South America's infrastructure plans make it a big potential rental market

21 November 2008

Yoshio Kawakami, president of Volvo Construction Equipment in South America.

Yoshio Kawakami, president of Volvo Construction Equipment in South America.

Panama might seem a strange place to start with a review of Latin/South American rental markets, but what is happening in that small but strategically important country illustrates the scale of some of the infrastructure investment going on in the region, and the opportunities for rental.

The headline project in Panama is, of course, the US$5 billion widening and expansion of the famous canal, a project that will be running for the next six years. Augusto Boyd, managing director of Commercial de Motores (CDM), one of the largest equipment dealer and rental companies in Panama, tells IRN that "The economy is very good. There are many things happening, including the Panama Canal project...I see a strong demand for heavy machines, above 50 t."

CDM, which is a Volvo dealer in the country as well as representing a wide range of other equipment, also has a rental division. In fact, Mr Boyd's involvement in rental stretches back 17 years, when he tried to sell Samsung equipment and ended up renting it. The current resurgence in demand for rental now means that "things have come full circle for me...Contractors now like to combine rental and bought machines."

Clarisa Chen, CDM's executive director, says the construction market is growing in other sectors as well - high rise buildings, earthmoving and roads; "so while there will be some fall in demand when the canal is finished in 2014, there will still be other projects too, especially in tourist infrastructure." Ms Chen adds that CDM is looking at establishing rental activities beyond Panama's borders.

The focus on large equipment reported by CDM in Panama is not surprising when you see the figures quoted for large infrastructure projects in South America, with Brazil and Mexico leading the pack.

In fact, this ‘big machine' demand has led Volvo Construction Equipment to take a very particular approach to the development of rental in the region. Yoshio Kawakami, president of Volvo Construction Equipment's Latin and South American business, tells IRN that the company is not pushing its Volvo Rents programme in the region because that mainly concerns more compact machines; "For that type of business, Latin America doesn't offer really good opportunities...The focus for us is to develop rental business through our dealers in Latin America." CDM in Panama is one example of this.

Mr Kawakami estimates that there are around 200 big Volvo units - typically 20 t excavators and 2.5 m3 capacity loaders - now being rented from dealers in the region, and he is trying to encourage more of them to establish rental businesses. "We have developed a model that helps the dealers", he says. This includes advice on which machines to rent, management systems and staff training.

"Some dealers are embracing it quickly - they understand that rental is within their scope of business - others are reluctant because they don't have experience", he says. Other Volvo dealers active in rental include Grupo Linck in southern Brazil and SKC Rentals in Chile.

Brazil, of course, is where much of the focus of attention is in South America, because of its size and the enormous amount of investment in infrastructure. This has led, for example, to a very rapid expansion in the market for powered access rentals, and in particular a looming battle between Solaris - owned by Sullair Argentina - and Mills Rental.

The origins of these two companies can cause some confusion, even among rental customers in Brazil. The Mills Group sold its Mills Rental access division to Sullair Argentina four years ago. Under the terms of the sale, Sullair had some years to use the Mills Rental name, after which it had to rename it: this they have now done, using the Solaris name. At the same time, the Mills Group is again able under the terms of the deal to re-enter the access rental market, which they did earlier this year using the old name Mills Rental. Is that clear?

Whatever their origins, both have big expansion plans. Solaris Equipamentos e Serviços LTDA, to give it its full name, has recently created an earthmoving equipment division to add to the access and telehandler divisions it already has. The US$12 million spending on earthmoving equipment this year is part of a three-year, $120 million investment plan, with half of that sum earmarked for aerials. The current 1300 unit fleet will be increased by 40% this year, says Paulo Esteves, sales and marketing manager for Solaris, and the rest will be spent on earthmoving equipment, telehandlers and gensets.

Newly established Mills Rental, meanwhile, plans to invest $60 million in aerial platforms over the next three years, taking the fleet up to 1500 units. The company aims to have 450 units by the end of this year.

Adding to the mix is Europe's Riwal, which established an access rental business in Curitiba, Southern Brazil earlier this year, managed by Jim Roest. Mr Roest tells IRN that there is sufficient demand for aerials in the country to double the country's total access rental fleet to 8000 machines. However, Riwal had just started renting - it has 30 machines - and will grow steadily over the next 12 months.

"There is a shortage of equipment in Brazil - it's not just a shortage of platforms, it's all construction equipment", says Mr Roest.

Brazilian rental companies will also find themselves competing with another European player within the next couple of months, with Spain's GAM planning to open a depot in Sao Paulo by the end of the year, capitalising on the presence of some of its big Spanish contractor customers in Brazil.

GAM is also making an entry in Mexico, having opened in mid-September a depot with 100 used machines in Mexico City. The country is reckoned to be another big potential rental market, with a national infrastructure investment plan valued at around US$250 billion for the next five years.

Some US renters are already getting in on the act, with Ameco and Max Equipment Rentals (based in San Diego, California) active in the country as well as portable accommodation and storage space renter Williams Scotsman, which has just expanded its operations in Mexico with four new depots, in Juárez, Hermosillo, Riviera Maya and Tijuana.

Williams Scotsman says that Juárez - located across the border from El Paso, Texas - is a port of entry for all of central northern Mexico; Hermosillo is centrally located and serves as a gateway to various tourist destinations throughout Mexico and is home to a growing industrial hub with companies such as Ford Motor Company; Riviera Maya is a tourist destination on the Yucatan Peninsula; and Tijuana in the west is one of the country's fastest growing cities and industrial centres.

Of the other territories, Volvo's Yoshio Kawakami says markets like Chile, Bolivia, Uruguay, Paraguay and Argentina remain in "growth mode", although he thinks Argentina could well suffer as a result of the financial crisis.

As Mr Kawakami points out, no-one will be immune from the fall-out from the financial crisis; "We will all be affected, no doubt." However, if you were staking your house on a new rental business right now, you probably couldn't do much better than Brazil or Mexico (and not forgetting Panama, of course).

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