Fleets Upgrading Communications Systems Create Secondary Market for Bargain Hunters

By Dan Leone, Staff Reporter

This story appears in the May 23 print edition of Transport Topics.

Equipment upgrades, fleet failures and tuck-in acquisitions have created an inventory of used mobile communications units, and bargain-seeking carriers looking for small batches of these systems have created sustainable demand for secondhand units, several tech executives have said.

The factors that motivate fleets to shop in the secondary market are “all over the board,” said Cory Hunt, chief executive officer of Pivot Technology Resources Inc., Lenexa, Kan., a reseller of secondhand mobile communications systems.



“Some companies . . . might install older technology on just their owner-operator trucks because they don’t want to make a large investment on that side” of their business, Hunt said.

In other cases, a fleet will make a tuck-in acquisition, buying hard assets like trucks and communications systems and integrating them into the “mother fleet.” Sometimes, the acquiring carrier will “want one specific [mobile communications] manufacturer outfitted on the whole fleet” and turn to the used market to save money, Hunt said.

However, the market for used mobile communications has limited appeal, according to people in the business.

“The used market only holds the value for a moderate amount of units,” Hunt said. “You don’t typically see a fleet of 300 units getting purchased on the used market. Typically, it’s a 5-to-50-unit kind of market.”

Nevertheless, there is a market.

Although Hunt declined to peg the size of the secondhand market, he told Transport Topics that Pivot has tripled its revenue in the past three years. Fleet demand is regular enough, he added, to support a profit-seeking broker of used systems. Pivot, he said, is making money.

The price of used mobile communications equipment varies with the seller, and the original vendor of a system always will charge a fee to bring used systems back online and associate them with a new owner.

As a benchmark, factory-fresh versions of the latest communications systems from San Diego-based Qualcomm Inc. and PeopleNet Communications Corp. of Chaska, Minn., which are the biggest vendors to the trucking industry, retail for between $1,000 and $2,000 each, according to the companies. The price varies with the model.

Independent sellers on eBay Inc., the online auction giant that made its name as a consumer-to-consumer sales forum, are charging between $200 and $450 for used mobile communications hardware. Almost every eBay sale is for OmniTracs units, which are Qualcomm hardware from 1988 that established the blueprint for the modern truck-based mobile communications system.

Pivot sells its used wares for about half of what the major manufacturers charge for a new version of the same unit. As with new equipment, the line price on used systems will be different from model to model, Hunt said. There is also the reactivation fee to consider.

Like most of the carriers that dip into it, the secondary mobile communications market is relatively small. Those reselling such hardware typically look to move small batches — bundles of 10 to 50 units, Hunt said.

Vendors reached for this story all declined to attach a number to their estimates about the size of the U.S. secondary market.

Norm Ellis, general manager of Qualcomm’s truck telematics business, said that his company, the market leader in its space, reactivates only a small number of secondhand units each year.

Total reactivations of used units in 2010 were “a fraction of the [amount of] newer units,” Ellis told TT. He wouldn’t disclose an exact figure. In the most recent 12-month period for which figures are available, Qualcomm shipped about 100,000 units, according to regulatory disclosures filed with the Securities and Exchange Commission.

The secondary market is likewise a drop in the bucket for PeopleNet, said Brian McLaughlin, the company’s chief operating officer.

“Last year, the secondary market, in terms of activations, we had less than 100 across the entire [PeopleNet] network,” he told TT. “There just isn’t a large aftermarket pool of PeopleNet units out there.”

At Xata Corp., Eden Prairie, Minn., “we do not see many requests” to reactivate secondhand equipment, said Christian Schenk, the company’s vice president of product marketing. “Most customers prefer new hardware.”

Selling used mobile communications hardware and accessories is Pivot’s sole source of income. This approach, Ellis at Qualcomm said, makes the company an outlier in a market where most sellers also are motor carriers.

In the secondary market, “transactions [typically] occur between the current owner and the soon-to-be-owner” of a mobile communications device, Ellis said.

For example, truckload titan Schneider National Inc., Green Bay, Wis., dropped an enormous cache of older Qualcomm units into the secondary market in 2010. Schneider installed Qualcomm’s latest mobile offering, the MCP200 Series, across its entire fleet and sent thousands of older Qualcomm boxes to the secondary market.

Schneider, reached in late April, would not disclose its asking price for this used equipment.

Through a spokeswoman, Schneider National said that it sold its “newer used Qualcomm units to other fleets” and scrapped the very oldest units that it tore out of its trucks.

The units Schneider displaced included both OmniTracs and its successor system, the MCP100.

Schneider National, through an equipment-leasing subsidiary, still sells used OmniTracs units on the Internet. The company sells the systems in bundles of 50 or 100, according to the website, at an asking price at the low end of the range that eBay sellers charge for a single unit.

Refrigerated carrier C.R. England Inc., Salt Lake City, also replaced a large number of older Qualcomm systems last year, but that carrier traded its units back to Qualcomm to secure a discount on a batch of newer MCP200 units, said Corey England, the carrier’s executive vice president for operations support.

Ellis said that trade-ins likely have become a thing of the past at his company. Qualcomm has a plentiful supply of factory-refurbished OmniTracs, but those systems are falling behind the curve set by U.S. regulators — OmniTracs does not fit the latest federal definition of an electronic onboard recorder, as newer onboard systems do.

As a result, some OmniTracs boxes are making their way to South America. Qualcomm has tracked a few activations there over the past year or so, Ellis said.

For the U.S. market, reduced trade-in incentives from the big-gest mobile communications vendor set the stage for newer, more desirable Qualcomm units to drop onto the secondary market the next time big fleets do a rip-and-replace, as Schneider and C.R. England did this year.

Another notable and recent rip-and-replace occurred at truckload carrier Heartland Express, which tore out about 3,000 OmniTracs units in December and installed newer units from PeopleNet.

A PeopleNet executive said that Heartland was having a tougher time selling its used OmniTracs systems than it might have had in the past.

Heartland did not respond to requests for comment about its equipment sales.

Qualcomm by far is the largest supplier of truck-based mobile communications hardware in the United States.

Privately held PeopleNet is the next-largest provider and moves “tens of thousands” of new units every year, McLaughlin said.

Xata, next on the list, said in its latest annual report to shareholders that its units are installed on about 110,000 trucks in the United States.

PeopleNet’s McLaughlin summed up the prevailing opinion of the secondary market among the three largest players in the truck-based mobile communications business.

“We don’t try to discourage it, but we don’t try to encourage it,” he said. “We’d just as soon our customers buy new units.”

Activating secondhand mobile communications systems carries several fees, vendors told TT, and the total expense comes to several hundred dollars per unit.

The fees, McLaughlin said, are intended to cover the cost of the additional tech support that PeopleNet, at least, believes a used unit will need.

“The reason we have a [reactivation] cost is mainly because [used] units cost more to support,” he said. “We’re more likely to get additional support calls.”

Hunt at Pivot countered that many units in his inventory of secondhand systems are only a few years old and thus not far removed from the original vendors’ quality assurance process.

“A lot of the equipment we carry is less than two or three years old, [and] we stand behind the equipment with a warranty,” he said. “A $300 to $350 transfer fee, that’s a lot of insurance on [the vendor’s] part for some phone time.”

In the end, Hunt said, shoppers in the secondhand market need to carefully consider whether they can offset activation fees with a volume purchase with an attractive discount compared with the price of a newer system.