Russian rental faces up to virus challenge
30 March 2020
The following article was written by the Russian Rental Association (HAACT), who have kindly given us permission to reprint it here. We pass on our sincere thanks and best wishes to the association and its members.
We have contacted the leaders of rental companies, conducted a survey and asked them to comment on the current situation. Opinions were divided, from quite positive to negative. It seems that the crisis has not yet fully impacted the activities of our rental company members.
Oleg Malakhovsky, the managing director of Rental Tech, was optimistic; “This situation has a beneficial effect on the work of our company, since right now it has become clear which non-efficient internal processes need to be optimised.
“There is an opportunity to look at the company from the outside and adapt to temporary difficulties.”
The flow of customers has so far remained within its forecasts, he added, and has not changed compared to last year. Some parts of the business have switched to remote working.
“The sales department is working more remotely, but they have to come to the office for documents. The main requirement is to have at least two staff at the office if there are calls, etc. Clients are also asking to cancel personal meetings.”
The CEO of Vertex, Dmitry Pankin, has a different opinion: “The situation is not straightforward. The difficulty is that we can’t estimate how long the crisis will last. Now we are paying special attention to receivables - many of our clients have decided that it is not necessary to pay for rental services.
“First, they have to find solutions to questions that, in their view, are more important. Therefore, I draw to the attention of other rental companies the fact that it is now especially important to control payment discipline. All the ‘good’ rental companies are now adding to their list of arbitration cases.”
In northern regions of Russia the construction season has not yet begun, so it is still difficult to assess the impact. In general, rental companies have not yet faced a reduction in orders or the closure of sites.
Pavel Piktorov, from Stratech rental company, said; “All projects are still working, and there are no reductions. The only problem is staff reassignments due to measures in connection with the coronavirus.”
There are already signs that some objects may be frozen because of uncertainties on exchange rates. In addition, a shortage of construction workers, including foreign specialists, is expected. The situation may worsen.
We recommend that rental companies prepare for such a development.
Dmitry Pankin at Vertex believes that many rental companies may close: “They can’t cope with the debt burden. There will be nothing to close cash gaps. It will also be difficult for those who previously ignored equipment repair costs, or who allowed customers to phase payments, and who engaged in price dumping.
“I am sure a lot of stolen spare parts will appear on the market…Now everything will come out. Let’s see who worked efficiently and who worked for show. My forecast is that the lift market will show an average annual volume of 50% compared to last year. We will be forced to lower the rental rates, which are in Rubles, while the cost of spare parts - in Euros - will increase.”
Yevgeny Gorev, of Gora rental company, said: “Due to the high volatility of the exchange rate and political tension in the country, short-term and medium-term expansion projects have become questionable.
“The exchange rate changes will undoubtedly impact on fleet investment plans and the purchase of new equipment.
But this could also bring advantages for rental companies, said Andrei Khvalev, head of rental company Orenprokat; “Prices for new machinery and equipment will rise due to the strength of the dollar, and as a result, rental will become important for equipment users.”
Ruslan Gorb, who leads Transbaza, the online rental service, also sees potential advantages; “Now is a great moment for the local digital revolution. A huge number of people are locked-down at home and the only way to communicate with the world is the Internet.
“Despite quarantine, they all continue to work and live their lives, albeit in a limited space. Most online businesses will actively use this opportunity to attract new customers and subscribers. I believe that our rental industry, despite the fact that it is not actively using digital technologies, will not be able to resist going online.
“Many new online resources may appear on the market, and those that already exist have a good opportunity to expand the range of their services and attract new customers.”
It is difficult to predict how the current situation will affect the rental market for construction equipment. European rental companies expect a 30-50% drop in the market in 2020. In Russia, the peak of the pandemic has not yet been passed, and in addition, what happens to the economy depends on the actions of government and the measures that are taken.
The week of March 30 has been declared as non-working, so a decline is possible in the near future, but we expect the market to grow by September. The situation will impact on those companies that have leasing and loan obligations, and delays in the supply of equipment are also expected.
The purchase price rises and, in such circumstances, it will not be possible to raise rental rates. Last year, a lot of rental equipment was acquired and at the end of the year it was placed on the market. That will lead to increased competition in this period, but not an increase in rental rates.
On the other hand, if new work does appear, that can play a positive role in the use of rental equipment. Rental companies will also face rising prices for parts and the prices of new Russian-built equipment will grow, as a large proportion of components are imported.
We hope that the peak of the pandemic will pass soon, and the Russian government will be able to minimize the impact. We wish you success and strength in overcoming the crisis!