six months as economic activity improves and diesel prices remain competitive. -- Computers investment will be muted in the next three to six months after strong replacement demand over the past few quarters. -- Software investment will be moderate in the next three to six months as companies focus on upgrading to new technology.
Forecasts The ‘2014 Equipment Leasing & Finance U.S. Economic Outlook’, which is focused on the $827 billion equipment leasing and finance industry, forecasts 2014 equipment investment and capital spending in the U.S. and evaluates the effects of various related and external factors in play currently and into the foreseeable future. The foundation produces the report in partnership with economics and public policy consulting firm Keybridge Research. The annual economic forecast provides a three-to-six-month outlook for industry investment with data, including a summary of investment trends in key equipment markets, credit market conditions, the U.S. macroeconomic outlook and key economic indicators. William G. Sutton, CAE, President of the Equipment Leasing & Finance Foundation and President and CEO of the Equipment Leasing and Finance Association.
canadianequipmentfinance.com | March/April 2014 | CANADIAN EQUIPMENT FINANCE
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Lending Report
Factoring as an Alternative Financing Strategy Opting for factoring as a financing solution can prove to be a viable alternative 10
CANADIAN EQUIPMENT FINANCE | march/April 2014 | canadianequipmentfinance.com
Lending Report By Oscar A Rombola, Managing Partner Accutrac Capital ITC Inc./IFA Canada
n an era when businesses are increasingly considering different methods of financing, factoring accounts receivable has become a viable alternative. As an alternative to traditional financing, factoring is seeing an increase in popularity for businesses in both Canada and the U.S. It is the nature of the factoring model itself that is attracting business owners who are looking to free up cash flow for their businesses.
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Clear Differences In addition to being faster and having considerably less red tape than applying for a bank loan, there are three main differences between obtaining financing through factoring and obtaining financing through a bank loan: Qualifying for factoring is based on your customers’ credit score. One of the main differences between factoring and applying for a business loan lies in how the financial institution determines your creditworthiness. When you apply for a business loan, your bank will base its decision on how creditworthy you and your business are. When qualifying for factoring, the decision is based on the creditworthiness of the customer you’ve just invoiced. For that reason, factoring is especially helpful for a business that has already stretched its available credit, or to a newer business that has yet to build its credit history. Factoring takes a different approach to what is considered acceptable collateral. When applying for a business loan, you’ll often be asked by the bank to put up collateral such as a building or piece of equipment. With invoice factoring, the invoice that is sent to your client (ie: your accounts receivable) becomes your collateral. Factoring doesn’t require you to make loan payments. Most business loans require regularly scheduled payments stretched over a specified period of time. With factoring, you receive up to 90 per cent of the invoice amount within
24 hours of submitting your invoice to the factoring company. The factoring company then waits for your customer to pay the invoice (usually between 30 and 90 days). You make no payments, because your customer pays the factoring company directly. There are a number of reasons or circumstances where a business owner will choose factoring as an alternative to traditional financing. A business may not qualify for traditional financing due to such things as – an over-leveraged balance sheet or recent operating losses; a start-up company with no financial base; a high growth business that’s growing faster than its cash flow; or a business in transition.
Increasing Cash Flow Opting for factoring as a financing solution does not mean that the business is experiencing financial problems. Often a business will be doing well financially but will be operating in a business sector that the banks consider to be high risk. For example, when the automotive industry took a plunge a few years back, a number of companies that serviced that industry suddenly found it difficult to get financing – even though they were showing healthy profits and balance sheets. They turned to factoring to keep their cash flow flexible and their businesses growing. Having strong and flexible cash flow is one of the most important aspects of growing and maintaining a strong business. Businesses in both Canada and the U.S. often turn to factoring companies to help them free up and manage their cash flow. It’s not unusual for most businesses, at some time or another, to find that the available cash within their business is not keeping up with demand. Some common reasons why that happens include: ◉◉ The business sells to clients who demand payment terms of 30, 45, or 60 days, sometimes as much as 90 days. Often the business doesn’t have the luxury of the same timelines for paying operating costs. That’s especially true with service industries where labour is a large portion of costs.
◉◉ The business is a high growth company that must constantly feed cash back into production to fuel the growth. ◉◉ The business is in its startup phase and is still building its client base and, therefore, a consistent revenue flow. ◉◉ The business has experienced a financial setback or is going through a transition. In these and other circumstances, factoring helps to free up cash flow by providing businesses with financing based on their accounts receivable. Instead of waiting the 30 to 90 days for a client to pay an outstanding invoice, with factoring a business gets its cash upfront while the factoring company waits for the customer to pay. How exactly is that different from getting financing from the bank? In the simplest terms, banks mainly look at history (credit and financial history) when determining whether a business qualifies for financing. On the other hand, a factoring company looks at your company’s accounts receivable to determine if you qualify for financing. The factoring company also bases its decision on the creditworthiness of your customer, not that of your business. Because of the unique approach that a factoring company takes to financing, many businesses qualify for factoring in circumstances where they would not necessarily qualify for financing from a bank. Aside from the peace of mind of not having to constantly worry about cash flow, factoring offers many benefits. Businesses use factoring to free up cash flow in order to do such things as – fuel growth by filling more and larger orders for clients; pay for payroll and operating expenses; purchase or upgrade equipment; and take advantage of early payment or bulk purchase discounts.
Factoring Includes Lines of Credit An alternative financing option to factoring involves a factoring line of credit which, at present, is only offered by Accutrac Capital Solutions. A factoring line of credit can remedy certain situations. For example, when
canadianequipmentfinance.com | March/April 2014 | CANADIAN EQUIPMENT FINANCE
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Lending Report your customer wants to pay in 60 days, but your best-price vendor wants his money upfront and your employees have to be paid too. It’s no wonder that most businesses at some time or another wrestle with managing their cash flow. A business line of credit is a common solution to even out that cash flow rollercoaster. Businesses will often qualify for a factoring line of credit even though they don’t qualify for a traditional line of credit. Qualifying for a factoring line of credit is easier than a traditional line of credit because, like account receivable factoring, it is based on the creditworthiness of your customers and not your personal credit or the financial strength of your business. A factoring line of credit is an alternative financing product that offers access to ready cash to grow your business and is available when you need it. The factoring company also takes care
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of credit checks and manages all your receivables and collections for you; you maintain a line of credit equal to 90 per cent of your receivables and draw upon it as needed. Factoring fees are only paid on funds drawn.
It Grows With Your Business Factoring lines of credit differ from traditional lines of credit in that they grow with your business because they are based on your outstanding invoices from creditworthy customers. As well, there are no regular payments, because your customers pay invoices directly to the factoring company. And with the included management of accounts receivable and collections, it minimizes complications and reduces administrative costs as well. Businesses that use a factoring line of credit aren’t necessarily businesses experiencing financial setbacks. There are many reasons why a business will be
CANADIAN EQUIPMENT FINANCE | march/April 2014 | canadianequipmentfinance.com
turned down by the bank for a traditional business line of credit but still qualify for a factoring line of credit. Reasons include such things as – high growth businesses that are flourishing today, but don’t have long term revenue history to qualify for traditional financing; startup businesses with no financial base; and high-tech companies without a traditional ‘bricks and mortar’ operation businesses operating in high risk sectors. Factoring, whether on accounts receivable or as a factoring line of credit, are financing strategies that can suit many businesses in many sectors. For businesses that do not fall into traditional lending requirements, factoring strategies can provide a very viable and accessible alternative for freeing up cash flow, thereby help businesses to grow and prosper. Accutrac Capital is a factoring company that provides customized solutions to help Canadian businesses structure their financing to help meet their corporate objectives.
Lending Report
The Growing Popularity of Asset-Based Lending Despite being misunderstood and miscategorized, ABL is increasingly used as a financing alternative Stan Prokop, CEO, 7 Park Avenue Financial
rom a general overview, assetbased lending (ABL) is both popular and readily available across almost all industry sectors within the Canadian marketplace. With its uptick in popularity over the last several years, ABL has not only seen an increase in traditional asset-based lending, but most Canadian chartered banks have embraced ABL finance in some form as well – either through direct ownership of ABL entities or through partnerships.
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The Current Trends Asset-based lending is currently seeing some of the lowest borrowing rates in years. The result of these low rates has been the placing of tremendous pricing pressure on those deals that have higher credit quality. When looking at sector trends, within retail there are many larger retailers taking significant advantage of ABL inventory credit lines to finance growth, expansion, and basic refinancing needs. Certainly ABL lenders that place significant emphasis on the liquidation value of assets have made major inroads on transactions. The healthcare sector is also a fast-growth sector that is benefitting from asset-based lending. Historically technology-based firms have not utilized ABL to any major extent – typically because their assets are
heavily focused on intellectual property with lower emphasis on the staples of ABL borrowing such as receivables and inventory. However, with the competitive nature within the current lending environment, many asset-based lenders are compelled to consider alternate asset categories, such as purchase orders, contracts, patents, and tax credits, as financeable assets. Along with the widening of alternate asset categories, maximum deal sizes continue to be almost unlimited in nature. However, many firms are lowering the bar on minimum transaction size. While Tier 2 lenders will consider $250,000 deals, Tier 1 lenders are more apt to consider transaction sizes below $5 million. In the past this has not typically been the case. On larger transactions it’s certainly not unusual to see inter-creditor agreements between ABL lenders and other secured lenders.
Gains in Market Share In recent years, ‘subsets’ of ABL have made huge gains in market share. These include such sectors as factoring firms, working capital lenders, purchase order/ supply chain financiers, floor plan lenders, and merchant cash advance firms. While considered a part of ABL lending, these firms are generally smaller, more nimble, and niche oriented. As well, although the venture capital market in Canada is currently considered to be emerging from a very difficult
period, many private equity lenders are now considered real competition to true ABL lenders and are providing both equity and liquidity to transactions.
Knowledge and Awareness ABL is still significantly misunderstood and oft miscategorized. Many CFOs and business owners still continue to view Canadian chartered banks as the only primary financing solution. However, increasingly, business owners, managers, and boards now recognize that assetbased lending solutions are often the solution to refinancing troubled firms that face insurmountable challenges from the traditional lending environment. And as a result, the role of the intermediary is taking on ever-increasing importance as business owners recognize that they don’t have the time and expertise to source ABL financing solutions without the assistance of qualified, trusted, and experienced advisors. Despite some lack of awareness and knowledge among CFOs and business owners, asset-based lending is nevertheless coming into its own in Canada. The recent IPO from Callidus Capital suggests this to be the case – certainly from a public acceptance point of view – and the oversubscription of that public offering seems to suggest true interest and validation of this aspect of Canadian business financing. Stan Prokop of 7 Park Avenue Financial provides business financing for Canadian firms. He specializes in working capital, cash flow, asset based financing, equipment leasing, franchise finance, and Canadian tax credit finance.
canadianequipmentfinance.com | March/April 2014 | CANADIAN EQUIPMENT FINANCE
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Lending Report
Asset-Based Lending in Canada Alternative financing solutions are on the rise for small and mediumsized enterprises By Cynthia Aboud, Senior Vice-President, Accord Financial Inc.
nce considered a last resort, asset-based lending (ABL) has become a sought-after source of financing for small and medium sized enterprises (SMEs) in Canada. Growth opportunities, whether organic or by acquisition, financial restructuring, or healthy companies operating in seasonal or cyclical industries present situations where ABL can provide the flexibility a company requires. Sometimes conventional banking cannot meet the needs of an SME in terms of the amount of funding required; or sometimes it is a timing issue – an opportunity is presented and there’s no time to wait for a bank approval. What distinguishes asset-based lenders from traditional lenders is that the former advance funds based on the value of the company’s assets rather than on the strength of the balance sheet. Borrowers pledge accounts receivable, inventory, equipment, and real estate to the lender who will advance amounts based on the values they believe they could recuperate if the company ceased operations. In fact, that is the key philosophy under which an asset-based lender determines the loan amount –
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what is the exit strategy and how much can be realized on the collections of the accounts receivable and sale of the inventory and other assets. To qualify for an asset-based loan, a company must have assets whose value can be assessed. Loan amounts typically range from 75 per cent to 90 per cent of the value of accounts receivable and a percentage of up to 75 per cent of the liquidation value of the other assets. Since asset-based loans are, by definition, most useful in times of some sort of stress, by necessity the authorization and disbursement of funds are generally much quicker than with conventional lending. Asset-based loans carry few, if any, financial covenants. Because the value of the specific assets forms the basis for the financing, there is no need for debt-equity ratios. Most ABLs will, however, try to assess the viability of the borrower so as not to find themselves in a liquidation scenario only a couple of months into the deal. So what’s the downside? The cost of borrowing using ABL is significantly higher than that of a traditional loan. There is no question that most entrepreneurs are surprised to hear what an asset-based facility will cost since it can be two to three times that of a conventional loan. Entrepreneurs generally look at the spread above prime and compare their different financing alternatives using that as a barometer.
CANADIAN EQUIPMENT FINANCE | march/April 2014 | canadianequipmentfinance.com
A true comparison will include the interest rate, renewal, and monitoring fees, and perhaps the most important element, but one that is more challenging to measure – the cost of lost opportunities. Since in many cases borrowers already have weak or negative earnings, it is essential that the company have a good turnaround plan as well as the will and ability to execute it. It is difficult to estimate the size of the ABL market in Canada as there are few public studies specific to this country. Those working in this industry feel the increasing awareness and acceptance of ABL and see the increase in number of lenders providing this service. In recent years, many of the Canadian banks have either opened or increased their ABL functions. As well, several U.S. lenders have entered the market. The economic uncertainty of the past several years has helped position ABL as a viable, even desirable, lending solution with many benefits. Most asset-based lenders do not shy away from uncertainty; in fact, it is the very environment which makes asset-based lending the most useful. Cynthia Aboud has been with Accord since 1999 and has a diverse background in conventional lending and marketing for non-financial companies. She holds a BComm in Marketing from Concordia University and an MBA in Finance from McGill University. Accord Financial Inc. is a subsidiary of Accord Financial Corp., a publicly-traded North American provider of asset-based lending, factoring, leasing, and financial services. Since 1978, Accord has been helping businesses across Canada and the U.S. manage their cash flows and maximize their opportunities.
Lending Report
Oil Patch Drives Uptick in Lending
The final quarter of 2013 saw commercial borrowing by small and medium-sized businesses in Canada hit a record high, in part as a result of the increase in loans by companies in the oil patch, says a PayNet survey. PayNet, which tracks commercial financing for millions of North American small and medium-sized businesses, says its ‘Canadian Business Lending Index’ rose to 223 in the fourth quarter from a downwardly revised 209 in the previous quarter. The fourth-quarter reading was the highest level since the index began in 2005. It has been on the rise since late 2010. “Right now, the credit environment is very good for Canadian small business because the demand is there for their goods and services,” says Anthony Zambon, director of PayNet Canada, who adds that companies in the mining and oil extraction sector, as well as firms that service that industry, helped
drive the index higher, along with the retail and transportation sectors. Conversely, borrowing activity from construction and manufacturing companies decreased in the quarter, he says. Moderate loan delinquencies – those that are behind in payments by 30 days or more – edged up to 1.54 per cent of loans in December from 1.53 per cent in November. Loans that were more than 90 days late were down slightly to 0.25 per cent from 0.26 per cent. “The balance sheets of these small and mediumsized businesses are in very good shape, so that is a very favorable sign for the Canadian economy,” says Zambon.
year. More than half (53.7 per cent) said they expect to increase their rental fleets, and 42.9 per cent expect the size of their fleets to remain the same. Among U.S. contractors, the anticipation is that purchases of new construction equipment in 2014 will remain similar or up slightly from 2013. Fewer contractors said they would decrease new equipment purchases while more said they would increase purchases. Only 11.9 per cent of contractors said they would not acquire new construction equipment in 2014 compared to 19.1 per cent in 2013.
Almost half of U.S. contractors (42.1 per cent) said that purchases of used construction equipment in 2014 will remain mostly consistent with the volume of used equipment purchased in 2013. The number of executives who said they would increase buying activity of used equipment was offset by a similar number that expect to decrease used equipment acquisition. However, the number of executives who said they would not acquire used equipment dipped to 13.8 per cent, suggesting that overall used equipment could see an uptick in the coming year.
Equipment Rental Market To Stay Strong The equipment rental market is expected to remain strong in 2014 and a number of factors are contributing to this trend, says the ‘2014 Construction Industry Forecast’ by the Wells Fargo Equipment Finance Group. In recent years, economic and political uncertainty resulted in strong growth within the rental industry. The report shows that the majority of equipment distributors and rental companies are optimistic about continued growth of the rental industry and they do not foresee an end to the trend toward fleet rentals in 2014. Only 3.4 per cent of respondents said they are anticipating a decrease in the size of their rental fleet this canadianequipmentfinance.com | March/April 2014 | CANADIAN EQUIPMENT FINANCE
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Sector Report
Mining In a Tough Economic Environment Five considerations that help mining companies manage their risk isk is part of doing business, but how do you navigate the ever evolving economic landscape while at the same time mitigating your risk? Mark Zastre, National Mining Leader at Grant Thornton LLP and Global Mining Leader at Grant Thornton International, suggests companies focus on five areas in order to navigate the tough environment—and thrive:
strategy can also help you understand both your core activities and assets. Tough times may mean you are no longer be able to ‘do it all’, and taking a fresh look at your strategy might help identify the areas that are core to your business, as well as places you might consider scaling back for the near future. Stepping back to reflect can save time and dollars in the near term.
Manage Rising Costs
Prevent Corruption
Many industries are facing rising costs. In mining, for example, exploration and production are being pushed into increasingly remote regions as miners work in previously untapped areas. This trend increases both risk and costs in areas such as transport and travel; labour; machinery; rising fuel prices; financial uncertainties related to royalties, taxes and levies; and a heavier regulatory burden related to bribery and corruption. Improving productivity and exploring outsourcing opportunities to run non-core activities as efficiently as possible will allow you to improve your profitability. Begin with a self-study of your own processes and procedures to help identify areas of waste. You may need to consider cutting out costs at your head office, as well as outsourcing some functions. As an example, many companies are getting rid of their fulltime CFOs in favour of outsourcing to contractors for this function. Taking the time to re-assess your
The ‘Corruption of Foreign Public Officials Act’ (CFPOA) has been on the books in Canada since 1999. Since 2011, the RCMP has been cracking down on Canadian companies (over 35 under investigation) that engage in corrupt behavior that involves foreign public officials. Simple awareness is no longer enough. Ignorance could be disastrous. If you’re aware of the CFPOA, make sure you understand it and have internal policies and procedures in place for obeying and enforcing it. If you don’t know about it, educate your company immediately and take the actions necessary to safeguard your international operations.
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Consider Your Financing Options The traditional routes to finance for miners are being squeezed by risk averse credit markets and the increased market scrutiny of major exploration and production activity. Business leaders need to be increasingly creative and open-minded when it comes to
CANADIAN EQUIPMENT FINANCE | march/April 2014 | canadianequipmentfinance.com
sourcing funding, and need to consider venture capital and other alternative financiers (such as streaming and royalty companies and/or private equity). Other options include the sale of non-core assets and capital market transactions. ◉◉ Consider opening up previous agreements calling for milestone payments in order to defer or lower these payments or convert cash payments into non-cash (such as shares or non-core assets). ◉◉ Private equity firms are becoming increasingly interested in the mining sector, so when you are seeking financing, make sure you cast the net wide. ◉◉ Review your strategy around streaming and royalty arrangements to make sure you’re not giving away some of the upside of your assets. This should be part of a comprehensive strategy that would also include costsavings activities and a resetting of priorities and growth strategies. ◉◉ Don’t forget to look to your existing shareholders—and make sure that you are being careful to take good care of these relationships. If your shareholders have a good understanding of your strategy, goals and progress, they will know what you’re trying to achieve and why you might be approaching them for additional financing.
Sector Report Understand Your Risk Appetite In January 2012, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued a new thought leadership paper, ‘Enterprise Risk Management—Understanding and Communicating Risk Appetite’. It provides organizations with additional guidance on how to develop and communicate a shared vision of the amount of risk they’re willing to accept as they work toward achieving their objectives. Understanding and embracing your risk appetite can be broken down into three steps: ◉◉ Develop: Your risk appetite will be unique to your organization. The key is to make a defined choice, rather than let it evolve into a level that may far exceed what you’re actually willing to accept. ◉◉ Communicate: Once you’ve decided on your risk appetite, it needs to be communicated to everyone. This communication should include whether that appetite differs for different categories of risk ◉◉ Monitor: The key thing is to make risk appetite a living, breathing part of the culture of your organization.
Be Aware Of Shifting Regulatory Sands As the boundaries of exploration expand, miners have to manage a much wider range of government policy, legislation, and relationships to create a local legitimacy to operate. Many jurisdictions have increased their focus on bribery and corruption, with higher sanctions for those found to be in breach. Additionally, securing land title and obtaining required tenure rights are a growing issue as environmental, aboriginal, and local communities increase their say on development activities. Tax and royalty regimes are also changing, with many governments looking to extract larger rents from miners to reduce
deficits and pay for the environmental and social costs associated with the industry. Well-designed governance is key to managing this evolving regulatory burden. Implementing processes and controls while understanding prevailing legislation and tax across different jurisdictions will ensure you
are minimizing risk and maximizing opportunity. Grant Thornton LLP is a leading Canadian accounting and advisory firm providing audit, tax and advisory services to private and public organizations. We help dynamic organizations unlock their potential for growth by providing meaningful, actionable advice through a broad range of services. Together with the Quebec firm Raymond Chabot Grant Thornton LLP, Grant Thornton in Canada has approximately 4,000 people in offices across Canada. Grant Thornton LLP is a Canadian member of Grant Thornton International Ltd, whose member firms operate in close to 100 countries worldwide.
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canadianequipmentfinance.com | March/April 2014 | CANADIAN EQUIPMENT FINANCE
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Your Business
Resilience – The Economics Of Trust By Angela Armstrong
ver lost a key employee? Had a client go bankrupt? Broke up with a business partner? Still cringe thinking about it? Me too. We’re in good company. Nelson Mandela said “The greatest glory in living lies not in never failing, but in rising every time we fail”.
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Fall Down Seven Times, Get Up Eight This spring, I sustained a knee injury playing soccer. I asked the surgeon how long it would be before I could lace up my cleats again. He looked me straight in the eye and without blinking said “Well, that depends on how good your physical fitness was before the injury”. His statement resonated. The next week, while reviewing cash flow projections for a business, I wondered how many times insolvency and restructuring advisors say this to distressed clients. From a business standpoint, resilience defines a business’ ability to survive. It’s sometimes called ‘elasticity’ – how quickly you recover steady state after a disruption – ie: a business ‘injury’. Resilient businesses have change management and emergency response plans for assets, markets, people, or brand equity. But sometimes they’re myopic, holding on too long to what’s always worked for them (just ask Kodak – not so resilient). There’s a lot of good research in this area – but it’s also common sense. Most folks agree that adapting to the environment promotes survival. If you’re not prepared to step out of the path of the oncoming truck, the least of your problems is not catching that license plate. ITunes disrupted old style record stores. Netflix hastened the swan song of Blockbuster Video. And I know some logistics people are paying close attention to the rapid-fire development of 3D printing technologies (warehouses 18
full of cartridges of 3D printing material, rather than stuff). But let’s face it, if adaptation requires continually shifting all aspects of your business, that’s exhausting.
Or, Maybe There’s ANOTHER Way Zappos is the darling of the business shift generation. In 2013, it upended its already out of the box business culture, adopting holocracy as its new management strategy. Holocracies are organizations built of democratic, ‘self governing’ circles of accountability. Will it be successful? We don’t know, but it’s management evolution. Zappos’ strength is anticipating adaptations to help it survive changing business environments. One large change it might be anticipating is the impact of ‘Millennial’ and ‘Digital Native’ employees. The younger generations aren’t looking for a long-range promotion (they want to be recognized for their talents today), a prime parking spot (they take rapid transit), or a cubicle where they work alone all day. My own teenagers’ school experience involved collaboration (group projects at school complete with group accolades); some education models don’t hand out grades at all (every child has a different talent); and there is a world of resources at their fingertips (why focus on a single knowledge channel, when information is no longer the new frontier?). Reddit, Tumblr, Gamification, Wikis of all sorts. It’s a sharing economy. Holocracy, then, has a whiff of resilience about it – a democratic, group problem-solving hub. Next generation employees want flexible operating environments, increasingly challenging jobs (the faster the better), and being held accountable to the team.
Goodbye Boss. Hello Leader. It’s ironic then, that one of the oldest frameworks for hierarchy, the military, might actually be a kind of holocracy. The military values and builds on
CANADIAN EQUIPMENT FINANCE | march/April 2014 | canadianequipmentfinance.com
group accountability, respect, and support for members, trust and integrity as the backbone – and as Simon Sinek’s new book on healthy organizations explains, the leaders go last when it’s meal time. A military organization is hierarchical – but its groups operate independently in the field (platoons, corps, battalions, etc). Groups are interconnected by a wellunderstood plan, and group members are highly interdependent. Success comes with the achievement of deep, dynamic, in-group accountability. I’m not convinced that holocracy is such a new idea. It’s just a new application of people dynamics in business. Consider the economics of business: it’s well understood that lots of unhappy employees will eventually impact your business. Poor customer experience, sub-quality products, haphazard or inconsistent execution – they’re all culprits in poor market performance. Disruptive technologies or macroeconomic implosions aside, in our microenvironment, human resources are arguably the most important thing we should manage. Management researchers, like Jim Collins of ‘Good to Great’ renown, advise CEOs to spend 80 per cent of their time coaching their team. The more happy, aligned, and empowered the team is, the better it performs and the better the business can execute the chosen strategy. Lots of current leadership thought focuses on culture and employee engagement. We know it’s not enough to simply implement an employee engagement survey once a year. You have to dig really deep into topics like transparency, clarifying (and simplifying) goals, and ensuring there is waaaay more communication with the team than you’re probably used to. Think about this: the companies that made the ‘10 Worst Companies to Work For in 2013’ list had in common the complaint that employees were simply a means to an end (ie: profits). The ‘10
your Business Best Companies to Work for in 2013’ by contrast, shared attributes such as — ◉◉ regular CEO town halls ◉◉ bi-lateral reviews (ie: employee and employer review one another) ◉◉ cross-functional communication teams (so accounting and sales actually understand what one another are doing) ◉◉ an intranet (think social media inside the company) for sharing ideas, promoting best practices, and acknowledging successes and fun ◉◉ authenticity (one North America-wide successful commercial real estate company I know has a ‘noasshole’ rule. Really. Zero tolerance for bad attitudes in the company no matter how successful the person) ◉◉ empowered to make decisions within their group or hub (make customers happy) ◉◉ a purpose that everyone gets, and understands how they contribute Resilience is built into this model – and notice how these attributes mirror the democratic, inter-accountable model of the holocracy. Culture and engagement are hugely important to the bottom line. A Google search on mergers yields stories of perfect marriages on paper that fail utterly to mesh the people (and egos) within the organization. Recently, a $35 billion merger between two global ad agencies was squashed, notably, due to culture clash. Lost opportunity, distraction from the core business, disillusion of the teams – it’s hard to believe that they didn’t figure this part out first. Sadly, it happens all the time.
The business that focuses on identifying its brittle bits and works to create elasticity will win, every time. In ‘Leaders Eat Last’, Sinek identifies trust and safety as key drivers of productivity. When people feel threatened in their environment (someone or something is out to get them, perceived or real), they respond defensively to protect themselves. A truly productive and resilient environment, based on trust, collaboration, and sharing of resources can target potential problems before they arise, not to mention creatively solving them on the fly. How can we possibly expect people to work this way if they’re fully consumed with watching their backs? So, maybe we don’t need to throw the business baby out with the management bathwater. Maybe we just need to work harder at creating trust, fostering mutual respect, and remembering that a boss has to work really hard to keep the team heading in the right direction, but a leader only has to go in the right direction, and a trusting team will follow. In our business, we’ve implemented a ‘Got Your Back’ award – so individuals can recognize a team member who’s gone out of their way to help another. It’s just one small thing, but the healthier our team is in its mundane everyday world, the more resilient we’re going to be if something big kicks our proverbial feet out from under us. After all, an unhealthy knee can be replaced – but if you want to get back into your running form, it takes having a healthy leg to begin with. canadianequipmentfinance.com | March/April 2014 | CANADIAN EQUIPMENT FINANCE
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Feature Report
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CANADIAN EQUIPMENT FINANCE | march/April 2014 | canadianequipmentfinance.com
Feature Report
issues in
Rolling Stock Are You a Tank Car Lemming? By Edward D. Biggs III, LLC, ASA
n the vernacular, a lemming refers to a member of any large group that is following an unthinking course towards mass destruction. This article is intended to provide information that will help DOT-111 type tank car owners avoid going over the cliff. Anyone who has been around the railroad industry knows that derailments are a part of railroading. The railroad companies work hard to minimize or eliminate the causes, but weather, operational practices, material failure, and human factors will continue to cause derailments. In each of the four recent crude oil tank car derailments, it appears that one factor or a group of factors other than the tank car caused the problem. The tank cars themselves could not have been designed to avoid the magnitude of forces involved.
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Evolving Standards The investigations regarding the Lac-Megantic ‘perfect storm’ derailment in Quebec has put a bright spotlight on the DOT-111 class of tank cars. These tank cars have been the standard general purpose tank cars since the 1960s. As a result of considerable use, there have been a substantial number of large and small safety improvements to these and other types of tank cars. In the late 1970s, double shelf couplers were required on tank cars carrying hazardous materials. It was such a good idea that use of double shelf couplers migrated to all tank cars and many other railcars as well. The double shelf prevents the cars from separating if one car goes up or down in a derailment, thereby keeping the train together. In 1978, all DOT-111 tank cars that have bottom fittings had additional safety features added to the bottom fittings including skid protection. In 2011, the AAR (Association of American Railroads) updated its standards for railcars used in crude and ethanol service that were ordered after October 2011. The new standards require the materials used in the heads and shells of the cars be heat treated ‘normalized’ steel TC128 Grade B steel or A516-17 steel. The standards also specify the thickness of the shell of TC128 steel must be at least seven sixteenths of an inch thick. Newer cars are made with thicker shells. Also in 2011, new standards required that, in most cases, pressure relief devices be of the high capacity reclosing type.
The Bigger Picture Generally railroad companies do not own tank cars except for their own internal use. The AAR represents the interests of the major railroad canadianequipmentfinance.com | March/April 2014 | CANADIAN EQUIPMENT FINANCE
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Feature Report companies and those who do not have any significant exposure in relation to tank cars. It has already come out in support of more substantial regulations and improved standards for tank cars. Costing them nothing to take this position, the AAR’s proactive defense diverts attention away from the derailments and their causes and onto the tank cars themselves. Looking just at the safety issues with the DOT-111 tank car fleet it appears that the problems are related to a much smaller group of older cars than the entire fleet of cars. Information obtained by the Canadian National Railway Company from the AAR showed that three of the five crude-carrying tank cars that derailed were newly built DOT-111 cars that conformed with the higher tank-car standards ordered after October 2011 for transporting crude and ethanol, says Mark Hallman, director of communications and public affairs for CN. The two other derailed tank cars were older DOT-111 models.
In a close look at the DOT-111 tank car fleet you will see old cars, midlife cars, recent vintage cars, and cars built since 2011 to the most modern standards. Each of these groups of cars was built to certain design standards that were in effect at the time of construction and each tank car in the North American fleet has a certificate of construction (COC) that details what standard that car was built to. Until recently, the majority of tank cars were held by a few large tank car lessors or large end users that know their business and have very high safety standards. Much of the constant improvement in tank cars comes from their expert
ERS OK D BR ANTE W
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research, testing, and long term operations of large fleets of tank cars. Even the oldest tank cars currently in service have been upgraded in some way to incorporate cost effective improvements that the industry has found will help avoid problems in a derailment. Constant improvements to railcars are part of the dynamics of a safe railroad industry and improvements to tank cars have led the way.
CANADIAN EQUIPMENT FINANCE | march/April 2014 | canadianequipmentfinance.com
William Furman, chief executive at Greenbrier, says modest but meaningful improvements which can be implemented immediately could reduce major risks of a hazardous materials leak by as much as 80 per cent in derailments. “We believe a retrofit proposal, if adopted, can be completed in a reasonably expedited timeframe and we do not accept that there is not adequate capacity in the industry to do so,” he says. The current demand for tank cars has been so high and the potential high profits on supplying cars has been a key driver of the logic that any available tank cars of a reasonable capacity be pressed into crude oil service until new tank car production can catch up. It is a reality that some of the oldest cars in the fleet are in crude service along with new cars (that is old cars with the least number of damage avoidance improvements). Based on investigations of the Quebec disaster, some older tank cars have been withdrawn from crude oil service.
Feature Report What is also likely to occur is regular sampling of crude oil at the origin loading points to make sure that highly flammable crude goes into a proper modern car. Crude oil in most cases is not explosive as was seen in the Quebec derailment. Going forward, railroad operations will be more tightly controlled to avoid situations that can lead to a ‘perfect storm’ of events that no car can withstand no matter how substantially the car is built.
Achieving Safety And Industry Growth Achieving energy independence has been a substantial driver of investment in tank cars and no one wants to see their investment put at risk unnecessarily. The regulators of pipelines and railroads know they must do something while ensuring ongoing growth in the transportation of North American oil. When looking at one major car type within the DOT-111 group you get a picture of what ages of cars make up the fleet. The AAR type T108 is a general purpose tank car of 27,500 to 31,499 gallon capacity with four of the 11 tank container specifications being in the DOT-111 group. This is the car being built for light sweet crude oil. This is a very versatile car that has carried a wide range of commodities, many of which are flammable. Alcohols, crude petroleum, gasoline, jet fuel, residual fuel oils, soybean oil, distillates fuel oil, acyclic organic chemicals, vegetable oils, petroleum refining products, and lubricating oils are all regularly handled in this car
type. The T108 fleet falls in to the following age categories, 1972 to 1979 - 997 cars or 1.4 per cent, 1980 to 1989 - 5,183 car or 7.36 per cent, 1990 to 2010 - 53,685 cars or 76.26 per cent, and 2011 and later 10,525 cars or 14.95 per cent for a total of 70,390 cars. The bulk of the fleet of T108 type cars are less than 24 years old and should be considered of modern design. If the industry made sure that the cars built prior to some date – for example all pre-1990 built T108 type cars – were not moving hazardous or highly flammable commodities that could potentially remove the highest risk cars. Even if all of the pre-1990 cars in the T108 type were DOT-111s, we are looking at 6,180 cars or about 8.76 per cent of the T108 fleet that would potentially need to be phased out of a volatile flammable service or retired over some period of time. Retirement of a car in good condition is always the last option – especially today when so many industries are rediscovering the benefits of rail. Many new shippers and their commodities got their rail movement start in cars repurposed for a new commodity. The HAZMAT 201 regulations require tank cars to be inspected every ten years. At these inspection intervals the cars and tanks are inspected closely for defects. These in-depth inspections are usually when cars receive the highest level of repairs and modifications. It is also when older cars are evaluated for repairs or retired. It is likely that major repairs would be performed on cars, such as adding head shields, valve protection, high
Safety Mandates for DOT-111 Tank Cars On April 23, 2014, Transport Canada ordered that the least crash-resistant DOT-111 tank cars be removed from dangerous goods service within 30 days. This includes older cars that have no continuous reinforcement of their bottom shell, says Transport Minister Lisa Raitt. DOT-111 tank cars are used for transporting liquid dangerous goods, such as crude oil. There are approximately 5,000 that must be immediately removed from dangerous goods service in Canada. DOT-111 tank cars were the type of tank cars involved in the 2013 derailment in Lac Mégantic, QC. The current mandate is one of several included in Transport Canada’s actions that address the Transportation Safety Board of Canada’s initial recommendations in the investigation into the Lac-Mégantic disaster. Changes proposed by Transport Canada include thicker steel as well as additional top fitting and head shield protection. DOT-111 tank cars that do not meet the new or future standards must be phased out or refitted within three years. The rail industry is already building new tank cars to this standard; approximately 55,000 have been ordered which represents nearly half of the current DOT-111 tank car fleet in use for transporting flammable liquids, such as crude oil.
canadianequipmentfinance.com | March/April 2014 | CANADIAN EQUIPMENT FINANCE
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Feature Report capacity reclosing pressure relief valves, and skid plates. Things like modifications to bottom outlet valves that either allow for removal of the valve opening handle or a modification that would prevent the valve opening in an accident and possibly replacing relief valves could be handled with mobile trucks. Stakeholders, builders, operators, and administrators feel strongly that adding jackets to new tank cars or thermal protection to older cars is a costly venture with very low proven benefits. The reality is you cannot build a tank car that will cost-effectively carry product and never leak or be punctured in a derailment. Fire is likely if an ignition source is present. Explosions are caused by pressure and high flow reclosing pressure relief valves can virtually eliminate that issue. You can protect a car from a leak or puncture in most common derailment scenarios with a bit of tweaking and current designs and proposed modifications to existing cars appear to have that covered.
Know Your Fleet If you are concerned about the risk in regards to the tank cars you own, you can avoid falling over the cliff by digging into the details related to the construction of your cars. You might have to have some sample car inspections performed to insure that you have not missed any improvements to your cars and that you have a clear picture that the cars you own are actually in the DOT-111 class. You may be pleasantly surprised with how your cars were built and equipped and
you might find that some or all of your cars were converted to a different DOT classification. If you have older cars, your proactive problem avoidance measures to remove cars from harm’s way may cost you short term profits but avoid long term problems. If you look at the DOT-111 tank car situation as an opportunity, you might be able to work with your lessees to improve your cars. You fund the improvements at higher lease rates over extended lease terms. The issue of railcar safety is a constantly evolving situation and staying informed and knowing the details of your fleet can help you avoid becoming a lemming. Edward Biggs is an accredited senior appraiser, member of the American Society of Appraisers (ASA), and president of the ASA Atlanta Chapter. and a Graduate of the University of Illinois. His practice, Biggs Appraisal, is focused on the inspection and valuation of rail equipment including freight and passenger cars, locomotive, rail car movers, and maintenance of way equipment. He has spent over 30 years in the railroad industry with a mix of significant experience with railroads and rail equipment leasing companies, including experience in fleet operations, mechanical, and sales. Ed has specific in-depth knowledge of railcar extended life upgrade and railcar and locomotive rebuilding programs.
Investment In Rail Safety In 2014, the Canadian National Railway Company (CN) plans to invest approximately $2.25 billion in capital programs, of which approximately $1.2 billion is targeted toward maintaining the safety and integrity of the network, particularly infrastructure, says Mark Hallman, director of communications and public affairs at CN. This investment will include the replacement of rail, ties and other track materials, bridge improvements, as well as various branch-line upgrades. This envelope will also include funds for strategic initiatives and additional improvements to track infrastructure in western and eastern Canada as well as in the United States. CN’s equipment capital expenditures in 2014 are targeted to be $350 million, allowing the company to tap growth opportunities and improve the quality of the fleet, says Hallman. As part of this spending, CN in 2014 will acquire 60 new high-horsepower diesel-electric locomotives equipped with alternate-current traction systems to accommodate additional freight volumes and to improve operational efficiency. CN also expects to spend approximately $700 million in 2014 on facilities to grow the business, including transloading terminals, distribution centers, and the completion of its Calgary Logistics Park project. This envelope also includes capital for information technology to improve service and operating efficiency, and for other projects to increase the productivity of operations. Across all of the envelopes are capital projects that will have a major impact on safety. In addition to capital expenditures to ensure the integrity of CN’s rail infrastructure, the company is allocating funds to enhance its system-wide flaw detection capabilities, says Hallman. He adds that CN will also complete the construction in 2014 of two state-of-the-art training facilities – one in Winnipeg, MB, the other in suburban Chicago, IL – that will help strengthen CN’s safety culture and prepare a new generation of safety-conscious railroaders.
Information Technology Solutions
ADD Capital Corp. MarkhaM address: 500 Cochrane Dr., Unit 2 Markham, ON L3R 8E2 Bill Patterson (bill.p@addcapital.ca) 905 940-2151, ext 235
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CANADIAN EQUIPMENT FINANCE | march/April 2014 | canadianequipmentfinance.com
Technology
User Experience
– Achieving Happy Customers
Optimizing your web presence across multiple platforms is key to providing a positive user experience By Vladimir Kovacevic
t finally happened – mobile device usage surpassed that of desktop devices. In January 2014, mobile devices accounted for 55 per cent of Internet usage in the U.S., as reported by comScore, an internet analytic company that provides marketing data and analytics. The majority of mobile device activity is social media related and most activity in the business world is still done on a desktop. But there is a catch. With the increased usage of mobile devices, expectations are changing and the bar is being raised.
I
Adaptation Is Key Today’s customer base is getting more sophisticated, connected, and empowered. As a result, companies that market and sell to that customer base must grow, adapt, and change their marketing strategies. Most companies are at least intuitively aware of this and know that their approach needs to change and that it needs to change quickly. Unfortunately, most of the time this need to adapt and change is regarded as a pure 26
technology play and it is executed with only technology in mind. This means that most businesses simply invest in being present and ‘visible’ on whatever new technology platform is getting consumers’ attention. What they are missing is the awareness that a strategy of presence is nothing more than ‘let’s make sure that we are there and see what happens’. As such, it is ineffective and probably more damaging than helpful.
Think User Experience As the number of digital platforms grows and as they morph and specialize, the amount of content and information available to users grows exponentially. This means that users’ engagement and attention are in high demand and that anything they invest their time and attention into needs to have clarity, direction, reward, and practicality. The latest results from comScore show that users engage with major social networks predominantly via mobile technology. Facebook engagement is at 68 per cent via mobile, Twitter is at 86 per cent, and Instagram is at a whopping 98 per cent. What does this mean to a modern day business that is trying to reach some of these users and get their attention? Let’s start with an example. You’ve invested a significant amount of time and
CANADIAN EQUIPMENT FINANCE | march/April 2014 | canadianequipmentfinance.com
money to grow the social media presence of the business. You even hired a dedicated young marketing expert who is getting great results and the company is generating a steady stream of tweets and posts. What would be the most desired outcome of those posts and messages? Of course, it is gaining user engagement that results in users visiting the company’s website. All good so far. But considering that the vast majority of the social media content is consumed via mobile devices, it is logical that the users will use the same device to follow the links and get to the company’s website. And this is where things start to break down. In order to keep the user engaged and to provide the needed clarity and direction, the website needs to be more than ‘compatible’ with mobile. It needs to be responsive. What is responsive? Responsive design optimizes a website for any device. Regardless of what device is being used – a phone, tablet, laptop, or a watch (yes a watch), the website is rendered in the most optimal way to ensure a seamless and uninterrupted user experience. And of all the things that matter – it is user experience that matters the most. This often overlooked and often believed to be a less important part of the equation is the single most critical factor in keeping users engaged. Why? Because expectations have changed – they
Technology
Raise Your Bar So, how can companies achieve great user experience? Let’s start with a definition of what user experience is. User experience is both art and science. It involves users’ behaviors, feelings, and emotions about using a particular system (e.g. a website). It also includes all aspects of human-computer interaction and the users’ perception of system aspects like practicality and ease of use. User experience is highly subjective and it is affected by the circumstances of the environment. For example, a website that has a great user experience on a desktop may feel unorganized and completely useless on a mobile device. In order to achieve great user experience and get positive results from engaging the customer via social media, companies need to think of the whole experience. A great twitter post that results in customers going to a company’s website on their mobile device only to find that they have to zoom in and out and fight the interface to get to any meaningful information is nothing short of frustrating. And it has exactly the opposite effect from what was intended. Rather than benefit from the website, the customer instead classifies that website as not having value. In today’s world where customers have so many choices, they are very quick to classify information as valuable or not valuable and to take control of what they see. If an app is not working well or if there is a better one available, it gets removed. If a company that was previously ‘followed’ or ‘liked’ delivers questionable value and a poor experience, it is easy to ‘unfollow’ or
‘unlike’. And once a customer is lost it is very hard to get their attention again. Having a responsive site that provides information in readable and useful form is an essential first step. The second step in providing a great user experience is content. Think about how much can be shown on a mobile device and in a way that really delivers the intended message. Going over the content of the current website and removing any unnecessary and empty content is essential. Since mobile device usage has overtaken desktop device usage to browse the internet, the website needs to be designed for mobile device first and desktop second. In today’s digital world where the quantity of information that gets thrown at the average consumer is growing at an exponential rate, the old saying of “less is more” is absolutely true.
Happy Customers
excellent customer experience will result in happy customers who are able to get the information they need by using the device of their choice. Over time, combining multiple teams into cross team committees results in the quality of digital marketing increasing and team members benefitting from each other’s experience and knowledge. Also, having a single responsive website makes it much easier to manage change and reduce the overall costs. In summary, providing a great user experience is the key to a positive social media engagement of current and potential customers. And having engaged and happy customers that enjoy using the services your company provides is worth a lot. Ask WhatsApp, a company of 55 employees with less than $300 million in annual revenue that was acquired by Facebook for $19 billion.
Unifying all marketing strategies and Vladimir Kovacevic is a chief technology officer at Inovatec Systems. Inovatec specializes in providing innovative software solutions and helping combining the social media team, businesses establish a scalable, data driven business model within the automotive and equipment finance industry. website team, email marketing team, and all other groups that may have a marketing related touch point with existing or potential customers is an important step in providing a great user experience. Residual Value Mobile Equipment GAP Sometimes Insurance Tracking Collateral Protection Contingent combining the teams is not an option, Excess but forming cross team committees accomplishes the same goal and ensures that a company’s digital marketing strategy is delivered through multiple channels in a consistent manner. The benefits of following these steps are many. In the short term, having a responsive FOR COMPLETE DETAILS, CONTACT R. NITE RUANE website that delivers clear and concise TOLL FREE: 888-800-7670 FAX: 888-721-7671 content and provides
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have grown and they have gotten more sophisticated – way more sophisticated. I often joke with our team that Apple and Google have ‘ruined’ it for the rest of the technology companies. How? By raising the bar so high that everything we do gets measured against it. No one understood this better than Steve Jobs. The simple truth is that user experience is what matters the most; it is what propelled Apple to be one of the most successful companies of our time.
canadianequipmentfinance.com | March/April 2014 | CANADIAN EQUIPMENT FINANCE
27
Telematics
Next Wave of Insurance Telematics Helps Businesses Run Smoother and Save Money Far beyond a discount on insurance premiums, Canadian business with fleets can achieve both operational efficiencies and cost savings with telematics technology embedded within usage-based insurance programs. By Yvonne Monterroso
ith three major Canadian insurance carriers offering innovative usage-based personal insurance solutions, it is only a matter of time before similar offerings are made available to commercial clients. Usagebased insurance (UBI) refers to a broad spectrum of offerings that enable insurance companies to receive vehicle data, enabling clients to receive potential discounts. Some small and mediumsized businesses are already finding ways to collect operational data for their insurance provider with the hope of receiving better rates, but many are still exploring what insurance telematics solutions can do for their business and investigating the benefits of participating. The opportunity to reduce insurance premiums is certainly attractive to business owners, but is there more to these solutions than sharing vehicle usage data and getting cheaper insurance?
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Why Would My Insurer Give Me a Better Rate? Canadian companies have the advantage of understanding the telematics experience by learning from the history of similar offerings in international 28
markets. The in-vehicle technology (often compared to a black box) provides driving data based on how, when, and where a vehicle is driven. The process of collecting in-vehicle information is referred to as telematics. A recent insurance telematics study by Ptolemus noted a total of 54 commercial UBI services in market, with Italy and the UK leading the way.1 After years of successful implementations worldwide, market data has clearly shown that UBI solutions reduce insurance claims costs and improve retention of the best clients. Implementing monitoring solutions has been repeatedly shown to improve driving behaviour resulting in benefits for fleets as well as insurers. Moreover, legislative pressures are forcing insurers to re-evaluate fair practice for setting premiums and recently the Ontario government mandated a decrease in the average monthly auto insurance premiums by 15 per cent.2 These factors are just beginning to scratch the surface of ways insurers are increasingly motivated to evaluate further ways of applying customized insurance reductions for business lines and clients.
More Than Just An Insurance Discount Large fleets have been using telematics
CANADIAN EQUIPMENT FINANCE | march/April 2014 | canadianequipmentfinance.com
Monitoring solutions have the ability to record trip data (date, time, duration and fuel consumption) in addition to identifying driving behavior (harsh braking, rapid acceleration, and speed).
and other in-vehicle technologies to manage fleet operations for over a decade. With the increased availability of UBI to commercial fleets, the technology integration provided by a UBI solution ultimately offers vehicle information back to insurance companies, fleet managers, and business owners alike. The cost of implementing UBI solutions has decreased over time due to the increasing demand for scalable solutions, making the business case for investing in fleet solutions stronger. Decades of research and increased global adoption have opened the doors for small and medium sized businesses to easily access affordable fleet management software and unlock value within their companies. Many businesses with commercial vehicles focus solely on their core business while vehicles and their associated expenses such as fuel, insurance, maintenance, and even
Telematics fraud, represent significant costs absorbed into overall operational costs with little management or cost optimization. Unlike transportation companies, fleet management is not a core competency for many commercial businesses. For small to medium-size nontransportation companies looking to increase fleet management operational efficiencies with UBI, it is important to build a business case focusing on costs and benefits, in addition to ease of use and simplicity. Clear cost versus benefit analysis is easy to perform based on insurance savings. Extending benefits to projected fuel savings based on reduced idle time across a fleet are well documented, demonstrating that fleet management can help reduce idle time by 15 to 30 per cent.3
Enhancing Operations Beyond fuel savings and benefits from reduced idle time, businesses can also evaluate specific telematics features to enhance operations: ◉◉ Telematics technology provides automatic vehicle location capabilities, allowing a fleet manager or owner to know where each vehicle is located at all times, as well as monitor all trips the vehicle was used for. These location capabilities can be very useful for optimizing routes or pick-ups, in addition to providing managers with alerts if a vehicle is being used at unexpected times or in unauthorized places. ◉◉ Telematics provides managers with vehicle health insights typically not available without
full benefit. With information security and privacy at the forefront of technology solutions, implementing telematics Telematics technology allows fleet managers and business owners to technology view online dashboards with real-time vehicle location data, often brings used to improve dispatch times and operations planning. benefits to access to the vehicle. The both insurance companies additional records include and clients alike. While odometer and diagnostic insurance companies are information. Armed limited to specific criteria with more information, to measure vehicle risk (for fleet managers have example, time of day driven, greater control to specify distance, braking, and maintenance schedules and acceleration patterns, etc.), identify diagnostic issues in fleet managers and owners advance. These capabilities have access to an additional ultimately reduce suite of information that unexpected down time, and UBI technology can unlock ensure timely maintenance to help run their businesses for longer vehicle life and reduced repair costs. ◉◉ One of the greatest benefits derived from a fleet solution is peace of mind for managers and owners. Access to a secure online portal providing trip information, vehicle location, diagnostic information and more helps reduce operational costs, improve vehicle care, reduce fraud, and understand fleet usage.
more effectively. The benefits for businesses with small or larger sized fleets are significant, both financially and operationally. An introduction to telematics through insurance can help new or unsure business owners and fleet managers use technology to drive their business forward. Yvonne Monterroso is a senior product manager at Intelligent Mechatronic Systems (IMS), a connected car company with headquarters in Waterloo, ON. Responsible for the IMS Fleet Intelligence solution, Yvonne is passionate about understanding the problems small and midsize fleet owners face, and bringing them solutions that result in safer, economical and more efficient fleets. To learn more about IMS Fleet Intelligence, please visit www.intellimec.com or contact Yvonne directly at info@intellimec.com. 1. Insurance Telematics Study. Ptolemus. May 2012. http://www. ptolemus.com - See more at: http://enterprise.vodafone.com/ insight_news/2013-04-02-on-the-road-again-the-evolution-of-carinsurance.jsp#sthash.nZ1Aetmt.dpuf 2. Ontario Taking Further Action to Reduce Auto Insurance Rates, Ministry of Finance, March 2014. http://news.ontario.ca/mof/ en/2014/03/ontario-taking-further-action-to-reduce-auto-insurancerates.html 3. Using Reports to Prove Return on Investment, CompassCom, January 2012. http://www.compasscom.com/files/Using%20 Reports%20to%20Prove%20Return%20on%20Investment.pdf
Do you know where your machine is?
We Do!
Changing the Game Market trends in Europe and the U.S. demonstrate how telematics technology has changed the way commercial businesses look at insurance. More importantly, with telematics technology solutions gaining ground, are commercial businesses prepared to look closer at operations to achieve the
Threshold.Inc
Fleet Tracking & Electronic Specialities
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Telematics
Telematics
– An Idea For Which Time Has Come From managing costs to tracking stolen equipment, telematics is a vital tool to fleet management By Chris Coker, Owner, Threshold Inc.
elematics, in simple terms, is the integration of telecommunications with communications technology. This results in technology that uses telecommunications devices to send, receive, and store information that relates to remote items such as vehicles or equipment. Telematics has gained much interest in regards to fleet management and while many equipment fleet managers consider it an expensive toy, it has in fact become a necessary tool for most heavy equipment fleets. Telematics brings different benefits to different assets in a fleet. One thing I have learned in my 26 years at Threshold Inc. is that most construction fleets consist of both equipment and trucks. Though the fleet may begin with one or more pieces of equipment, inevitably trucks and/or trailers are purchased to
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“Our industry has a saying — if you can’t measure it, you can’t manage it.” move equipment, materials, and tools around. As the fleet grows, so too does the balance between equipment and trucks. For that reason, it is important for fleet managers to choose a tracking partner that can effectively report on various types of assets. Factory telematics systems such as Caterpillar’s Product Link and John Deere’s JD Link are intended to track equipment and do not necessarily provide a solution for multiple assets. However, a well-based tracking system should address equipment, trucks, cars, unpowered trailers, and even individual smart phones.
CANADIAN EQUIPMENT FINANCE | march/April 2014 | canadianequipmentfinance.com
Don’t Look for the Information; Let The Information Look for You! The next component of an effective tracking solution is ease of access to information. As many equipment professionals spend a great deal of their time in the field, they do not always have the opportunity to acquire robust computer skills. The tracking application has to make it easy to get the information needed, when and where it is needed. User screens must be simply laid out and easy to navigate. Automated reports are a real benefit and if properly configured, these reports will update the user on information that they consider vital. Automated reports can be sent to the
Telematics user’s email address on a regular basis, as needed. The features that are monitored with telematics can change depending on the asset. For equipment – which is often left unattended on remote job sites – theft is always a concern. As one of the founding parties of the Boomerang tracking system, I have dealt with this issue for years. Guarding a piece of equipment in the field is like guarding the President of the United States. The thief (assassin) can watch and wait and choose when and where to strike. As a protector, all you can do is be vigilant and try to respond as quickly as possible when a threat is detected. Very often, disconnecting the machine battery is the first thing that a thief does, which disables the power to the onboard tracking device. Therefore, it is vital that the tracking device has a backup battery that will keep the unit going if the battery is disconnected. Understand that even if the equipment location is known, it can take an entire day for the police to get a search warrant to enter the property. In the meanwhile, the backup power source has to keep the GPS unit going. Our system, ‘Fleet Intelligence’, actually sends an email if the device has to go to backup power. Usually, getting that message on a weekend or late in the evening is the first sign of trouble.
Tracking The Particulars Another benefit to equipment tracking is its usefulness in employee accountability. Because the equipment is often at a remote site, so too is the operator – generally with minimal or no supervision. A good tracking system gives an ‘ignition on’ message that will give indication to when work with the equipment started, as well as an ‘ignition off’ message that will give indication of when work with the equipment ended. It can’t speak specifically as to what work was done with the equipment, but it verifies that at least it was used. Telematics can also manage such things as idle time – an issue that must be managed for cost efficiency. Managing idle time, if properly done, can in fact pay for the entire tracking technology. Reports from Caterpillar say
fuel is by far the single greatest expense in equipment operation (cost of the equipment itself is only eight per cent of the life time cost). Excessive idle time is a lose–lose–lose situation. It wastes machine-operating hours, pollutes the environment, and wastes finite fossil fuel supplies. In my experience in monitoring the idle times of hundreds of pieces of equipment, I’ve found a vast difference in idle times between operators. I believe that the key to managing this is not a dictatorial approach but one of positive reinforcement. Rather than telling operators to reduce their idle time, information from a telematics system can be used to reward operators that keep idle time to a minimum. Giving a $20.00 Tim Hortons card to the best performing operator each month will save you far more than the card costs.
Driver Tendencies Let’s switch gears for a second and talk about trucks. Everything that was just said about employee accountability and idle time applies equally to trucks. In addition, there is much that we can tell today’s fleet operators about how their trucks are being driven. State-of-theart tracking systems monitor speeding, excessive acceleration, braking, and cornering forces. The important thing is that telematics will identify any driver with dangerous tendencies while also providing the backup information needed to correct the dangerous behavior or, in worst-case scenarios, provide the grounds for dismissal.
These days, it is not uncommon for workers to be quite transient. This often puts fleet managers in the position of having new and unproven drivers operating their trucks. A telematics system can be a very useful indicator in these situations. If there are constant excessive braking messages, there is a good possibility that the driver may be texting at the wheel — which means the driver is 22 times more likely to have an accident. Texting drivers now kill more people than drunk drivers. Telematics allows for swift intervention if a driver is constantly being flagged for poor driving indicators. The driver can be informed of the driving reports and can be asked to cooperate and improve driving habits. If the reports continue, the driver can be terminated before there is an accident, injury, and an impending insurance claim. So, whether it is to track metrics within a fleet, safeguard against theft, monitor equipment runtime or idle time, or to monitor safe driving practices, telematics is a useful tool that can provide the necessary information to remotely and effectively monitor fleets and bring about safety, security, and cost efficiency. Our industry has a saying — if you can’t measure it, you can’t manage it. With telematics — you can measure it and you can manage it. Christopher Coker is the owner and president of Threshold Inc. He is a graduate of Wilfred Laurier University in Business Administration and Political Science. Chris has served a variety of functions in the company, watching it grow from a one man show to its current size. Threshold Inc. has been in business for 25 years. The company operates its own proprietary GPS tracking platform `Fleet Intelligence`. Its target market is primarily the heavy equipment and heavy truck verticals.
canadianequipmentfinance.com | March/April 2014 | CANADIAN EQUIPMENT FINANCE
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vendor directory Providing practical and cost-effective legal services to the Equipment Finance Industry for 20+ years 905.940.8700 • 1.866.508.8700 • wvllp.ca
National Appraisal Services FAST. ACCURATE. COST EFFECTIVE.
877.463.8241 www.verusvaluations.com
Since 1983, Northstar Leasing Corporation has been meeting the needs of our business clients and Broker network across Canada.
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Get your ad on this page for as little as $185 per issue for all of 2014
Vendor Directory Advertising call Brent White at 905-201-6600 x 222 or email brent@canadianequipmentfinance.com
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Northstar takes pride in offering fast approvals, competitive rates, and flexible terms, coupled with friendly, personal service. Please contact Bruce Collingwood or Wayne Gray at 705-737-5595 or toll free 1-888-678-2701. www.nstarleasing.com
events
WHERE TO GO. WHAT TO SEE.
Find out more about the conferences, exhibitions, seminars and meetings in your industry January 26-29, 2014
April 23, 2014
June 1-3, 2014
American Securitization Forum ASF 2014 Las Vegas, NV www.americansecuritization.com
Equipment Leasing & Finance Association ELFA Captives Best Practices Roundtable Chicago, IL www.elfaonline.org
Equipment Leasing & Finance Association ELFA Credit & Collections Management Conference Cincinnati, OH www.elfaonline.org
February 23-25, 2014 Equipment Leasing & Finance Association ELFA Equipment Management Conference Phoenix, AZ www.elfaonline.org
March 9-11, 2014 Equipment Leasing & Finance Association ELFA Executive Roundtable Bonita Springs, FL www.elfaonline.org
March 20, 2014 Equipment Leasing & Finance Association 13th Annual IMN/ELFA Investors Conference New York, NY www.elfaonline.org
April 23, 2014 Equipment Leasing & Finance Association ELFA Independent Best Practices Roundtable Chicago, IL www.elfaonline.org
June 1-8
April 23, 2014
September 8-9, 2014
Equipment Leasing & Finance Association ELFA 26th Annual National Funding Conference Chicago, IL www.elfaonline.org
Equipment Leasing & Finance Association ELFA Operations & Technology Conference Atlanta, GA www.elfaonline.org
May 1-3, 2014
September 8-10, 2014
Nat’l Assoc of Equip Leasing Brokers NAELB 2014 Annual Conference Orlando, FL www.naelb.org
Equipment Leasing & Finance Association Lease & Finance Accountants Conference Atlanta, GA www.elfaonline.org
April 2-4, 2014
May 4-6, 2014
National Equipment Finance Association NEFA 2014 National Equipment Finance Summit Scottsdale, AZ www.nefassociation.org
Equipment Leasing & Finance Association ELFA Legal Forum Washington, DC www.elfaonline.org
April 9-12
May 7-9, 2014
Factoring Association 20th Annual Factoring Conference San Francisco, CA www.factoring.org
Equipment Leasing & Finance Association Public Sector Finance Forum Washington, DC www.elfaonline.org
April 23, 2014 Equipment Leasing & Finance Association ELFA Bank Best Practices Roundtable Chicago, IL www.elfaonline.org
May 14-15, 2014 Equipment Leasing & Finance Association ELFA Capitol Connections Washington, DC www.elfaonline.org
Credit Scoring & Risk Strategy Association 21st Annual Conference Niagara Falls, ON www.csrsa.org
September 10-12, 2014 Canadian Finance & Leasing Association CLFA Annual Conference 2014 Whistler, BC www.cfla-acfl.ca
September 14-16 IFO Canada 4th Annual Canadian Financial Operations Symposium Vancouver, BC www.financialops.org/canada2014
October 19-21, 2014 Equipment Leasing & Finance Association ELFA 53rd Annual Convention San Diego, CA www.elfaonline.org
Visit us online www.canadianequipmentfinance.com/events.html canadianequipmentfinance.com | March/April 2014 | CANADIAN EQUIPMENT FINANCE
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Observations
A Field Of Assets Defining refurbished in the world of equipment appraisal By Rob Birnie
efurbished. A quick online search defines refurbish as “to repair and make improvements to; to brighten or freshen up”. We find the term throughout remarketing venues and generally don’t give it much thought, but this past month as I was completing a maintenance-of-way (MOW) equipment appraisal, I found the marketing buzzword cropping up quite frequently in advertisements. This presented some questions, such as, “What, exactly, do they mean by ‘refurbish’?” along with the logical follow-up question, “Exactly what value contribution does ‘refurbishment’ provide?” – which is of significantly more importance to a financing/leasing organization. In the consumer electronics world, the phrase ‘refurbished’ typically refers to equipment which has been factory reconditioned and is virtually indistinguishable from new. In many cases, the equipment includes a factory warranty and frequently represents real value in comparison to ‘new’ units of the same make and model. As consumers, the use of this term is blasted at us every day from national electronics retailers and it becomes the go-to example of the process.
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In the real-estate industry, the phrase ‘refurbished’ conjures up images of character-rich historic buildings that have been upgraded with modern amenities (and have had the avocado green appliances removed). To those of us in the equipment appraisal arena, ‘refurbished’ opens up a whole new range of interpretation. Last year, we were engaged to provide an appraisal of mining equipment which had been in service for a few years. The equipment was reported to be nearing completion of a refurbishment prior to installation at the buyer’s new production site. The finance underwriters required confirmation of the actual condition of the equipment and as a result, I hopped on a plane to complete the inspection in Northern Quebec. Upon arrival, as I surveyed the field of assets, I was at a loss as to how to describe the scene, but it was clear that the equipment was in serious need of refurbishment and that market value could only increase as a result of the process! A photo truly is worth a thousand words. Clearly, this is an extreme case of creative interpretation of a word in the English language, but it illustrates that refurbishment can have a very wide variety of meanings and the value influence of refurbishment is, therefore, highly subjective. In the technology industry, assets
CANADIAN EQUIPMENT FINANCE | march/April 2014 | canadianequipmentfinance.com
frequently have a marketable service life which can be measured in months. Refurbishment – typically including replacement of storage devices or other mechanical components – is intended to return the asset to full original specifications. However, those specifications may be so stale in the marketplace that minimal value is realized from the effort. In the marine and rail industries, we have experienced situations where refurbishment of equipment (including a refit with modern engines and control systems) can result in a whole new lease on life for that machine. It is frequently possible to retrofit efficiencies and other improvements commonplace within the industry into aging assets in a manner that makes them functionally equivalent to new. In these cases, the value of the renewed machine can exceed the cost of the newly installed systems. In most cases, cosmetics need to be overlooked and a detailed examination of the refurbishment process needs to be completed to accurately identify value – similar to real estate where sometimes peeling back the harvest gold shag carpeting reveals pristine hardwood floors. About the Author: Rob Birnie is a Certified Machinery and Equipment Appraiser (CMEA), Master Marine Surveyor (MMS), Senior Business Analyst (SBA) and an active member of the Vancouver Board of Trade. Rob has applied his hands-on experience in mechanical and marine repairs and more than 19 years of insurance damage appraisal, valuation and loss settlement experience to create and direct Verus Valuations. He doesn’t mind the snow. Much.
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