Changing rental: IRN reports from ERA's Oslo Convention

By Murray Pollok26 July 2012

ERA president Gérard Déprez speaking at the Oslo convention.

ERA president Gérard Déprez speaking at the Oslo convention.

IRN's Murray Pollok reports from the seventh European Rental Convention held in Oslo, Norway on 15-16 May and attended by more than 230 delegates.

The seventh ERA convention again lived up to its billing as the ‘rental Davos', providing the more than 230 delegates with a wide range of presentations and debates.

As ERA president Gerard Deprez said in his speech the general assembly, the Convention is one of the key achievements of the association. "I believe that participating for one day at ERA's convention is worth more than spending a day with a company consultant, and for a small cost...Please, spread the word."

The economic backdrop to the event was not entirely positive, of course, with Eurozone debt problems in the minds of many of the delegates. It was no surprise that Marianne Chalcraft, chair of the ERA's statistics committee, used her address to reveal that the ERA has downgraded its rental market growth projections for this year and next (see story on this page).

As we report also on this page, Mr Deprez said that the current conditions required rental companies to respond positively and develop strategies.

There isn't the space here to report on all the seminars and workshops - you can download the presentations at the ERA website (www.erarental.org). We do hope, however, that this report provides a flavour of the convention.

To really benefit you need to be there, so make a note in your diary for next year's convention in Paris on 15-16 May.

‘Now is time to have a strategy'

European rental companies need to develop meaningful strategies in the face of the ongoing Eurozone crisis, said Gérard Déprez, president of the European Rental Association (ERA).

"The challenge calls, even more than ever, for the necessity to implement a genuine strategy", said Mr Déprez, speaking at the ERA convention in Oslo. "If it seems obvious to implement a strategy in a predictable environment, [the time for] strategy comes when forecasts are no longer possible."

Mr Déprez, also CEO of Loxam, said the Eurozone crisis was hitting rental companies in two areas, with government austerity measures reducing construction activity and the lack of finance placing severe constraints on rental operations.

The crisis of liquidity and sovereign debt meant that governments faced with recession "do not have any longer the financial means to lead a Keynesian stimulus policy - policy which is generally favourable to the construction industry and therefore indirectly to our own trade."

This has led Europe's rental sector to drop behind those of North America and Japan in terms of growth. The ERA downgraded its growth estimates for Europe during the convention.

In addition, Mr Déprez said new banking regulations would have a major impact on the debt and financing of rental companies; "Today, European companies are dependent for 70% of their financing on the banking sector, while in the USA, bank financing merely stands for 30%.

"It is clear now that this severe crisis will profoundly alter banks' behaviours, and most certainly European rental operators' borrowing capacity. Eventually their expansion will be hindered."

Mr Déprez said the current climate called for a more cautious approach by rental companies, "each aiming at saving foremost its own business: ‘once bitten, twice shy' as the saying goes."

However, he noted that the rental industry was showing some resilience in the face of the crisis; "All studies confirm a growth of rental penetration even during cycle lows. Global insight's forecasts anticipate a growth of rental in Europe for the forthcoming years. It is a good omen for the whole sector"


ERA downgrades growth forecasts

The European Rental Association (ERA) has revised downwards its growth forecasts for Europe's equipment rental industry in the face of continued economic uncertainty in the Eurozone area.

Last November the association forecast European rental growth of 4.0% for 2012 followed by 3.8% in 2013, but it now thinks that growth this year will be much more modest at 1.5%, with 2013 downgraded to 3.5%.

The updated figures were presented in Oslo by Marianne Chalcraft of Lavendon Group, who is chair of the ERA's statistics committee.

Ms Chalcraft said the ERA and its consultants, IHS Global Insight, had downgraded the 2012 estimates for 11 of the 12 countries for which it calculates figures, with only Germany's forecast being increased.

The German growth forecast for 2012 has increased from 5.1% to 5.8%. The forecast for France has fallen from 3.7% to 1.3%; in the UK from 4.6% to 2.9%; in Italy from 1.1% to -4.0% and in the Netherlands from 5.8% to 1.3%.

The association is also forecasting an even worse year for Spain, with the rental sector contracting by 14.9%, which compares to the 8.7% estimate given in November last year.

Ms Chalcraft said the next report, due in October, would include a detailed study on the Swedish market - trying to reconcile the differences between ERA estimates and those of the Swedish Rental Association. In addition, Russia will be included in the study for the first time.


‘Outsourcing isn't the answer'

Kurt Opseth didn't let his audience of rental managers deter him from claiming that contractors would be better off developing their internal equipment divisions than outsourcing their requirements to rental companies.

Mr Opseth is well qualified to hold his opinion, since he ran the Bautas rental company in Norway for eight years before it was sold to Ramirent. For the past six and a half years he has been a senior executive at the Backe Group, a major contractor in Norway which has its own internal rental company.

He argued that contractors used rental services not so much to save costs, but to obtain technical solutions to problems. For contractors, financial gains were primarily related to good project planning and cooperative working on site, rather than by making efficiencies in how they managed their equipment fleets. "Rental is important, but other issues are more important", he said.

Of the two options open to contractors - outsourcing or professionalising their own equipment divisions - his view is that outsourcing may not be the best answer; "When the rental agreement has a three or five year lifespan, if you are unlucky, the agreement ends at the start of an up cycle. Then you are in a bad position to renegotiate.

"The problem for contractors is that you are taking a risk that you can't control. You don't know how the market will be in five years."

Mr Opseth said rental should be viewed as a partner providing solutions to a contractor and not as a renter of machines; "Rental is not primarily a financial operation in my view. I don't like the word rent, because it doesn't reflect why we do business with rental companies.

"It's seen as an alternative between buying or leasing a machine, but that's not the case. I have much higher expectations of our relationship with a rental company than I do of a bank or a leasing company."


Logistics and rental

In the rental innovations session, Ashley Bates, supply chain manager at HSS Hire, explained how the company had transformed efficiencies and customer service by creating a completely new logistics operation.

Instead of the 123 transport locations and 41 workshops of the past, the business now has one national distribution centre supported by eight regional and 24 local distribution centres. The national centre works overnight to distribute fleet to where it is needed and the regional centres operate 24 hours a day to ensure that the entire fleet is accessible anywhere in the UK within 24 hours.

Consolidated workshops have improved availability of equipment, with a 50% reduction in the amount of the fleet unavailable for rent.

"We still have just over 200 ‘selling' branches", said Mr Bates, "But the staff in these stores are now focused on the customer. Previously they were tied up with operational issues and running transport."


Speedy's Green agenda

Speedy Hire's group marketing director, Steve McIntyre, another speaker in the rental innovations seminar, explained that the company's One Plan initiative set a target that by 2020 the entire fleet would comprise ‘green' or sustainable products. It is already sourcing such products from suppliers where these are available.

"We do want to accelerate the 2020 target because we have seen the benefits [in terms of return on investment]", said Mr McIntyre.

He said many of Speedy's customers in the UK were looking for products that lower their energy consumption and CO2 emissions. He gave the example of the latest lighting towers - citing the Italian-made TowerLight units - where even a doubling of the rental rate for more efficient tower would give customers significantly lower fuel costs.

Speedy can also help its customers lower their carbon footprint; "We can provide customers with quantifiable carbon reduction benefits", said Mr McIntyre, "which is becoming more and more important in the UK."


Russian rental

Valeriy Klimenko, president of the new Russian Rental Association and business development director for Ramirent in Russia, told delegates that the fast growing rental market in the country has around 1000 rental companies of which around 15 have annual revenues of more than €15 million.

Around 50% of all revenues are generated in Russia's North and Central Regions, which covers the major markets of St Petersburg and Moscow. He said Russia's rental market did not suffer too much during the financial crisis and in 2012 the market will be back to pre-crisis levels of both pricing and volumes.

Mr Klimenko said the third Russian rental conference will take place in Sochi this coming October.


Paris 2013

The 2013 ERA Convention will be held in Paris on 15 and 16 May, and it will be a significant one for several reasons.

First, it will bring to a close Gerard Deprez presidency - the Paris convention is where his successor will be voted in. A new ERA board will be appointed at the same time.

In addition, a survey of members is being prepared for the start of 2013. The results of that survey will be made public at the convention, and will help steer the association's direction in the coming years.

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