Cabin Fever: How is the portable accommodation rental sector responding to the new business environment?
By Murray Pollok22 December 2009
Portable accommodation renters are not insulated from the general economic slowdown, but it is certainly the case that they tend to have a wider customer base than many equipment rental companies, serving as they do markets including education and manufacturing, often with semi-permanent buildings.
Commercial and residential construction accounts for just 17% of McGrath RentCorp's revenues - the company rents modular buildings over much of the US - which is one reason why its second quarter sales fell by a relatively modest 7% while its peers in the construction rentals business have been posting 30% falls or more.
The company's operating profits actually rose by 3% in the period, although that doesn't mean it hasn't been suffering. That increase was only possible because it reduced its material and labour costs at its branch network and made "significant" reductions to the size of its rental fleet.
Dennis Kakures, president and chief executive officer of McGrath RentCorp, says difficult market conditions - in particular a hold back on spending on temporary education facilities in its main Californian market - "continues to be reflected in lower rental rates and utilisation levels".
Likewise, Mobile Mini, which operates 265000 portable storage and mobile office units at 92 locations US, UK, Canada and The Netherlands, reported average utilisation falling to 59.5% in the second quarter compared to 64.6% in the first. The company, which has been busy integrating the Mobile Storage Group that it acquired in early 2008 (an acquisition that gave it a sizeable rental business in the UK), has also been busy cutting costs, making redundant around a third of its workforce, equivalent to over 740 people.
So how is the world's premier portable accommodation renter, Algeco Scotsman, dealing with the crisis? The company, which operates as Williams Scotsman in the US and Algeco in Europe, claims that its global footprint is allowing it to weather the economic downturn better than its rivals, although Gerry Holthaus, the company's chief executive officer, acknowledges that business conditions remain very difficult in markets including the UK, Spain and the US.
Speaking to IRN from company's head office in Baltimore, Mr Holthaus says they have the ability to switch fleet to areas where there is greater demand; "We've probably moved 10000 units of our 330000 unit fleet. That's only 3%, but it's still a lot of assets." Many of these units had been shifted from the US to Mexico, and in Europe from France to Italy and from France and Germany to countries in eastern Europe such as Poland and the Czech Republic.
Mr Holthaus says the company has seen overall fleet utilisation drop by five percentage points and that price competition was becoming fierce in some markets, particularly the UK, where it owns the Elliott Hire business.
"Competition in the UK has been very challenging", he says, "We're trying to do our best to compete - it's more price sensitive than I would like, and that has put a lot of pressure on rates, much more so than anywhere else."
He says Algeco Scotsman is committed to staying in the UK market, which represents around 10% of Algeco's European turnover; "We are trying to maintain price discipline - we believe that's the right long term strategy. You have to have the courage to stay the course, even when you find prices that are surprising."
"We have the resilience to withstand it", says Mr Holthaus.
Capital expenditure is being reduced by three quarters and the company has also reduced its fleet by around 5%, says Mr Holthaus; "We have right sized locations to recognise lower demand". A small number of locations have been closed, and staffing is around 15% down overall, he says.
If general levels of activity are lower, there are still pockets of activity, such as government and military projects, and he remains optimistic about the longer term opportunities in healthcare and education. Healthcare, education, oil and gas and military projects already account for around 40% of Algeco Scotsman's business.
Storage rentals remains a future target for the group - that's an area that Mobile Mini dominates and which McGrath RentCorp is now entering - but there will be no current big push since "that's an area that continues to be very affected by the downturn."
One of Algeco's largest European competitors is German renter ELA Container. IN contrast to Algeco Scotsman and other big renters, ELA claims to have escaped largely unscathed, so far. Günter Albers, who manages the business alongside fellow directors Tim Albers and Liesel Albers-Bentlage, tells IRN that although some parts of its German business have been affected, in general the global slowdown "passed our business nearly completely and left it mostly unaffected. We have constant orders and the economics stimulus package (from our federal government) is also good for our business."
The company says it has actually increased its fleet over the past year from 18000 to 20000 units and says that further expansion is on the cards. The company already rents cabins in Germany, The Netherlands, Poland, Lithuania and Hungary, but has plans to establish rental businesses in Dubai, Saudi Arabia and Russia "as soon as possible". The company will exhibit at the upcoming Big 5 show in Dubai.
Like other accommodation renters, ELA isn't over-reliant on construction, with customers in every line of business; "for example, industry, education (school, kindergarten, university), offices, building companies, hotels, hospitals."
The company continues to focus on its product range. Innovations here include a new data cable for videoconferencing and telephone systems and a new 'height compensating system' that Mr Albers says makes it easier and faster to level the units.
Also new is an extra large unit - the Premium-Unit - that measures 3 m wide by 6 m long. "Our customers are saving 25% with this unit (including transport costs)", says Mr Albers, "If you need 90 m2 you have to rent six of the normal units but only five of the premium versions." Sounds good - after all, it isn't just rental companies who are cutting costs.
One of the UK's largest portable accommodation rental companies, Wernick Hire, acquired Rollalong Hire in September. The acquisition of one of its largest competitors will boost Wernick's cabin fleet by 4000 units to 24000. The purchase price was not disclosed.
Rollalong was founded in 1968 and was acquired in June 2006 as part of a management buy out involving an £11 million investment backed by Barclays Ventures. The company's fleet of 4000 cabins and eight rental branches across England will now be integrated with Wernick's much larger rental operation comprising 20000 cabins and 30 depots throughout the UK.
Wernick's chief executive, David Wernick (pictured), said; "This major investment has further strengthened the trading position of our core business throughout Britain. We are looking forward to continuing a close working relationship with both our new and existing clients."
Wernick, which made a pre-tax profit of £7 million on total revenues of £60.6 million in 2008, is family-owned and run and was founded more than 70 years ago. Mr Wernick is the grandson of the founder.