Dead slow: Murray Pollok reports on how the aerial platform rental sector is coping with recession.
By Murray Pollok28 September 2010
Murray Pollok talks to access equipment manufacturers and rental companies about the prospects for the access rental sector in the coming 12 months.
If 2009 was a difficult year for the powered access rental sector in North America and Europe, then 2010 has hardly started in a way that inspires confidence.
De-fleeting continues in some fleets in the US - IRN understands, for example, that one midsize player in the north east is reducing its access fleet from 2800 to 1800 units - and in some European countries there are continued signs of distress, with volumes still low and continued pressure on pricing.
David Shipman, chairman of the UK's AFI-Uplifts rental company, made some very gloomy remarks at the recent IPAF Summit in London at the end of March; "I think activity will not recover any time soon. I think pressure on hire rates will intensify, and I think revenues will continue to fall, albeit at a slower rate. It all adds up to a period of prolonged stagnation, if we do nothing." His own suggestion is for the industry to work together to promote the safety message - see box story for details.
The equipment manufacturers are well placed to comment on prospects for 2010 since they are in constant touch with their customers. For example, Wayne Lawson, vice president of marketing and sales at JLG Industries, tells IRN that the recovery will be multi-paced; "some markets (particularly those benefitting from recovery in mineral resources and prices, such as oil, steel, copper) are already rebounding - those areas which are more effected by the banking crisis (eg. central and eastern Europe) will take another 12-24 months to see a modest recovery."
Mr Lawson says that traditionally more stable markets, such as Germany, have been far less impacted than overheated areas such as Spain and Ireland. He thinks that the initial recessionary phase of de-fleeting, focus on cash flow, lower utilisation and debt rescheduling is now reaching its conclusion in less impacted markets but will continue throughout 2010 in depressed markets; "In some markets phase two - right mix (improve fleet utilisation, exchanging less demanded product for higher utilised models) - is now underway."
He thinks it will be well into 2011 before the market evolves into the third phase of fleet renewal and recovering average age targets; "Momentum and markets leading recovery are expected to enter phase four - fleet growth - around 2012, as health and safety legislation and productivity drives demand."
JLG itself has reacted to the crisis by doing its own kind of ‘de-fleeting'. JLG president Craig Paylor, speaking to IRN at the Rental Show in Orlando in February, says the company had shipped a large number of machines out of Western Europe to avoid ‘dumping' equipment in a depressed market.
He said the machines - thought to be as many as 1500 units - had been returned to North America or sold to other markets including the Middle East and Asia. "I see no point in dumping them", says Mr Paylor, "it devalues everybody's fleet."
Linda Mayer, global vice president marketing and product management at Terex AWP, agrees that some de-fleeting will continue in 2010, "although less than in 2009. The rental companies will need to continue to right size their fleets until the demand picks up sufficiently to raise utilization and rental rates."
Ms Mayer says the fact that many companies have aged their equipment for two years they will soon have to invest in newer equipment; "The de-fleeting of the oldest products first has helped them by reducing the average fleet age. Market demand more than fleet age will be the driver for increased CapEx spending. However, the need to freshen the fleet will drive a greater demand for new equipment once the utilisation rates are back up."
Thibault Mouillefarine, group marketing and customer services director at Haulotte Group, argues that the de-fleeting process is now completed and says the second half of this year will herald some deals and growth figures appearing "in most markets. [The first half of] 2011 should be the answer for a significant upturn."
Other, more niche manufacturers have slightly different views on the market, since they are less dependent on the ‘bread and butter' scissors and boom markets. For example, Jan Denks, sales manager at Bronto Skylift, points out that while Spain has an oversupply of standard construction lifts "the wind-power driven demand for big truck mounts on the other hand remains strong."
He also thinks that the de-fleeting process in the worst affected markets has been slowed down considerably by "lenders not willing or able to pull the plug on effectively insolvent businesses."
As far as reinvestment in fleets is concerned, Mr Denks thinks the current ageing of fleets is not a special situation but rather a "return to normal, and that the pre-bubble business model of big rental companies needs reconsidering."
He says that the model of growing fleets quickly with long payment terms underwritten by the manufacturers is not sustainable; "Fleet life extension and reduction comes in tides and undoubtedly we will see another wave of investment when fleets have degenerated to a level where investment cannot be postponed further."
He thinks that there will be less cheap money around in future to enable the industry to repeat the mistake of over-investment; "My guess is that we will have several years with slow growth to come. Maybe this is an opportunity for the manufacturers to shift their emphasis from manufacturing to becoming a service company, effectively managing the aging fleets on behalf of the rental companies?"
This issue of "smart growth" is echoed by Corrado Conti, sales manager at Iteco, the aerial platform division of Imer International in Italy; "We all should plan a more smart growth and avoid behaviour that is too rash. That's the real problem".
This issue of getting back to a more stable model of operation - with less of a rush to invest when markets are strong - is one that you often hear during recessions. This time, however, the slowdown has been so pronounced that there is more of a likelihood that renters and manufacturers will try to find a better balance.
Some senior figures in the industry are already making noises about the best operating models for rental companies.
JLG's Craig Paylor - who has seen several access industry recessions in his time - believes that there is a lot to be said for the old rental model of keeping equipment for a longer time and benefiting economically when the machine is fully depreciated towards the final years of its economic life.
In support of such a model, he favours some kind of registration and service history system for large equipment to help rental companies and fleet owners keep machines for longer and extract their full economic value.
Mr Paylor, who is also vice president, construction at AEM (the US Association of Equipment Manufacturers), says a system to properly track equipment maintenance through the life of a machine would improve residual values and make it easier for rental companies to exploit the full lifecycle of the machine.
"The larger the equipment gets you get more of a consensus. Manufacturers quickly see the reason to do it", said Mr Paylor. He adds that there would be environmental benefits as well; "I can't imagine anything ‘greener' than eliminating waste."
JLG is also developing services that support such a model. It has long been refurbishing equipment for customers and is now launching its ClearSky telematics system for aerial platforms, which will allow owners and rental companies to track the use of equipment as well as remotely diagnose problems.
Terex AWP, meanwhile, sees servicing and refurbishment as a growing area and continues to invest in infrastructure. The company now has 16 service centres in the US and 200 Terex AWP field and service technicians able to service aerials, cranes, telehandlers, utility equipment and other equipment.
Equipment refurbishment activities are so far focused on the North American market. "In Europe it hasn't really materialised", says Tim Ford, president of Terex AWP, "We have not had as much success as we would have hoped. In the US, customers seem to be more willing to look at a variety of options for ownership. Fewer in Europe are willing to look at fleet management in a different way."
Some rental companies in Europe are interested in refurbishment, however. In France, Acces Industrie famously (or infamously) had a policy of keeping its machines for 10 years or more and refurbishing them after five or six years. In theory, this allowed them to charge lower rates - although in the previous recession it made them extremely unpopular with competitors and the policy ultimately almost led to its bankruptcy when it faced difficulties in keeping up payments on its fleet.
"We lacked a strong finance structure and relied too much on the manufacturers," says Daniel Duclos, company chairman, interviewed recently by our sister magazine Access International, "Nor did we have enough equity. Now we have one syndicated loan of €100 million, good assets and shareholders."
Mr Duclos is well aware that his model and lower pricing has not made him popular, but he says that in the past, prices were too high; "15 years ago a small electric scissor might rent for €150/day. This is not a good price for a customer so he will stay with a ladder. Today that same lift will rent at €30/day which is a good price with a sensible profit attached."
The policy of keeping machines for a long life - 10 years typically- remains today; "If you have a machine that cost you €50000 seven years ago, we can spent €6000 remanufacturing the machine to keep in the fleet another four years, or €60000 on a new machine. Some of our machines are 12 years old"
Remanufacturing carried out by a manufacturer will give you a machine that looks pristine but it can cost up to 60% of the cost of a new machine, says Mr Duclos.
Acces Industrie - which now has around 6000 units located at 40 depots (30 in France, six in Spain, two in Portugal and one in Morocco) - is not currently de-fleeting; "We refurbish about 30 to 35 machines a month - as we need to," says Mr Duclos. "We stopped investing in new machines in mid-2008".
It was not alone in doing that. It remains to be seen if other access rental companies will borrow the Acces Industrie model: perhaps now is the time to give it some consideration.
‘Act now to
David Shipman, chairman of AFI-Uplift, one of the UK's largest access rental companies, said the powered access industry needed to do much more to promote the safety benefits of powered access and pledged £25000 towards a national promotional campaign if other UK companies contributed £75000.
Speaking at the recent IPAF Summit in London, Mr Shipman said the industry needed to get work together to promote the industry in the face of a crisis that has seen demand dropping by 15-25% from the peak in 2008; rates falling by 10-20%; and little prospect of a rapid improvement.
"I think activity will not recover any time soon. I think pressure on hire rates will intensify, and I think revenues will continue to fall, albeit at a slower rate", said Mr Shipman. "It all adds up to a period of prolonged stagnation, if we do nothing."
In an impassioned speech, Mr Shipman said the way forward was for the industry to become more professional and to promote the safety benefits of access equipment. "Good safety is good business. This presents us with an opportunity...we need to grasp this point and promote this aspect with one voice, the IPAF voice."
Mr Shipment suggested four key points of a common approach to promoting the market: a greater emphasis on operator training, including training of managers; a similar focus on familiarisation; greater standardisation of products (operator controls, emergency decent controls, etc); and promotional efforts to increase the size of the powered access market.
"We need to become more professional...My concern is not our company's share of the pie, it's the size of the pie. We can only increase the size of the pie by working closer together."
He said that IPAF needed to take the lead in a promotional effort, and said his own company, AFI-Uplift would donate £25000 to a national promotional campaign if other IPAF members contributed another £75000.
"There aren't many industries that have our story to tell", concluded Mr Shipman, "IPAF needs to take the lead - we've got to make everything happen a lot quicker."