IRN's World Rental Report provides a snapshot of the global equipment rental market
By Murray Pollok11 November 2011
Rental markets are performing very well in many areas of the world, less so in others like western Europe and North America. Murray Pollok provides some of the latest rental statistics and talks to rental companies in four continents.
Economic recoveries are always uncertain, and that is certainly the case in North America and Europe today. So much so that projections of rental growth beyond 2011 need to be treated with caution.
We can tell you that the European Rental Association (ERA) is projecting a 3.2% increase in European rental revenues this year - with growth exceeding 6% in the Netherlands and Sweden - and we can report that the American Rental Association (ARA) is working on around 5% growth in North America this year followed by closer to 7% in 2012.
Europe is a melting pot of uncertainty: Italy has just imposed a severe austerity programme that will see €45 billion in government spending cuts over 2012 and 2013, and France as well has seen the need for its own ‘mini austerity' measures. These programmes, and those in the UK, Ireland, Greece, Spain and Portugal, will all have an impact on rental demand, to varying degrees.
We can, however, have more confidence on the figures for last year. These show that Europe's rental sector finally stabilised after two years of contraction, while the same is true of North America.
Rental markets outside of North America and Western Europe continue to be, in general, more buoyant. In Australia, demand for natural resources is fuelling growth and in Brazil the massive infrastructure plans are creating a superhot rental market. Parts of the Middle East are again growing in rental terms (Abu Dhabi and Saudi Arabia - as we reported in detail in our July-August issue) and Japan's rental sector is heavily engaged in the clean up and reconstruction efforts after the earthquake and tsunami. Meanwhile, rental continues to make inroads into China, particularly in specialist sectors such as mobile and tower cranes.
In this World Rental Report, rather than trying to create a definitive map of rental activity in numbers - although the tables below make an attempt - we have chosen some representative markets around the world and talked to rental companies there for a direct testimony about what is happening. We start in Japan, a country whose recent natural disasters put into perspective the difficulties faced by rental companies elsewhere.
JAPAN: RECOVERY CHALLENGE
The aftermath of the earthquake and tsunami in March continues to dominate the Japanese rental scene. That is clear when you consider that for Nikken Corp - one of the ‘big four' renters in the country - clear-up work is currently absorbing around 13% of its total fleet, equivalent to 330000 units.
The company's president and chief executive officer, Mr Masaki Kurita, in written responses to IRN questions, says that while progress is being made in removing debris and in building temporary houses, reconstruction efforts have yet to really start; "We see a long road ahead in reconstruction...The Administration has estimated a total budget at 19 trillion Yen (€171 billion) which covers the coming 5 years."
The extra demand for equipment has led to significant price rises in the affected areas, says Mr Kurita, as well as 8% increases in utilisation rates in the clean-up zone; "Rental rates, which had been depressed at unsustainable levels, have improved to list price level - depending on the products - compared to a same period year ago. Generators, excavators and vehicles are in short supply."
Nikken doesn't quantify the price rises, but the Japanese rental association, speaking at the ERA's annual convention in June, put the increases at 20 to 30%. They could be higher in certain products.
Nikken has increased its fleet investment this year accordingly, with the original investment of 17 billion Yen (€153 million) for the year starting in April 2011 being increased by 4 billion Yen (€36 million). It will also open seven new depots in the affected areas this year.
Rental companies initially took joint action to help, but cooperation now is more focused on providing re-rentals of equipment and on working together on safety protocols for recovery efforts at the Fukushima nuclear plant.
Of course, life goes on, and Nikken is still enacting a growth strategy that would have been underway despite the natural disasters. The company is forecasting a 4% increase in its business outside the disaster struck areas in the current financial year (to March 2012). "Public-works projects are decreasing in these areas and we are cautious for the rest of the year", he says, "However, we intend to keep our level of the investment in the rental fleet at originally planned level to maintain and even improve our presence in the areas.
"We foresee strong numbers when we consider the operating environment for 2011 and 2012. However, we have less visibility for 2013 and onwards. We are [concerned] that the industry may resume tough competition in rental rates."
There are also some similarities with the strategies of big rental companies in western Europe and North America. "We continue our efforts to pull up the share of total revenues from non-traditional markets such as industrials, which was 42% at the year end of 2010", says Mr Kurita, "Although we do not have targeted time frame, we intend to pull up the share to 50%."
BRAZIL: STILL BOOMING
A Geradora, a rental company based in Salvador, Bahia, tells the tale of the Brazilian rental market very well. Its revenue growth has exceeded 40% in each of the last three years and the company is forecasting a further 30% hike to US$115.6 million this year.
Cândido Terceiro, sales and marketing director at the company, tells IRN that he is confident that the "the next five years will be strong", even if this year has seen a slight slowing down because of higher inflation and a slower pace of government investment than expected. "It's still a good market and we believe that next year and the following three years will be better."
Founded in 1989 primarily as a power rental company, A Geradora now has a strategy to diversify and become a general rental company and to be a national player by 2013.
Generators still account for a third of its fleet of 9100 items, but it also has large numbers of compressors, lighting towers, plate compactors and welding units. Earthmoving equipment so far is limited to small numbers of mini excavators and skid steers, and the aerials fleet is still under 200 units earlier this year.
A Geradora is not the only Brazilian rental company that is growing - indeed, since 2008 the number of rental companies in the country has increased by 30% to 2400, according to Brazil's rental association, ALEC. However, Mr Terceiro says demand levels for equipment remain good, even if pricing is starting to go in the wrong direction - down 5 to 10% on a year ago, he estimates.
The company's strategy is to continue to open new locations - 10 additional depots in the coming years will be required to give it national coverage with 28 depots - and further investment in new product sectors. "We're now focused on power, compressors, lighting towers and aerial platforms. We've just started with mini-excavators - right now it is a small market, but we believe it will grow in the coming years." The company has acquired around 100 Wacker Neuson machines.
A Geradora has also expanded its already strong power offering with a significant investment in around 20 Cummins 0.5 MW, 1 MW and 1.5 MW generators, marking an entrance into the big power market in the country.
You can also see in A Geradora the first signs of a pan-Latin American rental market. Mr Terceiro says that a move outside Brazil is likely in the future; "we have some customers in Brazil with a lot of business throughout South America."
In the long term a public flotation is also on the cards, although for Mr Terceiro and his colleagues the current focus is simply on meeting demand in Brazil.
WESTERN EUROPE: AUSTERITY RULES
Austerity is the fashion in Europe just now. Following on from the problems in Greece, Ireland, Spain, Portugal and the UK come cost-cutting packages from Italy (€45 billion over two years) and France (€1 billion this year, €11 billion in 2012).
The rental markets in Spain, Portugal and the Republic of Ireland have all experienced severe recessions - particularly in Spain where even this year there is expected to be a further drop in activity - while countries like the UK, Italy and to a lesser degree France, are waiting to see what impact the cost cutting measures will have.
In this context, what is happening in the UK is instructive, since the market is now four or five months into an austerity plan that saw government budgets cut by around 25%.
Perhaps surprisingly, David Graham, managing director of Speedy's UK Asset Services division, says that despite this difficult backdrop, the company remains optimistic; "We're upbeat, and confident that our business will continue to grow as the construction sector moves into sustained recovery, and we continue to build our presence in new markets."
Despite its hopes for "sustained recovery" in construction, a key strategy for Speedy has been diversification with the aim of creating a "more recession-proof model for the future", says Mr Graham, "The regulated industries, such as water, waste, energy, transport and infrastructure, provide promising opportunities for growth as the construction sector regains its buoyancy."
Hand in hand with this strategy is a broadening of its services, with consultancy and advisory services becoming more important. These services are closely linked to its core rental business: for example, the company has trained thousands of workers on the London Olympics project, mainly on equipment that it is renting.
The company's confidence is founded on the claimed reliability of its in-house forecasting model; "in the last few years, our forecasts have proved more accurate than most - so much so that we are now looking into the possibility of producing our own commercially available forecast next year in order to help contractors predict upcoming trends. Our forecast for this year shows that the construction sector should experience more growth than initially predicted."
Mr Graham points out as well that the massive London Crossrail project - a £15 billion rail project running east-west across London - will be just as significant for Speedy as the massive Olympics work.
As the recent ERA/IRN RentalTracker surveys have shown, there is more rental confidence in Scandinavia, France and the Benelux than in the southern Mediterranean countries or the UK and Ireland. But what about Germany, Europe's second largest rental market?
Dirk Schlizkus, who heads Cramo's Theisen business in Germany, Austria, Switzerland and Hungary, tells IRN that the actual business mood in Germany is not as bad as that painted by the media. "The results from companies are very good, all-in-all, but this is not reflected in the performance of the stock market. In my mind the performance of the shares does not mirror the situation, at least in the areas where we are working."
He says the ERA's forecast of 5% growth in the German rental market this year is realistic, but uncertainties over the Eurozone economies means that he is unable to give a forecast for 2012.
Construction activity is expected to grow at modest levels this year and next - in the 1 to 2% range - "but this is normal in Germany. Not high, not low, but good enough." He says customers are telling him that their order books are full until the end of the year.
Of course there is a longer term question for the German rental market, which is whether it can reach the penetration levels of countries like Sweden or the UK. This is important because Germany is, of course, Europe's largest economy.
Mr Schlizkus thinks that Germany's rental market is still overly reliant on a rent-to-sell model, where dealers rent equipment with the ultimate aim of selling the machine. "The German rental market is not clearly defined. It is normal here to rent for six or seven months and then sell the machine...it's not professional rental services."
He argues that the fragmented nature of the rental market and its customer base is inhibiting the development of rental services. At the same time, he thinks that a fruitful target for rental companies will be the many regional contractors working in Germany.
The concept of rental continues to make progress, helped by reduced access to state funding to buy equipment (for example, state funds were available in eastern Germany after the fall of the Berlin Wall) and fewer tax advantages. He also thinks that contractors are taking a much more project-by-project approach to their business, which will require more operational flexibility and work in favour of equipment rental.
Still, Germany remains a great opportunity for rental companies, something that is well illustrated by Theisen's own strategy. Although very strong in construction machines, Theisen will in the coming years try to recreate the wider rental model of Cramo, its owner, adding aerial platforms, smaller tools and portable accommodation.
This will take time, says Mr Schlizkus. Theisen is still a work-in-progress, much like the German rental market itself.
RUSSIA: WORLD CUP PROJECTS
Russia was one of the world's fastest growing rental markets before the financial crisis, and there are definite signs that it is starting to rebound now, with a lot of work going on in Sochi for the 2014 Winter Olympics and in prospect for the 2018 World Cup.
Joep Feldmann, general manager of Rentforce Ltd, the Dutch-Russian company that has been active in Russia for several years, tells IRN that in addition to these headline projects he sees opportunities in the capital cities of the larger regions in Russia. For that reason, the company has just added a location in Voronezh, a province capital 400 km south of Moscow, to add to its existing offices in Moscow and Sochi.
Overall, he sees a recovery in Russia during 2011; "Construction in various sectors is increasing again since this year. Also Moscow is awakening again after a three year break and has large upcoming projects in city expansion and infrastructure, which, of course, we don't want to miss."
In the last two years Rentforce has focusing its efforts in providing equipment for the Sochi Winter Olympics (see more below), which is being held in February 2014. But for the future there are also high hopes for projects related to Russia's hosting of the 2018 World Cup.
"Regarding the football cup in 2018, we see a new construction boom starting right after the Olympics", says Mr Feldmann, "The matches will be held in 13 cities which are divided into five geographical regions. For this purpose 11 new stadiums will be built and five existing stadiums will be fully renovated.
"Besides stadiums, it will be necessary to invest in infrastructure, airports and hotels to handle all the visitors. We expect that the same large contractors which are doing the Olympic projects today will get the large chunks of the World Cup as well".
These contractors include Russian majors such as Rosinzhiniring, Transstroy, Mostotriad, Mostgeotsentr and Mostovik, and western European firms like Strabag and Boskalis.
Regarding the Sochi Games, Mr Feldmann says most of the main structures for the stadiums are complete; "They are starting now with facades, floors etc. Ski tracks are expected to be finalised towards the end of this year. Construction activities of the Olympic village have just started, so there is still work for a couple of years there. The same applies to hotels and a large number of support buildings."
He says next year will see a lot of work on road and rail infrastructure - not to mention a new Formula 1 racing track needed for the Sochi Grand Prix in the summer of 2014 - and he sees a particular opportunity for aerial platforms from mid-2012 onwards, associated with the construction of telecommunications infrastructure and the internal fitting out of buildings.
"We try to adapt our equipment fleet with the construction progress", he says, "That's why last year we invested mainly in heavy excavators and this year in rollers, mobile excavators and telescopic loaders. We expect an increase in demand for aerial platforms in the coming year, so will have to invest in this equipment as well. Telescopic handlers are relatively new for Russia as contractors have always relied on mobile cranes, but they are now seeing the many benefits of a telehandler."
Russian rental consultancy and internet portal B2B-Rent estimates the Russian rental market at around €250 million, although another consultant, MS Consulting, puts the figure at around double that.
What is clear is that the market is expanding. Mr Feldmann says his own company - which was recently ranked at number 10 in Russia by B2B-Rent - could see revenues double this year, and he thinks that a professional rental business is starting to emerge; "We see that the construction market is getting more and more professional and requesting the same professional attitude from its suppliers (including rental operators)." He thinks many of the small, informal rental businesses functioning today will fall away as the market evolves.
NORTH AMERICA: SUSTAINED RECOVERY?
"The rental recovery is underway" in North America, according to the American Rental Association's chief executive, Chris Wehrman. The association is forecasting around 5% growth in revenues this year and a further increase of as much as 7% next year, although these projections were made before the political wrangling over the government budgets and the subsequent cuts to public spending.
What ARA and some of the country's big renters, like Sunbelt Rentals, are banking on is not just a recovery in demand but also an increase in rental penetration as contractors switch to rental rather than owning equipment in response to uncertain economic outlook.
This is certainly a possibility in a rental market which is still, in comparison to the UK or Australia, relatively immature.
Certainly, North American rental companies have started to reinvest, to the extent that manufacturers are having trouble in meeting demand. The recent survey of the top 50 aerial platform fleets in North America by our sister magazine Access, Lift & Handlers (ALH) showed that the top 50 fleets grew by around 2% over the past 12 months.
The largest players have concentrated on replacing old machines - the fleet numbers of the top five were flat or even down a little - but there has been significant investment among mid-sized companies such as NES Equipment Rental and H&E Equipment.
Illinois-based NES grew its fleet by 25% and according to Rick Juster, vice president of assets and planning for the company, "demand is strong across the entire fleet. We purchased across the entire product line". He says NES remains optimistic that the economy will continue to slowly improve and that this Autumn, commercial and government construction, coupled with industrial projects, will keep the company busy.
Also with double-digit growth of its fleet is H&E Equipment Rental. Shane Waguespack, H&E's vice-president of rental operations, attributes the positive numbers to demand and fleet replacement, but "mostly demand".
Another fast grower is New Jersey-based Trico Lift, which saw a 22% increase in its aerials fleet, including the acquisition of the aerial assets of Modern Group. "The market is rebounding slowly," says Chris Carmolingo, Trico's chief operating officer.
CHINA: WAITING GAME
Can China's remarkable growth be sustained? Doug Stewart, general manager of US managed access rental company Shanghai Universal Equipment Co, is relaxed on the subject; "For a company of our size, even if there are hard times in China there is such an opportunity for even normal growth in aerial platform usage....This is a giant untapped market, and there is tons of room for everyone."
Established in Shanghai in 2005 by US rental veteran Paul Beal - who managed John Deere's Shanghai rental business before it was sold by Deere - Shanghai Universal is slowly developing the local access market and also in nearby cities, having opened a second location in Nanjing late last year.
Mr Stewart, a US friend of Mr Beal's who has been general manager of the business since August 2009, tells IRN that Shanghai Universal is taking a step-by-step approach to growth; "The idea is to develop the business internally, cultivate local managers and staff." The Nanjin location, for example, is managed by an ex-Deere rental employee who lives in the city.
"We definitely have an ambition to have a network of branches wherever people need aerial platforms", says Mr Stewart. The fast-growing Tianjin area near Beijing is one particular target.
Access rental remains largely undeveloped in China, but Shanghai is its most developed city, with several large players, including Hertz, Kanamoto's local joint venture and Caterpillar dealer Lei Shing Hong.
"There are the larger layers and then half a dozen entrepreneurs in Shanghai", says Mr Stewart, "We compete with all of them. The big players focus on the big projects and the little guys sweep up the small projects. We try to do both."
The company has a fleet of around 50 booms and scissors but hopes to double that by the end of this year. It started with used Genie and Snorkel machines, and some Haulotte models, but the focus is now on JLG, whom it represents.
Its customer base spans construction, shipyards, aviation (for aircraft manufacture and maintenance), local government contracts and major events such as last year's Shanghai Expo and the bauma China showground.
Mr Stewart is not anticipating any rapid shift in China's approach to health and safety. "I've heard that there has been some efforts to address the safety aspects of scaffolding. If there are new rules, that could have a big impact, but we're not counting on it. I would guess changes will be slow and steady rather than spectacular."
Worldwide Rental Revenues in 2010
UK €4.9 bn
Germany €3.3 bn
France €3.2 bn
Italy €1.5 bn
Spain €1.4 bn
Netherlands €1.1 bn
Sweden €1.1 bn
Other EUEFTA €3.6 bn
SUB-TOTAL €19.9 bn
Russia €0.25-0.5 bn
TOTAL €20.4 bn
Note: Figures are ERA estimates and exclude operated plant and party/events. Russian figures from MS Consulting, Moscow, and consultancy B2B-Rent.
US US$26.5 bn
Canada US$3.0 bn
TOTAL US$29.5 bn
Source: American Rental Association (ERA)
Rest of the World
Japan €9.2 bn (Y1000 bn)
Australia/New Zealand €2.9 bn (A$3.85 billion)
Asia Pacific <€750 m
Latin America <€750 m
Africa <€450 m
Middle East <€300 m
India <€200 m
TOTAL (Estimate) ~€15.0 bn
Source: Japanese rental Association, IRN estimates.
Market Share Estimates - 2010
Europe Top 10
Algeco Scotsman 2.4%
Speedy Hire 2.0%
Liebherr Mietpartner 1.5%
HKL Baumaschinen 1.3%
MVS Zeppelin 1.2%
Top 10 Share 19.4%
(Note: Excludes crane rental companies.)
North America Top 10
United Rentals 6.0%
RSC Equipment 4.2%
Sunbelt Rentals 3.5%
Home Depot 1.8%
Williams Scotsman 1.4%
Mobile Mini 1.1%
Ahern Rentals 1.0%
Classic Party Rentals 0.9%
Top 10 Share 25.0%
Sources: IRN100 survey published by International Rental News (IRN).
French manufacturer Manitou has estimated the following sales figures for self-propelled aerial platforms 2010. Aerials are sold predominantly to rental companies, so its figures give a real insight into how rental spending was allocated last year.
North America 16000
South America 4000
Western Europe 11500
E Europe/Russia/China 500
Latin America is working hard to put the financial crisis behind it and there is no doubt that the region's outlook is good, writes Cristián Peters, editor of Construction Latin America (CLA) magazine.
There is lots of government investment in infrastructure as well as moves towards private-public partnerships. Projects in the pipeline encompass infrastructure, housing, energy and mining.
Countries with particularly bright outlooks include Brazil, Chile, Colombia, Panama and Uruguay. All of these share strong finances, an openness to foreign investors, relatively low inflation and lower levels of business risk.
On the other hand, countries like Bolivia, Ecuador and Venezuela seem to have issues in terms of excessive state intervention that could discourage private investment and put production capacity at risk.
There is no doubt that Brazil is the dominant construction market, representing around 40% of the total in the region and now keenly anticipating the World Cup 2014 and the Olympic Games 2016. Those events, combined with the booming oil sector, are driving infrastructure development to the point where it now accounts for nearly 55% of Brazil's construction spending.
According to Sobratema (Brazil's influential construction equipment association) Brazilian infrastructure projects from 2010 to 2015 will involve investment of US$800 billion, requiring intensive use of construction machinery and equipment to build railways, highways, ports, airports, power plants and housing, plus oil and gas exploration facilities, among other things.
The second biggest economy in Latin America is Mexico, which was heavily impacted by the international crisis. Nevertheless, the country is back to a healthy growth rate, expanding by 5.5% last year after a fall of 6.1% in 2009.
Growth this year is forecast to be between 4 and 5%, according to forecaster Ecolatín, and construction growth could be anywhere between 2.6% and 4.5%, depending on who you believe. Mexico is spending US$4.8 billion on highway upgrades and repairs alone this year.
• Cristián Peters is editor of Construction Latin America (CLA) magazine, a KHL Group publication. For more details, visit www.khl.com.