Industry experts expect the equipment rental industry to outperform the general economy.
Today’s economy magnifies the benefits of renting equipment, and many contractors have started exploring the rental option as the construction industry recovers.
A shift to renting equipment in North America has begun as some construction businesses see the advantages of the fixed cost of renting, which also covers maintenance, storage and delivery.
As a result, the equipment rental industry has outperformed the general economy and the industries it served in 2011, and this should happen again in 2012. Overall, IHS Global Insight, the economic forecasting firm based in Lexington, Mass., has projected total rental revenue in North America to grow by 5.2 percent in 2012 to reach nearly $30 billion, including three industry segments—construction and industrial, general tool, and party and event.
“In the long run, total rental revenue in North America is expected to continue its expansion, reaching $45.9 billion in 2015,” IHS Global Insight states in its November 2011 update to the ARA Rental Market Monitor, a subscription-only service provided by the American Rental Association (ARA) and Rental Management.
“During 2011 to 2015, total rental revenue is projected to grow 10.3 percent on a compound annual growth rate (CAGR) basis. Growth in the United States is projected to outpace Canada in the long run. U.S. total rental revenue is expected to expand at a CAGR of 10.9 percent from 2011 to 2015, compared to a 3.1 percent CAGR for Canada during the same period,” according to the North American rental market analysis from the ARA Rental Market Monitor.
In the short-term, however, some in the industry believe the equipment rental industry has the potential to outperform the general economy and go beyond IHS Global Insight’s current forecast.
Dan Kaplan, a rental expert and founder of Daniel Kaplan Associates, says he expects the equipment rental industry revenue growth in 2012 to outpace the forecast by IHS Global Insight because rental penetration has grown to as much as 45 percent this year and could be greater next year.
“Contractors are increasingly renting versus owning equipment. I think it’s a shift in the way they operate. They recognize that rental is more efficient for them than ownership,” Kaplan says. “The contractors are under financial pressure to perform and they are finding that they are more efficient by renting.”
Scott Hazelton, a senior partner with IHS Global Insight who has been following the fortunes of the equipment rental industry with ARA for several years now, agrees with Kaplan’s assessment that greater growth for rental revenue might be possible.
“The only way to grow faster than underlying industry conditions is to gain share from competing options. In the case of the rental industry, this means converting contractors, industrial facilities and other potential customers from owning their own fleet to renting equipment. Indeed, this is how the rental equipment industry has managed to grow in 2011, while the underlying marketplace has been soft,” Hazelton says.
“As new customers learn that a rented fleet saves them maintenance and repair costs, arrives at the jobsite on time, has great service, eliminates storage hassles and generally makes their life easier, then when the economy improves and they need to make a decision on adding equipment, they will decide to rent more rather than revert to buying their own fleet,” he says.
Positive Outlook for 2012
Christine Wehrman, ARA’s executive vice president and CEO, also sees the coming year as one that should benefit the equipment rental industry.
“There is a real opportunity for rental businesses in this industry to gain market share by aggressively selling the value of equipment rental at this point in the economic recovery,” Wehrman says.
Kaplan says major rental companies have grown their fleet with increases in excess of 11 percent in 2011 and will likely have fleet growth of another 5 to 10 percent in 2012.
“Fleet age of the major rental companies will be coming down, and customers prefer newer equipment, so I remain very optimistic for 2012,” Kaplan says.
According to the ARA Rental Market Monitor, growth in rental revenue for construction and industrial equipment should accelerate in 2012 and 2013 as the rebound in the construction market takes hold.
“The recovery in the construction markets will push up construction employment, which is forecast to start seeing some positive growth—0.4 percent on a year-on-year basis in 2013. As a result of the gradually active construction activities, overall rental revenue in the construction and industrial equipment segment is forecast to reach an annual growth rate of 18.9 percent in 2015, which equates to $29.4 billion of revenue in that particular segment that year, well above the segment’s 2007 revenue peak of $25.4 billion,” the ARA Rental Market Monitor states.
Rental Industry Improvements
To maintain momentum into 2012 and beyond, Kaplan says rental companies must improve the efficiency of their operations.
“For instance, companies should look at how much time it takes to deliver a piece of equipment, how much time it takes to pick up a piece of equipment when called off rent and how long to get it from the shop. If a company can improve on these operations, it effectively winds up with more available fleet, and more fleet equals more revenue. Many have improved their operations quite a bit. Now, they have to go from where they are to the next stage, and the bigger rental companies have programs to accomplish that,” he says.