2-9. Explanation Regarding Leasing of Logistics Equipment

1. General Explanation of Leasing

A lease is a system where a leasing company purchases equipment, automobiles, or other properties required by a company or individual on their behalf, and rents them out for a long period at a fixed rate.

Fundamentally, the transaction takes place among three parties: the "Customer (User)," the "Leasing Company," and the "Manufacturer/Sales Company." The flow involves the user freely selecting the desired property, the leasing company paying the price to the sales company to purchase the property, and then renting it to the user.

The Two Main Types of Leases

Leases are broadly classified into two categories depending on the nature of the contract.

1. Finance Lease
   Characteristics: It is practically a system akin to "purchasing in installments." In principle, mid-term cancellation is not allowed during the contract period, and the entire amount—from the purchase price of the property to interest and insurance premiums—is paid as the lease fee.
   Commonly leased items: Office equipment like computers and copiers, industrial machinery for factories, etc.
2. Operating Lease
   Characteristics: This is a system where the "used value (residual value)" at the end of the contract is estimated and deducted in advance, and only the remaining amount is paid in installments. It can keep the total payment low.
   Commonly leased items: Automobiles (car leasing), aircraft, construction machinery, and other items that easily retain value in the used market.

Differences from Renting and Lump-sum Purchasing

The greatest advantage of leasing is the ability to introduce the latest equipment or vehicles while keeping a lump sum of cash on hand.

2. Explanation Regarding Leasing and Renting of Logistics Equipment

In the logistics industry, leasing and renting are widely utilized as effective means to suppress initial costs when introducing equipment (forklifts, automated guided vehicles, racks, pallets, etc.). Especially in recent years, automated equipment (such as AGVs/AMRs) intended to compensate for labor shortages has become more expensive, making the choice of these procurement methods increasingly important.

Differences Between Leasing and Renting Logistics Equipment

Fundamentally, they are used selectively based on whether the need is for "long-term dedicated equipment (Lease)" or "responding to short-term demand fluctuations (Rental)."

Utilization Scenarios for Leases (Long-term / Fixed Equipment)

• Introduction of Expensive Automated Equipment: Automated equipment like AGVs and sorters that cost several million to tens of millions of yen per unit. You can introduce the latest equipment while preventing the cash outflow of a lump-sum purchase.
• Maintenance Lease: A format frequently used for forklifts, etc. In addition to the standard lease fee, it includes maintenance costs such as statutory inspections, repair parts, and tire replacements, massively reducing the effort required for vehicle management.

Utilization Scenarios for Rentals (Short-term / Fluctuation Response)

• Busy Season Countermeasures: Temporarily increasing the number of forklifts, roll box pallets, and pallets to align with periods when cargo volume increases for only a few specific months, such as the mid-year gift (Chugen), year-end gift (Seibo) seasons, and year-end sales campaigns.
• Emergency Substitutes: Used as a sudden stopgap, such as during the repair period when an owned forklift breaks down.

3. Explanation of Statutory Useful Life and Lease Period

When concluding a lease contract, the "Statutory Useful Life" and the "Lease Period" have a very close relationship in terms of tax and accounting.

Definition of the Two Terms

• Statutory Useful Life: The "inherent usable period (lifespan) of the asset" stipulated by the state (National Tax Agency).
• Lease Period: The actual contract period for renting the property, agreed upon between the customer (user) and the leasing company.

Rules for the Appropriate Lease Period (Relationship between the two)

In a finance lease contract, the user cannot set the lease period completely freely. An "Appropriate Lease Period" is stipulated as a tax rule, and a lower limit is determined based on the statutory useful life. This is to prevent setting an unnaturally short lease period to expense the entire amount at once over a short term (excessive tax saving measures).

*If a short contract is signed that falls below this period, for tax purposes it is treated not as a "mere rental" but as a "sale (transfer of ownership)," and the lease fee can no longer be expensed in full as is.

Specific Calculation Examples

• In the case of a personal computer (statutory useful life 4 years): 4 years × 70% = 2.8 years → Rounding down makes "2 years" the shortest lease period.
• In the case of a large machine tool (statutory useful life 12 years): 12 years × 60% = 7.2 years → Rounding down makes "7 years" the shortest lease period.

4. Current Interest Rates and Leasing (Impact of Interest Rate Fluctuations)

The basic mechanism is that when interest rates rise, lease fees also become higher in tandem.

When a leasing company purchases a property to rent to a customer, it procures (borrows) those funds from financial institutions like banks. Therefore, when market interest rates rise, the leasing company's "fund procurement cost" also increases, and this is added on top of the lease fee.

Composition of Lease Fees and the Impact of Interest Rates

Lease fees are calculated by adding up the following costs and dividing by the lease period (number of months).

1. Property Price (Principal)
2. Interest Rate (Fund Procurement Cost) ★This is where fluctuations in market interest rates have an impact
3. Fixed Asset Tax, Automobile Tax, etc.
4. Damage Insurance Premium
5. Leasing Company's Commission (Profit)

Differences Between Existing Contracts and New Contracts

• New Contracts / Future Contracts: New lease contracts signed after an interest rate hike will have the higher interest rate applied, resulting in a higher monthly lease fee being set than before.
• Existing Contracts (Those already signed): General finance leases in Japan are almost always contracted at a "Fixed Interest Rate." Therefore, even if the market interest rate rises during the contract period, the monthly lease fee currently being paid will not increase midway.

5. Lease Fee Table (Calculated with a 2% Interest Rate)

This is a basic fee table assuming a property price of "10 Million Yen" and calculated with the current interest rate (2.0% annually, fixed, equal principal and interest method).

6. Logistics Equipment Case Studies: Calculation Table for Statutory Useful Life, Lease Period, and Fees

Prerequisites: Interest rate 2.0% annually (Fixed, equal principal and interest method). The amounts are pure financial calculations (estimates) relative to the property price excluding tax.