Are you watching your rental rates?

By Søren Jansen26 February 2008

Each quarter we read about the continued growth in earnings from almost all equipment manufacturers world wide, including the crane manufacturers – a well-earned congratulation to all! These magnificent results reflect strong business in the equipment rental industry.

So far so good.

Unfortunately, there always seems to be an “aber dabei” * even during the most happy of times. In a couple of years from now our depreciations on equipment will have increased significantly, reflecting the now very expensive cranes we are buying. Our rental rates must from day one reflect these significant price increases. Most of us in the crane rental industry have very high utilisation right now and a too-low rental rate is overshadowed by high utilisation.

The strong earnings reported from most rental houses could very well be based on very high utilisation and not on increased rental rates. If this is correct it beats all logic. Rental companies must be able to increase rental rates at times like this. If they fail to do this they will all wake up with significant hangovers once the current boom in utilisation is replaced with more normal times.

We all know this will come, the question is only when.

Today we are paying a lot more for cranes and other construction equipment than we did a year ago. We are seeing almost unreal price increases from most equipment manufacturers. Many reasons are given for this. We are, for example, hearing about a shortage of raw materials, shortages in supplies from the sub-suppliers, all of which result in price increases. Not too many manufacturers are mentioning (a shortage in) supply and (a increase in) demand as a simple reason for price increases.

These and another price increases are adding up and are reflected in the prices we pay today for equipment.

“We cannot afford to be satisfied with good earnings based on this all-time-high utilisation.”

Unsurprisingly, these price increases are discussed among equipment owners at various gatherings and industry events where, all too often, I hear the comment: “We cannot pass these price increases on to our customers.” This is incorrect. We cannot afford to be satisfied with good earnings based on this all-time-high utilisation. We know that our business will go back to “normal” and, once this happens, it is too late to start increasing prices in an attempt to compensate for a decrease in utilisation.

Our customers need us as much as we need them. Only by running profitable businesses in good times as well as in bad times will we all survive. It is not greedy to pass on price increases, rather, it is common sense.

Now could be a very good time to look at rental prices. Our business is also governed by supply and demand.

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