Patrick Hill reports on rental fleet disposal strategies

By Murray Pollok14 October 2008

Doosan Infracore Portable Power's Henk Uphoff (left), senior manager of remarketing, and Caspar Bott

Doosan Infracore Portable Power's Henk Uphoff (left), senior manager of remarketing, and Caspar Botter, marketing co-ordinator.

There is no getting around the fact - if you bring a new machine in and don't want to change fleet size, you've got to take one out, too. How you plan that process is, therefore, one of the core activities of any rental company.

Just how important is illustrated by the fact that A-Plant in the UK - to give one example - has a centralised team of six people whose job it is to identify which items to sell and how, and it reports directly to the company's chief executive officer.

Asif Latief, marketing manager of A-Plant, says the company's used equipment strategy has been tied to the goal of getting its fleet age under three years; "We've had to make room, and we have been disposing of ‘new' equipment. We get better pricing for it, or we get a better [rental] market advantage with a different piece of equipment."

Ashtead operates a disposal yard, and it sells directly to end users as well as placing items into auction. On average, the team sees off £5 million (€6 million) worth of equipment per month, about a thousand items.

The decision to sell an item is usually made item by item, but occasionally the company decides to eliminate a particular type of equipment. For example, "We at one time had lots of timber accommodation units and decided to get rid of them all," says Mr Latief.

Changing machine standards can also have an impact, he says; "We had been pretty much fixed in our strategy. It was based only upon economic considerations. Now we consider other things. For example, health and safety guidelines may make a particular item risky or unattractive to rent."

RSC Equipment Rental in the US sold US$126 million worth of equipment in the year up to June 2008. John McVeigh, RSC's vice president of product management, describes used sales as "a fundamental part of our business; something we do each day" and says it is RSC policy to "follow a disciplined process whereby individual units may be targeted for disposal due to relative age and/or performance. Similarly, a customer may express interest in a particular piece within our fleet, prompting a sales opportunity.

"Our basic disposition model and strategy does not differ by asset type - we always strive to maximize performance and provide customers with a young and well-maintained fleet," he says.

Mr McVeigh says RSC uses all available disposal channels, with the majority going though direct retail sales, but - unlike A-Plant - the company has a more decentralised sales process; "Each branch/salesperson is directly responsible and intimately involved with used sales."

Finland-based Ramirent has rental operations in 13 countries, so it is not surprising that the company takes a slightly different approach from both A-Plant and RSC.

Managers of its different operating units makes continual disposal decisions within each product category, although there is a particular approach for ‘seasonal' machines; "For very seasonal equipment, a more thorough evaluation is always made after the high season," says Ramirent's fleet management director Jarmo Kosonen.

There is a country to country element in the process; "Disposals is a relevant part of the total fleet capacity adjustment in each Ramirent country," says Mr Kosonen. Disposals are always determined in the context of needed fleet capacity changes, and "in some consumer product categories the disposal can be decided at the outlet level."

Key factors that the Finnish company evaluates are: total capacity needed, item age, historical utilisation and expected maintenance costs. "Some of the product groups such as scaffolding and formwork products have no precise disposal time due to the fact that those will be replaced (worn or damaged) during several years of usage", says Mr Kosonen.

When equipment is highlighted for sale it is sent to national hubs/warehouses where the decision on how to sell the machine is made. For some light equipment items, branches can organise their sale locally.

Specialist renters have their own particular dynamics, which sometimes differ greatly from the general rental market. The portable accommodation sector, for example, typically retains equipment for far longer, with the focus on refurbishment - see our box story on the strategy adopted by Williams Scotsman.

The aerial platform rental market also has its own dynamics, and one major access player in Europe that has a very particular strategy for used equipment is Ireland's Height for Hire. "Our fleet is not allowed to age," says John Ball, managing director, who explains that machines are sold directly from its active rental fleet.

Many of its used machines are sold through its international division, Easy UpLifts, which operates in the UK and the Czech Republic, but which has sales contacts worldwide. Mr Ball adds that the company has "never believed in refurbishing."

The strategy of selling relatively young machines is partly driven by market demand in developing areas such as eastern Europe; "Developing markets will require new machines", says Mr Ball, "Ten-year old machines will no longer be accepted."

Of course, one of the key routes for disposal can be the equipment suppliers, whether on a guaranteed buy-back basis or in an ad hoc way related to the acquisition of new machines.

For example, Nishio Rent All in Japan says that 50% of its equipment is traded in through its suppliers. A spokesman for the company's asset management group tells IRN that this is "a more stable way to dispose of used equipment than other methods." For Nishio these other methods include direct sale to end users, sale to used equipment specialists and auctions.

Some manufacturers are more organised than others for this type of trade-in transaction. Doosan Infracore Portable Power, for instance, champions its used equipment operation - see box story.

The current market in many western European countries, as well as the US, puts an even greater emphasis on this part of the business, with the need to realise residual values and the possibility of some rapid disposals as companies trim their fleets.

In fact, most of the rental companies IRN spoke to seemed happy that their current procedures would be sufficient to adapt to the current conditions. Ramirent says that, so far, there is no need to change its disposal strategy, and RSC thinks its strategy is good for the long-term, too.

"While general market conditions and relative fleet age will influence any rental company's targeted disposals at a given point in time, the fundamental requirements remain," says RSC's Mr McVeigh.

A-Plant's Mr Latief says there has been a slight change in focus; "We have become more short-term in our outlook. You have to keep a close eye on the market - and on internal matters." In today's market, they will not be alone in doing that.

=== BOX STORY 1 ===
A helping hand

"We can sell almost anything ourselves", says Henk Uphoff, senior manager of remarketing in Europe, Middle East and Africa for Doosan Infracore's Portable Power division. He says that ability is a key advantage of the remarketing group, which acts as a wholesaler of used equipment and provides a corporate-wide service to support new equipment sales.

Portable Power will take back any competitive brand of machine within the range of equipment made by Doosan Infracore Portable Power, and "Occasionally, we will take other equipment types, too. It depends on the package", says to Caspar Botter, marketing co-ordinator at Doosan Infracore Portable Power.

There are many manufacturers helping rental companies to remove equipment from their fleets, but Mr Uphoff says Doosan Infracore is different. "A lot of companies advertise used equipment and have used equipment pages on their web sites, but their activity is driven by their dealers - their dealers own the assets. At Doosan Infracore, we own the assets. We take them into our inventory and we control the process.

"We act as a manufacturer to facilitate sales of new equipment. That's a big difference. We are different, also, because our customers know exactly what price they will get. Others don't give a guarantee and we do. Also, we take care of all the logistics.

"A lot of rental companies saw our success and copied us, set up used equipment sales organisations. Some of those companies are now moving out of this business. They see it more interesting to do business with professionals than to spend resources to justify the small difference in margin of used equipment sales."

=== BOX STORY 2 ===
20 years service!

Imagine keeping your equipment for 20 years. That just what global portable accommodation and storage unit rental company Algeco Scotsman aims to achieve with its fleet of over 340000 modular units.

The company repairs and refurbished its cabins to maximise their working lives. The main thrust of the strategy, says Philippe Dulou, vice president of procurement for Algeco (Algeco Scotsman's European arm), "is to avoid having any unit that is not suitable for rental."

Joe Donegan, executive vice-president of field operations for Algeco Scotsman's North American operation, Williams Scotsman, says the decision process is "based upon a clear understanding of the state of the assets." Every accommodation unit is assessed and coded, using ‘A' to ‘F' to denote condition. ‘A' items are new; ‘F' assets are to be eliminated.

"We take a good, hard look and assess condition," says Mr Donegan. "It is a streamlined approach. It ensures we are refurbishing and disposing of the right assets."

"If a unit is not suitable for refurbishment, is not cost effective, we [give it a price range] and will sell it, perhaps to a customer. If it is not suitable for use we will scrap it, sell its aluminium and steel", says Mr Donegan.

Refurbishment is a crucial part of the business, especially when you consider that the cost of new cabins is increasing. As Mr Donegan says; "The trend line for the price of new equipment is rising, while we are able to drive down our refurbishment costs."

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