Twin Track: rental is growing in North America, but is everyone benefitting?

By Murray Pollok09 May 2012

The North American rental industry continues to grow, and it isn't just the big companies that are benefitting. Murray Pollok and Lindsey Anderson report.

It is not difficult to see why US rental consultant Dan Kaplan recently said United Rentals' proposed acquisition of RSC Equipment Rental heralded a new era for the rental industry. It will, after all, create a business with revenues of more than US$3.5 million - if that doesn't constitute a new era then what does?

Mr Kaplan, speaking at the Rental Show in February, said the deal gives us a glimpse today of the rental company of tomorrow; "They are driving it to a level that nobody has ever seen. In the past, time utilisation was up to the high 60s. Now it's in the low 70s, and with fleets growing in size. They are driving efficiencies like nobody ever saw."

In his view United-RSC represents a fourth stage in the development of rental in North America. The first was Sam Greenberg's truck rental business in the 1930s, the second was Hertz Equipment Rental Co's creation of a national business in the 80s (under Mr Kaplan's leadership), and the third was Brad Jacob's founding of United Rentals in the 90s.

"We are now in the fourth and most interesting stage of the development of rental", he said. "It's going to force everyone in this business to re-evaluate what they are doing."

He forecasts a new phase of consolidation in North America and said there was no reason why the biggest rental player shouldn't have a market share like the 26% enjoyed by Hertz car rentals in the US; "Why shouldn't the equipment rental industry look like that?" United's acquisition of RSC would give it a share of around 12% in North America.

Consolidation of this scale has a major impact on companies of all sizes. However, in Mr Kaplan's view, small, independent rental companies have nothing to fear from the biggest rental companies because they were targeting a different customer. However, mid-sized rental companies will face challenges; "They will have different economies. The little guy is fine, but if you are competing with the big guys [it will be difficult] - they are buying better and disposing better."

In terms of future consolidation of the industry, he characterises Sunbelt and HERC as both potential sellers and buyers, while Neff and NES are more likely to be acquired.

Of course, not everybody thinks that big is necessarily best when it comes to rental. United Rental's CEO, Mike Kneeland, interviewed by IRN at the Rental Show, has little time for such views; "People like to work with larger companies - they have more technology and are more efficient".

For Mr Kneeland the logic of the RSC acquisition is impeccable, as is the timing; "The level of growth is dramatic in this downturn", he says. He points to problems in obtaining finance and caution among contractors as helping to accelerate rental penetration in North America; "It was the perfect storm for our industry. Also, the equipment manufacturers aren't being banks any more. All these things are helpful [in developing rental]."

He says the behaviour of contractors and other equipment users in shifting to rental is analogous to the US housing market, where low interest rates are not leading to increases in house purchases; "People are conserving capital".

The American Rental Association shares Mr Kneeland's optimism, and is actually predicting that rental revenues will reach around $50 billion by 2016, up from the current $33 billion. Does he think that is that realistic? "Say we discount that by a half", says Mr Kneeland, "I'll take it."

United is also reassured by its own customer surveys; "We polled 2000 of our customers and 80% are expecting 2012 to be same or better than 2011", he says, "That's up from 50% a year ago."

Post-RSC, United will be a truly enormous company at around four times the size of its nearest US competitors. Even so, Mr Kneeland notes that its 12-13% share still represents a highly fragmented market and says it would be "premature" to describe as fully developed the combined depot network of 800-900 locations.

In other words, the RSC deal is just the next step in a process that still has some way to run. That much is clear from the actions of some of its competitors, with Hertz and Sunbelt Rentals both making acquisitions. A rising player is Volvo Rents, which has made more than 50 acquisitions in the last year and a half and is likely to have made more by the time this article is published.

If the large rental chains see opportunities in the current market, then what about smaller renters? A good example is Steve Voisin, founder and manager of Voisin Equipment Rental, an aerial platform rental company located in Aberfoyle, Ontario, south west of Toronto.

Mr Voisin formed the company by buying a rental business from Strongco in 2007. That wasn't the best timing, you might think, but it actually worked in their favour.

The company had 329 machines and eight staff when it started, he tells IRN; "The Canadian economy was not affected nearly as bad as the US. The Canadian dollar grew in strength compared to the US dollar and a lot of large fleet companies - United, Hertz, RSC - sent a lot of equipment to auctions because they were over-fleeted. So we bought a lot of equipment at a discounted allowed us as a new company to have access to inexpensive, late-model equipment."

The company doubled its revenues four years in a row - all with used machines - and now has a fleet of around 1200 aerials and telehandlers.

He also says that consolidation has in some ways helped his business, citing the example of United Rentals' acquisition of Venetor, the major independent renter in the Toronto area. "When Venetor sold to United, that opened a lot of doors for us. An awful lot of customers and end users prefer to use an independent rather than a large national."

The company is also benefitting from Canadian government stimulus spending, which has resulted in fair number of hospital and school-type projects. "We're seeing volume increases across the board", says Mr Voisin.

Further growth will be undertaken carefully, he says; "We will expand to Toronto in 2013: continue to grow, continue to add fleet, sell older used assets and enjoy the margins on those assets to continue to buy new fleet.

"We're continuously trying to work on reduce our fleet age - I couldn't even tell you what it is! We don't even run reports. At Hertz [where he worked for several years] we used to run so many reports - but as an independent, we go a lot with 'feel.'"

There could hardly be a clearer illustration of the differences in culture between national rental companies and small independents. Still, as Voisin Equipment demonstrates, small companies can grow just as fast.

Energy driver

Joseph Vecchiolla, senior vice president of US field operations for accommodation rental company Williams Scotsman (part of Algeco Scotsman) writes that energy markets are pushing the growth of rental.

Recent growth projections from the American Rental Association (ARA) indicate that the US rental market will outperform GDP by three times, with 7% overall growth predicted for 2012.

The future for the $6 billion global relocatable space industry also looks bright.

Global energy consumption grew 5.6% in 2010 according to BP's Statistical Review of World Energy 2011 report, the highest rate since 1973. The strong recovery in energy consumption was accompanied by equally strong growth in production. In addition, world energy use is projected to grow a total of 40% from 2010 to 2030, driven in large part by the developing world.

There are a variety of factors fueling this growth. Most notably, the energy sector presents unprecedented opportunities for the rental space industry. With a universal desire to create alternatives and cost effective options for customers, the energy industry has invested significant resources in the refinement, exploration and development of power and fuel sources.

Whether building infrastructure from the ground up or refurbishing older facilities, energy companies are in an almost constant state of construction. Petroleum, natural gas, electrical power, coal and renewable energy companies all have to make sound decisions about how to store equipment, provide temporary work space and housing for their workforce in remote locations.

From storage containers to offices, laboratories and full-scale workforce housing, the modular rental industry offers cost effective solutions for the global energy sector.

Modular buildings can be constructed for a variety of uses, including workforce housing. Whether an energy company seeks accommodations for a small crew or several thousand workers, modular rental space offers a practical solution for remote or temporary workforce camps. The facilities can be delivered and installed quickly and efficiently keeping projects on course and profitable.

Speed of delivery, flexibility, relocatability and reutilization are what make temporary modular space attractive to energy companies. Certain geographies are predisposed to different types of energy. For example, the US has recently benefited from the production of natural gas from shale formations, and Williams Scotsman recently supplied both permanent and temporary modular buildings for use along the Ruby Pipeline, which extends 675 miles and provides West Coast residents with access to Rocky Mountain clean natural gas.

The growth in the energy industry allows us to push new boundaries in the rental market with innovative solutions. Continual product improvement and world-class customer service will bring to light the many benefits of temporary space for the energy sector. Doing so will encourage energy companies to increasingly rely upon the global temporary space industry throughout 2012 and beyond.

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