Eastern Challenge: Cat dealers develop rental in Russia/CIS

Caterpillar dealers in Russia/CIS hope to be at the forefront of a fast developing rental market. Murray Pollok reports.

Russia and the CIS territory offers rich potential for rental, and it is a market opportunity that Caterpillar and its dealers well understand.

Sergey Minko, Caterpillar CIS sales director for global construction and infrastructure, speaking to IRN in late April, says infrastructure bottlenecks are starting to damage Russia’s economic growth; “The country can’t live off oil and gas forever, there must be investment in infrastructure.

“Quite a few projects are pending, and as soon as finance is ready, the construction business should be on line very fast”.

With that prospect, Caterpillar’s five main dealers in the Russian/CIS territory are expanding their rental operations.

Nicolas Guigon, rental and used manager for Caterpillar EAME (Europe, Africa and Middle East), says all five are committed to rental, although the pace will differ; “The intent is there. We think the opportunity is enormous, but we have difficulty quantifying it with any precision...We would hope to catch train. If we can grow at the same pace as the industry, then that would be fantastic”.

The five dealers are German-based Zeppelin (which represents Cat in north west Russia, including the important Moscow and St Petersburg markets), Wagner Asia (Mongolia, see box story), Mantrac Vostok (Urals and Volga Regions), Vostochnaya Technica (Eastern Russia, Siberia) and Borusan Makina (Azerbaijan, Georgia, Kazakhstan and Kirgizstan). Zeppelin also holds the Cat dealership for the Ukraine, but isn’t renting there as yet.

All are already offering rental to some degree, with Zeppelin and Wagner Asia both using the Cat Rental Store brand. Vostochnaya Technica operates a power division called VT Energo, which is active in rental, particularly in oil and gas and coal mining. Mantrac is also engaged in power rental, as well as having a small machinery rental fleet. The power business is focused on renting generators to the oil and gas sector in remote sites.

Each has its own strategy. Zeppelin, for example, is renting only Caterpillar equipment and all in the 15 t sizes or above, while Wagner Rents is offering Cat equipment alongside allied machines such as aerial platforms.

Nicolas Guigon says the speed of growth will depend on the dealers are able to manage risks, such as “bad debts, the government paying on time, customers paying on time, the distances to travel, product support. It’s not the same story as Europe.”

Much of the rental is still focused on heavier equipment and often with an operator. Zeppelin has been investing heavily in this area, adding 100 units to the fleet last year to bring it up to 300 machines, and it has plans for an additional 100 this year. Given that these are not small units, this represents a hefty investment.

The demand is growing not just because there is work to be done. Sergey Minko says that since the financial crisis contractors in the CIS have looked to rental rather than take the risk of adding equipment to their balance sheets. “Historically, customers in Russia liked to own. After the crisis, they don’t want to invest in heavy capital equipment.”

In addition, he says that while large contractors have big fleets, medium sized companies who want to expand are renting because of long lead times on new machines.

Mr Guigon says rental will be most attractive in the oil and gas sector, mining and for work in large cities. “We agree with RusRental [ the Russian research and training body] that there will probably be more non-operated rental in compact equipment [in the coming years], but in the medium term heavy rentals with operators has a pretty nice future.”

And of course, in Cat’s well-oiled formula, the rental fleets will in time help create a range of used equipment to sell on the market. “Caterpillar represents a decent share of used equipment in Russia/former CIS, but we want to play a much bigger role”, says Mr Guigon, “One way to do that is to produce used equipment locally.”

Meanwhile, the importance of the natural resources sector is clear when you consider the example of Mongolian dealer Wagner Asia Equipment, the subsidiary of Denver, Colorado based Wagner Equipment.

Wagner has been investing in its rental operation in Mongolia since 2005 and it is now getting close to a US$40 million operation.

Enkhdelger Enkhbold, director of rental at the company, tells IRN the business was born out a demand for equipment among new mining companies and contractors who didn’t have enough start-up capital.

Eight years on and the fleet now comprises a wide range of equipment, from allied equipment from nine OEM partners to 177 Caterpillar machines, up to the massive 777 mining trucks. Around half of its rentals are with operators (although not with the large mining trucks) and the rental division employs around 70 staff.

“We’ve had double-digit economic growth over the last few years, mainly because of the mining industry”, says Mr Enkhbold, “Over 90% of our exports are from mining, especially coal to China, and it is impacting a lot of other industries, including construction and infrastructure.”

As with Zeppelin in Russia, Wagner has not been afraid to invest, with 100 new Cat machines introduced to the fleet over the 2010-2011 period, including model 773 mining trucks.

A lot of the heavier equipment is rented for multi-year periods, which helps to offset the very quiet winters when much of the fleet is idle - most construction activity is undertaken between April and late November.

The company has four rental depots, including two in the southern Gobi area close to China, a new location in Ulan Bator and another in the North of the country. There is also a plan to open a site at a new industrial zone in central Mongolia; “We want to expand to the west and the east, there are many small mine sites and there is a lot of exploration work going on”, says Mr Enkhbold.

The challenges are many, cold being one of them (“Ulan Bator is the coldest capital city in the world”), but also the size of the country and the quality of the roads; “Sometimes we get a delivery up to 1600 km away from the branch location”, explains Mr Enkhbold, “The infrastructure is undeveloped; we have to go on unpaved roads.”

This can lead to equipment becoming damaged in transit, including in one case sizeable bill for damage to the main boom cylinder of a 125 ft Genie aerial platform. As Nicolas Guigon says, it’s not like Europe.