2011 Rental Outlook

Many forecasting companies are seeing signs of better days for the economy in general and for the construction industry in particular, which could be a big boost for equipment rental companies in 2011. This is the type of news the equipment rental industry has been waiting to hear for more than two years. That anticipation is further bolstered by the American Rental Association’s (ARA) outlook and forecast of at least a 6 percent increase in construction and industrial equipment rental revenue in 2011, nearly making up for a 6.1 percent decline in this segment’s rental revenue in 2010.

In the general tool segment, ARA also expects to see a modest recovery in 2011 with revenues increasing 1.3 percent. As part of its analyses for ARA, IHS Global Insight, Lexington, Mass., the respected economic forecasting firm that ARA and RENTAL MANAGEMENT magazine partners with to compile exclusive equipment rental industry-specific data and analyses, stated that equipment rental revenue is expected to show growth in the first quarter of 2011 with the growth rate accelerating in each successive quarter.

“These quarterly changes are driven by the expectation of increasing overall economic growth, as residential construction, nonresidential construction and economic profits are all expected to show their highest quarterly growth for the year in the fourth quarter of 2011,” the ARA report stated.

In today’s challenging economy, the reasons for contractors and construction companies to rent equipment vs. purchasing also are magnified. “What rental offers contractors and construction companies is a cost-effective alternative to owning equipment because equipment becomes a fixed cost without the accompanying overhead of ownership such as maintenance, repair and storage. The rental company handles and pays for the warranty, maintenance and upkeep of the equipment,” said Christine Wehrman, CEO of the American Rental Association, Moline, Ill.

Scott Hazelton, a senior partner with IHS Global Insight working closely with ARA, said significant improvement is expected for construction equipment rental in 2011 for a variety of reasons.

“The rationale is a function of uncertain market conditions that will make rental of equipment desirable. With the cost of new equipment in the tens or even hundreds of thousands of dollars, a contractor needs to be very sure of future demand for new equipment,” Hazelton said. “Very few have that confidence just now, so as they win projects, they opt to rent. This behavior will be most pronounced in the near-term. The severity of this recession forced many contractors to de-fleet and to age what fleet they kept. So, as they win new jobs, there may not be the equipment at hand to deploy, which will reinforce rental’s potential.”

“Some say credit is loosening, but it also remains difficult for many to obtain financing for equipment purchases,” Wehrman said. “If you find yourself in this position, renting offers access to a wide variety of equipment as needed for the job at hand.”

Already in the third and fourth quarters of 2010, several of the national equipment rental companies were reporting revenue increases, year-over-year, with expectations of continued improvement in 2011. For example, Michael Kneeland, CEO, United Rentals, Greenwich, Conn., said his company’s rental revenues were up 6 percent in the third quarter of 2010 compared to the same period in 2009, including same-store growth of 9.7 percent.

“It’s true, the cycle is turning, but it’s a slow turn,” Kneeland said in a conference call with analysts in late October. “I’m happy to say that our performance has outpaced the construction environment for two straight quarters now. These are all good indicators of how well positioned we are to leverage this recovery.”

Hertz Equipment Rental Corp. (HERC), Park Ridge, N.J., posted worldwide equipment rental revenues of $281.2 million for the third quarter of 2010, a 0.2 percent increase compared to the same period in 2009 and the first time HERC had generated revenue growth in two years.

“During the third quarter, we benefitted from a stabilizing environment, a favorable year-over-year comparison and a continued growth of the industrial market driving higher utilization,” said Mark Frissora, Hertz Corp. chairman and CEO, in a late October conference call with analysts. “Revenue turned positive in the third quarter driven by a 3.2 percent increase in volume year-over-year. The trend is definitely moving in the right direction. In fact, 2010 third quarter revenue was up 5.8 percent over the second quarter and, in September, we saw volume jump 5.4 percent year-over-year. Since then, October’s volumes nearly doubled to 10.5 percent as momentum in the industrial government and petrochemical markets continue.”

Daniel Kaplan, an industry consultant based in Morristown, N.J., and the former head of HERC, is even more bullish on 2011.

“From the metrics I look at — rental rate tracking, time utilization and movement from ownership to rental — and conversations with the larger national companies, 2011 can be better,” Kaplan said. “Third-quarter revenue for many rental companies is higher than the third quarter in the previous year and this is dependent on time utilization, which bodes well for 2011. I have a sense that 2011 will be better than projected because of the programs implemented by well-managed rental companies such as changes in fleet mix and better operational performance.

“The independents also will benefit from those moving from ownership of equipment to rental. Rental penetration could move up to 43 percent from 40 percent today because a lot of contractors will be renting,” he said.

Rental companies also are focused on customer service and helping customers find the right equipment to most efficiently complete a job rather than trying to make do with a different piece of equipment. Rental equipment also is well-maintained and inventory usually includes later models with the latest safety features.

Rental companies offer equipment experts who can become a trusted and valued partner to help you achieve your goals and efficiently complete projects with the right tools at the right time. The rental company’s trained professionals should be able to help you assess and secure the right equipment for the job at hand, as well as provide training on how to properly use the equipment.

For many, price is a prime consideration, but the lowest rate doesn’t always ensure the greatest value or least cost when renting equipment. Several other factors to consider include the availability of equipment, how close the rental store is to the jobsite and customer service.

To help contractors and construction companies find equipment rental stores, ARA offers www.RentalHQ.com, an online rental locator. Users can enter their zip code and the type of equipment needed to get a list of local ARA-member rental companies that can help meet their needs.

Wayne Walley is the editor of RENTAL MANAGEMENT magazine, based in Moline, Ill.

Rental Rational

Top 10 Reasons to Rent Construction Equipment in this Economy

1. Supplement basic equipment with specific rental equipment that extends your opportunity to compete for more jobs.
2. Fewer demands for equipment warranties, maintenance and upkeep on your end.
3. Eliminate warehouse or storage demands.
4. Have the right equipment to compete for the job successfully.
5. Equipment meets regulatory specifications for all types of construction jobs.
6. Less transportation expense on your part to move equipment.
7. Less equipment inventory for you to dispose of.
8. Eliminate equipment tax, license and registration issues.
9. Free up capital and personnel for other demands and a stronger balance sheet.
10. Offers a more cost-effective option.