By Murray Pollok11 November 2010
There is little doubt that 2009 will be remembered has a terrible year by many in the worldwide rental industry. Rental revenues fell by around -20% in North America and by just over -17% in Europe.
And the recovery is expected to be slow. According to the European Rental Association's annual rental study, after the -17.2% fall last year there will be a drop of up to -5% this year, although in Spain that could be as high as a -20% fall.
This finding is supported by the results of the latest IRN-100 survey of the top 100 equipment rental companies in the world carried out by International Rental News (IRN) magazine. Revenues at the top 100 fell by an average of -15% in 2009, with revenues at the top 10 companies falling by over -20%.
The results spell out the severity of the downturn that hit the European and North American rental markets in 2009. The IRN-100 survey also reveals the extent to which companies cut back on capital expenditure last year, with gross spending on fleet by the top 100 companies falling -70% to an estimated € 1,68 billion.
Gérard Déprez, chief executive officer of French-based rental company Loxam and president of the European Rental Association (ERA), speaking at the association's annual convention in Prague at the end of May 2010, described 2009 as an "annus horribilis" for the rental business.
"Never has our industry encountered such a severe activity drop, for some countries down -40%. No one was spared. We are all refugees who suffered more or less from the storm. Those who suffered less should consider themselves lucky."
He said rental companies needed to learn some lessons from the past 18 month, with companies having to come to terms with the fact that even well run companies cannot be insulated from external shocks, that diversification is no longer the complete answer when a crisis hits all sectors simultaneously and that the importance of cash cannot be underestimated.
"Finally", he concluded, "despite the fact that our business operates over long cycles, we also have to learn how to deal with very short-term cycles. I fear that our industry, which is accustomed to long phases of growth, will have to address a greater volatility of its activity and profits."
With Western European markets in the doldrums it is no coincidence that rental companies have been looking for opportunities in new rental markets. GAM of Spain was one of the most aggressive, opening businesses in Brazil, Mexico, Panama as well as in the Middle East.
Until recently, eastern Europe was seen as the fastest growing area for rental. That changed with the global financial crisis. Magnus Rosén, chief executive officer of Ramirent - one of the big two Nordic rental companies, along with Cramo - says that Eastern and Central Europe remain a market with enormous rental potential, even if the crisis had seen Ramirent's business in the region fall by a remarkable -50% over the past 15 months.
"These markets are still quite underdeveloped", he says, "There are large infrastructure projects planned, so there will be large opportunities." Mr Rosén said the key to success in the region is having a good depot network; "otherwise it will be difficult."
Mr Rosén highlighted Poland as a particularly attractive market, although the drawback had been that "everyone realised in 2009 that Poland was heaven. We saw a lot of equipment moved into Poland - that hit prices."
He described Russia as the region's most challenging market, "and also the market where we have the most possibilities, all of us." It is dominated by Moscow and St Petersburg "and is very undeveloped - the penetration could increase tremendously. It would be good if more rental companies entered Russia."
John Monaghan, managing director of Polish company Atut Rental, acknowledges that investment in motorways, railways, stadiums, airports and bridges makes Poland an obvious target for rental, but he warns that pricing is under pressure and there are difficulties in getting paid - "like pulling teeth."
"Poland is an attractive market", says Mr Monaghan, "but there are great cautions. My advice is, first of all, don't. But if you do, the timing is crucial. You have to pay very close attention to what customers actually want - there's no point offering a bikini if they need a coat."
The crisis has so far produced relatively few big-name casualties, although Spanish rental company HUNE was taken over by its creditors in early June and in the US, Miami-based Neff Rental entered a 'pre-arranged' Chapter 11 bankruptcy protection in May. Both continue to function as normal. There is a likelihood that some other rental companies will have difficulties surviving 2010.
However, there are also signs that rental companies are starting to see market improvements. A-Plant in the UK, for example, says it will increase its investment in new equipment this financial year after several low-spending years, and HSS, another UK renter, actually saw its revenues grow in the first quarter of 2010.
These are rather isolated examples. If rental markets have indeed stabilised and even improved slightly, then that is great news, because it means that the construction sector is doing the same.