Why rent? Part two of IRN's report on the Attitudes to Rental survey
By Murray Pollok09 May 2012
In the second part of our report on the Attitudes to Rental survey we focus on the reasons why end users rent equipment, what improvements in service they would like to see from rental suppliers, and how they could extend their relationships with rental companies. Murray Pollok reports.
In part one of our report (in the March-April issue of IRN) we focused on whether equipment users were increasing their use of rental and on how they rated their rental suppliers. In this concluding part of the report we look in detail at what rental customers really want from their rental suppliers and the extent to which contractors are willing to deepen their relationships with the rental industry.
Why do equipment users rent?
Readers who make a living out of renting equipment to customers may feel that they don't need to be told why their customers rent. Maybe so, but it doesn't do any harm to ask the question and listen to the answer.
Given a choice of eight factors that led companies to rent, our respondents - 800 equipment users around the world - consistently rated two above all others: to meet peak demands and to obtain products that they only need to use periodically.
These two factors were dominant in the case of Western Europe, North America, Australia/New Zealand, Central and South America and Brazil. Frequently ranked third was the issue of reducing overall operating costs.
Western European contactors rated ‘reduced operating costs' as a major factor in using rental - more so than any other region in the world. Nothing concentrates the mind on costs more than recession and economic uncertainty.
It is worth noting that difficulties in obtaining finance for purchasing equipment was not considered a key factor in using rental services, with the exception of the Middle East, where a quarter of respondents considered it to be very important.
What rental services are most important?
Closely linked to the question of why they rent is the question of which rental services are considered most important. Again, there is broad agreement across the world, with the top four factors being: on-time delivery, availability of equipment, the reliability of equipment, and on-site back-up from the rental supplier (see chart).
Companies in South America are most sensitive to equipment reliability - 88% of Brazilian respondents rated this as very important.
What about price? It is interesting that rental prices are rated fifth out of eight factors in both North America and Western Europe, and was the least important factor in New Zealand/Australia. Even so, in the case of Western Europe and North America price was still rated as ‘very important' by more than a third of respondents. North Americans are slightly more price sensitive than Western Europeans, but far less so than equipment users in Eastern Europe, the Middle East, Asia Pacific and South America.
This chimes with the view that additional services become more important in more mature market and that price remains important in developing regions.
Proximity to customers is often cited as an important strategic objective by rental companies. Our survey suggests that the importance of this might be overrated - with proximity ranked low down in most regions, particularly Western and Eastern Europe, the Middle East and Asia Pacific. (Of course, proximity can have a major influence on other services that are considered important, including on-time deliveries and on-site service, which suggests that customers are more interested in actual service levels than on how rental companies choose to achieve them.)
How could rental companies improve?
We all know that IRN readers provide fantastic levels of rental service, but assuming - hypothetically, for one very brief moment - that there is room for improvement, then where are these improvements needed?
There is remarkable agreement in the two big rental markets of North America and Western Europe, where there the same four areas of improvement are highlighted by equipment users. These are: better quality equipment, better on-site service, lower prices and the offer of equipment repair/servicing.
These same issues are important in other areas too, but are joined by issues such as better communication (Middle East, South America).
Used equipment sales are not considered very important and neither is the provision of finance. An exception to this is Central and South America (excluding Brazil), where 41% of respondents highlighted finance as being very important. Just 15% of Brazilian customers rated finance as very important.
Again, lower prices are considered most important in developing markets, including Eastern Europe and South America. Lower prices were rated as ‘very important' by 38% of North America and 34% of Western European respondents.
Is it important for rental suppliers to be ‘full liners'
Do contractors and other end users want their rental suppliers to offer a full range of equipment? Well, the general answer is yes, although it depends on who you ask.
Western Europeans - well used to dealing with rental specialists for products like aerial platforms, power or accommodation - are less concerned about this than many others. Eastern Europeans - also a market with many specialists - are even more relaxed, with just a quarter saying they wanted to deal with full line suppliers.
Elsewhere the picture is weighted towards full liners - 65% of respondents in North America wanted to deal with full liners - perhaps reflecting the scale of the national players there - and there was a similar high level of interest from companies in Asia Pacific, South Asia, Central and South America and Brazil (Solaris and Mills Rental, take note...)
Is total outsourcing an option?
There has been a trend in some European markets - such as Sweden and other Nordic nations - for contractors to consider outsourcing much of their equipment needs to rental companies. Is this considered an option by equipment users?
The answer seems to be generally ‘no' or ‘not yet' in Western Europe, North America, Eastern Europe, Australia/New Zealand and South America.
However, end users in the Middle East, Asia Pacific, South Asia and Brazil are far more open to the idea. In these markets, around 30% said they would consider outsourcing their entire fleets now and a similar percentage again said they would consider it in future, when the rental market is more developed. That constitutes a major opportunity for rental companies in these areas.
It is striking that Western Europeans and North American's are most resistant to the outsourcing option, while users in less developed rental markets - where outsourcing would be more of a challenge - are the most open.
Rental with operators
Are end users interested in renting equipment with fuel and operators? There is another clear split in geographical preferences, with those in developed rental markets like Western Europe and North America most likely to say no , while those in Eastern Europe, the Middle East, Asia Pacific, South Asia, South America and Brazil most likely to say yes.
This partly reflects a reality of these developing markets, where rental of compact, non-operated plant still lags behind the rental of large machines with operators. The results only serve to illustrate the opportunity to grow in these developing markets.
Competition from contractors?
Finally, the interesting issue of the extent to which your own customers are renting their equipment to other contractors and end users. Of course, it often makes sense for contractors to lend out equipment they aren't using - UK rental fleets, for example, emerged from the equipment holdings of major contractors. However, the issue becomes more complicated when you have contractors doing that in markets where rental is starting to develop, and where these contractors may well become your future rental competitors.
What is fascinating in the results is the proportion of contractors who are already doing this - 20% to 50% in all markets except South America - and those who say they plan to do more, mainly in Eastern Europe, the Middle East, Asia Pacific and South Asia.
There are also some markets where contractors don't currently rent out their own fleets to other users, but who are planning to do so, including Eastern Europe (21%) and Central and South America (20%). That means that a half of all Eastern European equipment users and a third of companies in Asia Pacific and South America either plan to start or will increase the rental of their own fleets.
In Western Europe and North America around 70% either have no plans to increase this kind of activity or start doing at all. In these markets, around 40% already rent machines to other contractors.
Competition in rental is everywhere, and our survey illustrates that in certain cases rental companies can also face competition from their own customers. As if life wasn't complicated enough.
Summary: what are the most important measures of rental service?
1. Reliability of equipment
2. On-time delivery
3. On-site service back-up
4. Availability of equipment
Summary: what are the most important things to improve?
1. Reliability/quality of equipment
2. Equipment repair/servicing
3. Better on-site service
4. Lower pricing
More than 800 equipment end users around the world responded to our ‘Rental Attitudes' survey between mid-January and late February. We received a particularly good response from Brazil with more than 300 responses.
The survey was distributed to readers of International Construction, Construction Europe and Construction Latin America, and also distributed by a number of associations and rental companies worldwide.
IRN would like to thank the following organisations: Loxam (France), A-Plant (UK), Speedy (UK), Ramirent (Finland), Kennards Hire (Australia), Solaris (Brazil), Mills Rental (Brazil), DLR (French rental association) and HIANZ (New Zealand rental association). We also appreciate the assistance of KHL editorial colleagues Cristian Peters, Chris Sleight and Sandy Guthrie in promoting the survey.
In particular, we would like to acknowledge the efforts of Jose Protko and his colleagues at Caterpillar's rental division for distributing the survey via Cat dealers in the Americas.