Businesses close or stop serving their customers for many reasons, and they are not always associated with the actual running of the business. Mismanagement is probably not unusual, nor is underestimating the need for a particular business, be its market for clothing, haircuts, eating out, or construction equipment. If you look at the history of equipment rental companies, you’ll see a pattern that has followed the general needs for equipment. Look at 2007. There were almost 16,000 locations for rental companies, many offering construction equipment. In the following year there were fewer, but not many fewer. Then, in 2009, the number of locations dropped by more than a thousand. Closures continued. In 2014, the rental business looked upward a little and the number of locations returned almost to the 2009 figure. That’s encouraging, but what will happen in the next two years? The 2014 number is still a thousand short of that for 2007 before the bad times rolled. These numbers are for locations, so they are still valid and give us a good picture even when a large company takes over a smaller one.
Industry observers seem confident about the next few years and see an increase in the amount of equipment rented. One reason that keeps being mentioned is that the new regulations on emissions have made the prices of new equipment much higher, and that encourages owners and contractors to rent, at least initially. Another reason for confidence-and this could be decidedly regional rather than national-is the demand for heavy equipment where work for the oil and gas industry has grown. Another (not too pleasant) reason for not buying expensive new equipment is that the owners cannot find qualified employees to operate it. Let’s see what people involved directly in renting have to say.
There will always be people who believe that owning a piece of equipment outright is the only way to go, but today there is strengthening momentum in the opinion that renting equipment can be most practical (and economical) at times. It is probably the timing aspect of renting that is most important, but there are other aspects of renting equipment that should be considered-by contractors with both large and small operations.
“We are seeing that contractors, whether large or small, are increasingly renting all sizes of equipment or buying used from a national rental company that has rigorous maintenance standards such as ours,” comments Robert G. Cowing, division vice president of sales, Hertz Equipment Rental Corp. “Among the reasons that these solutions are attractive to contractors, we can mention four of great significance today.
“Number one: There are many advances in quality, technology, and innovation that address the increasingly stringent engine emissions regulations, with changes being made to many categories of equipment, depending on an engine’s horsepower (from tier 3 to tier 4 or tier 4 final). As a result, contractors are facing a materially higher investment-anywhere from 5% to 50%-depending on how significant the engine is relative to the total machine. That can make rental an attractive proposition.
“Number two: Engine technology has become more complicated, requiring additional maintenance and operational training.
“Number three: As part of the still uncertain economy, there is much more risk on the residual value as the resale market for the equipment is unknown at this point.
“Number four: With this uncertain economy, many contractors are looking at their business in much more detail, and turning to rental solutions to move fixed costs to variable, as well as to expand the scope and size of projects that they can take on by leveraging rental houses. All sizes of contractor, whether local or handling projects at multiple geographic areas, are seeing the benefit of dealing with equipment rental providers like Hertz Equipment Rental,” observes Cowing.
“We have a comprehensive line of equipment across hundreds of categories. We can also provide dedicated levels of account management and customized rental programs for all sizes of operation. The fact that many larger companies now require single source vendors not only for equipment rental, but also for management of their total equipment needs, fits well with the core competencies of Hertz Equipment Rental Company. Arrangements with such companies may include maintenance of the tools and equipment they own, supplies and rental tools for their labor force, and custom management reports.”
Local and Regional Renting
Not all reliable rental companies are national. It would be wrong to undervalue a smaller, local company if it has the equipment you need, in good shape and at a good price. There are many regional rental companies. Miller-Bradford & Risberg, for example, is headquartered in Sussex, WI, and has five locations in Wisconsin, one in Michigan, and another in Illinois. The company is an authorized CASE Construction and Kobelco equipment dealer. Will they see good rental business for heavy equipment? “I see heavy equipment being rented in larger quantities as our customers continue to refleet and update their fleets after working through the tough conditions of 2008 to 2012,” observes Dan Soley, executive vice president, sales and marketing, at Miller-Bradford & Risberg. “Many of them have projects they are building and have equipment needs. However, some of them are cautious about acquisitions and are also using rental as an evaluation tool to become comfortable in the Tier IV compliant products that they may be operating for the first time now.”
Soley went on to say that operators, both large and small, should find opportunities for basic construction equipment when they rent new products available in the marketplace today. “The latest machines offer enhanced productivity, better fuel economy, and embedded telematics which, when combined, will offer our customers the ability to move more material, build more roads, or install more utilities more effectively than ever before,” says Soley. “The types of equipment rented and sold outright will be very similar to what has been done during previous economic cycles. Very active rental items from CASE are excavators of all sizes, compact track loaders, dozers, and medium-size wheel loaders. Kobelco Short Radius machines and large excavators are also very active in rental. I don’t see that mix changing in 2015.”
Another regional company is Southeastern Equipment Co., Inc., headquartered in Cambridge, OH. Heath Watton is the regional manager for SE Ohio. “We are in an oil boom in eastern Ohio,” comments Watton. “That has helped boost the local rental market.” That’s a comment shared by other equipment suppliers in other parts of the country where one sector of industry (often the oil and gas sector) has shown recent strength. Local conditions can help enormously to give momentum to your business. “Heavy equipment is going to increase because of new technologies,” adds Watton. “The customers may be unsure of Tier 4 products, unsure of the stability of the market, and wary of the prices of new equipment that are going through the roof. It’s difficult to justify buying a new piece of equipment when you can rent it and try it out. Renting enables the customer to see the equipment in use and see how its production is before buying.”
Basic construction equipment will be in demand for renting. “I think customers will continue to rent our Kobelco and CASE excavators, hand over fist,” notes Watton in a positive look ahead. “Excavators are large moneymakers for a contractor and end user because they are so productive. I think we may see a decline in backhoe sales because of excavators. It will continue to trend that way because contractors are finding more use for the hydraulic excavator. I think you will see more track skid steers being used as much or more than rubber tire skid steers. A CASE compact track loader will be used and purchased as much as it will be rented. Regionally, there will be a strong rental market for wheel loaders; some of that is because of the snow removal we have. We use rental fleet to sell as retail. About 60% of sales originate from rental, so our rental fleet is well maintained because it’s possible the next person that rents it, may buy it.”
Responsibilities and Available Items
We’ve all heard jokes about how people have treated rental cars; most of them are not jokes. Renting construction equipment involves two parties-both businesses. The renter does not abuse the rented equipment, and there are important paragraphs in rental agreements that discuss that. During the rental period, the customer assumes all risks that are associated with the rented equipment; that includes damage and injury to persons and property. Most rental companies will make it an understandable part of the agreement that only trained personnel will be allowed to operate the equipment. If the renter has questions about the operation and/or performance of the equipment, the rental company should be contacted immediately. Rental equipment is almost always well maintained by the renting company and the customer is expected to keep the equipment in good condition. That could mean using the right fuel, checking oil and fluid levels, keeping the correct tire pressure, and regular greasing where appropriate and in accordance with the maintenance manual for the machine. All repairs will be performed by the renting company and it will use the correct parts, including such items as the filters and oil.
An aspect of any rental agreement that merits close attention is insurance. Here are some points I found; your rental company may have different numbers and details. The customer should have:
- General liability insurance of at least $1 million dollars for personal injury per occurrence and $500,000 for property damage
- Physical damage insurance that covers loss and/or damage to the rented equipment, in an amount equal to replacement cost
- Workers’ compensation insurance as required by law
Other aspects of many contracts include provisions that relate to the use of the equipment while it is being rented. Where will it be? If the rented equipment is moved, lost, or stolen, or if any defects are noticed by the customer, the rental company will be notified at once. The rented equipment should be used by qualified personnel and it should not be assigned to any other company or person. All the clauses in rental agreements mean that the customer assumes, during the rental period, all risks associated with its possession and operation. Rental agreements can be lengthy and complicated, but the customer must read, understand, and agree with the conditions.
This would be a good place to remind ourselves that loaders, skid steers, excavators, and dozers are not the only construction items that can be rented. One of the leading rental companies worldwide is Mabey, and they rent mostly products for shoring, propping, bridge, and temporary roadways. One service that Mabey offers that attracted my attention again is engineering support. It can be invaluable to a contractor who finds that part of the project involves techniques and equipment with which he is unfamiliar, such as temporary bridges and structural shoring. How does business look for this company in the next couple of years? “We do expect to see a continued uptick in the market for heavy rental equipment, including engineered products supporting construction services for excavations, temporary roadways, bridges, and building renovation support,” observes Julia Delligatti of Mabey’s marketing and communications. “With current conditions, we are expecting to see market growth of more than 10% over the next several years.”
The “Company” Rental Store
Some manufacturers have their own named rental stores. The best example is probably Caterpillar. What potential customers must understand is that such stores do not rent only products from the named brand. Cat does not rent only Cat products, because you can rent concrete equipment, roadwork equipment, material handling equipment, power generation and compaction equipment, aerial and air equipment, pump equipment, peripheral equipment-all kinds of construction equipment that Cat does not manufacture, as well as the obvious selection of Cat equipment. “Rental penetration continues to increase since the great recession, as many contractors continue to choose to rent versus buy,” notes Jason Gold, Rental and Used Equipment operations manager for Cat. “We are at an advantage as an organization and dealer network as we are positioned with our business model to be able to serve both the contractor that desires to own as well as the contractor that would prefer to rent.”
Gold adds that the Cat dealer rental network coupled with the company’s parts and service capabilities serve as a competitive differentiator when it comes to overall customer experience. “The desire of the contractor to transfer risk as well as the improvements in the overall rental customer experience will continue to drive the rental industry for some time to come.”
National, But Also Local, Companies
Perhaps the best known rental company is United Rentals, whose growth and stability have been so good even in worrisome times. They have more than 880 stores in North America. There is great confidence there, too. “We agree with the majority of industry forecasts that show equipment rental in North America in the early stage of a multiyear recovery,” comments Michael Kneeland, CEO of United Rentals Inc. “In our reported third-quarter financial results for last year every one of our regions delivered year-over-year rental revenue growth in the quarter, excluding the impact of foreign exchange. Half of our regions showed double-digit growth.
“Looking at the US and Canada as a whole, I would characterize our construction and industrial end markets as trending upward, with fluctuations in local and regional markets,” adds Kneeland. “The underlying fundamentals of the recovery look solid. This coincides with what we are hearing from our customers-they’re optimistic. It’s good to know they’re seeing the same momentum we do: upward trends in 2014, and an even stronger 2015. From a demand standpoint, our branches are reporting a healthy mix of projects across our footprint. These include renewables such as wind and solar farms, hospitals, sports arenas, office construction, and pharmaceutical and chemical plants. We are also supplying equipment to a number of plant modernizations now that the macroeconomic conditions are improving.”
It’s always interesting to know what types of equipment are favorites for renting, especially as some people still say things like “Oh, you couldn’t rent that!” about particular machines. “Our fleet is delivering very favorable utilization rates across a wide range of categories,” explains Kneeland of United Rentals. “We track a metric called Average Daily OEC [original equipment cost] On Rent and, to give a few recent examples, loaders and excavators showed solid year-over-year growth. Mini-excavators generated double digit growth. Boom lifts were up, and reach forklifts were another double digit category. Results like these reflect a healthy marketplace, as well as our investment in buying fleet that we believe can sustain demand. We saw high demand for telehandlers throughout 2014, with strong upwards trends in both time and dollar utilization. We rent them to a range of vertical markets, including oil and gas, shale, and nonresidential construction. Both large and compact models have been in high demand; our customers ask for the large 10K/12K/15K models when they need major lifting capacity and more reach. The telehandler market has really blossomed. These machines proved their value in versatility and safety at a time when the construction industry was under extreme financial stress. Looking forward, we don’t see any slowdown in demand.”
The expected growth in rental contracts in the coming few years means some strong investment by rental companies. United Rentals bought over $1.5 billion of fleet in 2014, a major endorsement of the company’s faith in market growth. “We invested in all kinds of equipment, including large machines,” asserts Kneeland. “Last October, we announced a major telematics initiative that underscores our emphasis on this equipment. We currently have GPS technology on about 6,000 machines, mostly generators and select big equipment. We plan to extend telematics to well over 100,000 additional fleet units by the end of 2015. These will be machines with diesel engines and other types of powered equipment where telematics can potentially increase utilization. We’re the industry’s biggest advocate for technology, and this initiative is right in line with our focus in innovation. We expect to see benefits in the areas of preventative maintenance, employee productivity, and reduced downtime.”
The rental of construction equipment is probably the closest contract between provider and user. Timing can determine when renting is best for the user and the trust between the agreeing parties is essential. The user expects the equipment to be perfect for the job and the renting company prospers when it is. This sector of the construction world is showing signs of steady improvement over the next few years. It will not start as anything dramatic, but it has started already and the signs show that the good momentum will continue. That is good news for contractors and those who rent to them.
