Growing again: IRN talks to rental companies in the Middle East

Murray Pollok talks to Speedy Hire and Manlift Group about how their Middle East rental businesses are performing, and gets the perspective of equipment manufacturer Caterpillar.

Mike McGrath looks back at Speedy Hire’s first three years in the Middle East with a sense of satisfaction; “We’ve made excellent progress”, he tells IRN, “The strategy was right – it’s relationship based, and the right sectors are being targeted.”

For Mr McGrath, the managing director of Speedy’s International Asset Services business, the strategy had been focused on projects and targeted at the oil and gas and infrastructure sectors in the region; “We’ve shied away from the more speculative side of the business – [property development and high-rise office developments]. That’s a lot more risky, boom and bust.”

The company is aiming to work with 15 to 20 major contractors in the region, focused on oil and gas related projects and government backed infrastructure projects, working initially through western contractors with whom it has previously worked in the UK.

Around 70% of its Middle East work is in the United Arab Emirates (UAE), dominated by Abu Dhabi, where last year it won a five year, US$50 million project on the ZADCO offshore oilfield project.

It also has some projects in Oman, including two oilfield jobs, and three or four projects in Doha, Qatar. It is now starting in Saudi Arabia.

“We started with Carillion three years ago, with small ‘in-plant’ offices looking at logistics, identifying improvements and efficiencies.” That kind of involvement sometimes lead to outsourcing of product; “It works very well”, says Mr McGrath, “We have a couple of relationships in Saudi Arabia doing that.”

“In the last year and a half we have applied the same approach to some major local players”, he says.

Creating these kinds of relationships takes a lot of effort and doesn’t happen overnight. “There are a handful of mega contractors in Saudi Arabia – some have 70000 employees - huge dominant players, with close, long-standing relationships with the ruling family. You have to get close to these major players – and it takes a lot of time.”

Working to Speedy’s advantage, however, is a change to the way that contracts are administered since the financial crisis. In the past, he says, contracts were done on a ‘cost plus’ basis, with the emphasis on getting projects completed quickly. Now, because of capital constraints, there is more likely to be a fixed price approach, which means that contractors are more focused on efficiency.

The use of equipment can be a big portion of a contract - 8-10% of total project cost – which means that equipment efficiency savings can make all the difference. Mr McGrath says Speedy has been able to make 10-15% savings for contractors. “We saw the same pattern in the UK after the 90s – capital constraints pushed the drive for efficiency. The same process is happening across the Middle East, but it happened first in the UAE.”

The services that Speedy is offering go beyond straightforward equipment rental, with the company providing asset management expertise, working with clients to help source equipment both from its own fleet and from other suppliers and finding ways of improving efficiencies.

For example, on the massive contract it won on the ZADCO oilfield project – where Speedy is supporting contractor ENSAAD as it builds four artificial islands off Abu Dhabi to allow the use of onshore oil drilling techniques – just 40% of revenues are conventional equipment rental. The margins for this non-equipment related work are lower, notes Mr McGrath, but return on capital is higher. By the end of 2014 Speedy will have 300 people working on that one contract.

This project also connects Speedy to the worldwide oil and gas market; “It gives us massive reach for oil and gas”, he says, “It’s an international business with a Middle East hub”. For example, Speedy has won some pipeline purging projects in Egypt and Malaysia.

Alongside its moves into Saudi, Speedy will be looking closely at what happens in Qater, where infrastructure spending of around US$200-250 billion is expected over the next decade, much of it directed towards the 2022 World Cup. “We know that the first parts of the project will be awarded in the second half of this year or the start of next year”, says Mr McGrath, “The metro project will be first.”

“It could become a feeding frenzy if the industry isn’t careful. It needs a measured approach, working with key clients.”

Also hoping for a measured approach is John Ashcroft, group managing director of Dubai-based aerial platform and power rental company Manlift Group. The company is seeing very healthy activity levels in Qatar and the United Arab Emirates, its two major market areas in the Middle East, particularly in Abu Dhabi; “and Dubai is turning around again from the terrible days of 2009/10. We’re quite encouraged.”

The company’s aerial platform fleet grew by around 20% last year as demand returned, and although growth in its power rental fleet has been more measured, the company has just started to expand its generator fleet again.

“The generator business is doing well in Qatar. Platforms are still our biggest business, but we will bring over an extra 100 generators there over the next few months.”

“In Qatar the business has been growing very nicely and steadily – we have been bringing in platforms to UAE and Qatar. We’re quite bullish about Qatar – starting to see contracts going out to tender, steady growth.”

Part of the demand comes from major airport projects in Abu Dhabi, Dubai and Jebel Ali (Al Maktoum International Airport, close to Dubai). It has around 140-150 machines working on Hamad international Airport, the new main airport at Doha, Qatar, and other projects include the Qatar Integrated Rail project and Doha port project, and that’s before you even consider the works required for the Qatar World Cup.

Projects linked to the 2022 World Cup are due to start at the turn of the year or in 12 months time, says Mr Ashcroft; “It’s a small country, with very few customers, but doing very large projects. We do envisage a very good marketplace.”

The company has just established a new 10000 m2 warehouse facility at the Dubai Investment Park, which will serve as a centre for both power generators and aerial platforms.

Manlift rents generators either on a shorter term project basis or for much longer term, semi-permanent power plants up to around 30-40 MW in size. Much of the investment in the company’s fleet has gone into ancillary equipment and switchgear suitable for these power projects. Recent jobs include one in Burkina Faso in West Africa and another at a Byco-owned oil refinery in Pakistan.

Mr Ashcroft says Manlift isn’t competing with companies like Aggreko and APR Energy on power projects requiring more than 40 MW, but is able to compete on smaller IPP contracts.

He also makes the point that, although there is still demand for temporary power in Qatar and the UAE, the local power utility companies have become very quick at responding to demand and are increasingly able to provide contractors with connections to the grid. For example, in Dubai around 30 km of power grid is being laid every week. The number of 5, 10 and 15 MW rental contracts have diminished as a result, he says.

Manlift has been quick to see opportunities in the past – it is one of the pioneers of aerial platform rentals in India - and like Speedy it sees opportunities in Saudi Arabia.

“We like Saudi as a marketplace”, says Mr Ashcroft, “but now we are considering how we might enter it, and how it fits with our strategic partner Riwal. We’re working with them about the best route to that market.”

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‘Coming back’

Caterpillar’s district manager for the Middle East, Corné Timmermans, based in Dubai, says the region’s construction markets are getting back to the peak levels on 2008; “Markets have come back dramatically, mainly driven by Saudi Arabia.

“Saudi is growing at full rate right now. The UAE and other states, growth is there, but more moderate – still between 5 and 10% overall, and probably double that in Saudi Arabia.”

He says there is still a little uncertainty about projects in Dubai, even if things are improving; “but there is a buzz - tourism, airport investment, consumer goods – it’s getting business and busier. There’s definitely something in the air”.

Mr Timmermans says the recession has made contractors think more carefully about the assets they hold, and the role that equipment rental can play. “I would say there is more demand for [rental]. More people who want to get into that businesses. But it’s not as easy as setting up a sales channel. It has high barriers to entry, that’s why Cat has an advantage.”

Cat’s dealers in the region are investing in rental, with Cat Rental Store (CRS) outlets in UAE, Kuwait, Saudi Arabia, Qatar, Bahrain and Oman – in the case of Qatar and Oman the first CRS outlets opened last year.

Cat continues to invest in its Middle East operations. Last month it officially opened a new parts distribution center in Dubai, United Arab Emirates (UAE), to service the whole region.

The 500000 square foot centre employs 130 people and will further strengthen aftermarket parts support in the East-Africa and Middle East region. It will also serve as a regional office for employees from other Caterpillar service groups.