World Rental Report: Murray Pollok looks at rental trends around the globe

By Murray Pollok05 October 2012

Gobi Desert Rentals is establishing a rental location in southern Mongolia in the Gobi Desert. It wi

Gobi Desert Rentals is establishing a rental location in southern Mongolia in the Gobi Desert. It will serving the mining industry.

The equipment rental industry may be struggling a little in Europe, but elsewhere there is plenty of growth, as Murray Pollok writes in the 2012 World Rental Report.

Analysis and interpreting data on equipment rental can be a perplexing business: do figures include rentals with operators, or re-rental revenues? What about scaffolding and formwork, and should we include crane rentals?

There are no consistent answers to these questions around the world. The European Rental Association excludes party and events and operated plant – a significant market in several European countries – while its counterpart across the Atlantic, the American Rental Association, includes party/events.

That means that, even in markets were rental market statistics are collected in a methodical way, it is difficult to compare like-for-like. The best you can do is point to general trends, while in the rest of the world, where figures are even harder to come by, we are reduced to broad brushstrokes rather than fine detailing.

It’s just as well that, at present, these general trends are not too difficult to see.

North America remains on course for a good 2012, with the ARA forecasting growth of 8.2% this year, with similar high single-digit growth in 2012 followed by three years of double-digit expansion. In fact, ARA believes that the value of the North American market will reach US$51.7 billion by 2016; that’s a 50% increase on 2012.

This growth is fuelled in part by a general recovery in demand, especially in industrial markets, and – says the ARA – increased rental penetration as contractors seek to minimise their risks by renting rather than buying equipment. Is rental penetration actually creeping up to the 50% mark? US rental consultant Dan Kaplan thinks it is.

Europe, on the other hand, remains heavily influenced by the Eurozone sovereign debt crisis, and the resulting uncertainty has led to a slowing up of the European economy (a 0.2% shrinkage in the second quarter of the year was announced in mid-August) and a reduction in confidence in the region’s rental market.

The ERA responded to this early on, reducing in April its growth forecasts: it now expects Europe’s rental sector to grow by just 1.5% this year (down from the previous forecast of 4.0%), with growth rising to 3.8% next year.

Of course this single figure for 2012 masks wide variation between different countries, from +10.3% in Poland and +5.8% for Germany to less happy predictions like -14.9% for Spain and -4.0% for Italy. For most of the major European markets – the UK, France, Netherlands and Sweden – growth this year is forecast at between 1% and 4%.

If Poland is a notable success story in terms of rental growth, its eastern neighbour Russia continues to be another fast-growing rental market, with consultancy RusRental reporting 35% growth last year to €700 million and a forecasting a tripling of the market to €2.1 billion by 2015, equivalent to a compound annual growth rate of 32%.

RusRental thinks that the growth will be fueled by explosive take-up of smaller equipment rentals and non-operated plant rentals. Unlike in many developed rental areas to the west, operated plant currently represents around 70% of the market. RusRental thinks non-operated plant will account for 45% of the market by 2015.

The other major rental markets of Australia and Japan are also seeing growth, although for different reasons. In Japan, the biggest rental companies experienced revenue growth of between 10 and 25% last year, largely because of the activities surrounding reconstruction and clean-up activities after the earthquake and tsunami.

Kanchu Kanamoto, president and CEO of Kanamoto, wrote recently that its depots around Tohuku Province, the coastal region that bore the brunt of the disaster, “had their hands full”, which sounds like an understatement.

However, he points out that in other areas, where demand was expected to be soft, rental markets have actually remained strong “because of efforts to address power shortages and [demand for] earthquake-resistance counter-measures.”

Australia, meanwhile, continues to enjoy the boom in natural resources, although not all companies are benefitting equally. While big players like Coates Hire and Onsite invest in their fleets to exploit opportunities, others, with less of an exposure to the mining and energy sectors, find themselves struggling with a less than stellar construction market.

On the following pages we talk to rental companies and ask them directly about their experiences this year and the strategies that have seen them through the recession. Let’s surprise you by starting with somewhere different, a fast growing rental market in Asia. Imagine you are in the Gobi desert and there is nothing to see for miles and miles...

Mongolia

“You have to redefine nowhere to understand where we are”, jokes John Karlsen, chief executive of Newcom Mining Services, a Mongolian-owned company that sells construction equipment and which is now establishing a rental business called Gobi Desert Rentals.

Gobi is building its first depot close to Tsogttsetsii in the south of the country in the Gobi desert close to the border with China, around and hour and a half’s flight south of Mongolia’s capital Ulan Bator. Tsogttsetsii is one of several areas in Mongolia receiving enormous inward investment for oil and gas and mining developments.

“It isn’t like setting up a rental shop in LA”, says Mr Karlsen, a US national who has spent 15 years working in Mongolia, including a long stint running Wagner Asia’s Cat Rental Store operation, “We are building our own hotel, kitchen, shop, sewage plant, water supply – it will be completely self-contained.”

The incentive for the heavy US$4.5 million investment is the massive amount of work planned in the area; “The depot is next door to a huge development – metallurgy plant, coal depot, wash plant, railway terminal and a town for 20-30000 people”, says Mr Karlsen.

This development is just one symptom of Mongolia’s rapid economic growth, fueled by natural resources. The official GDP growth rate is 17% but Mr Karlsen says the actual growth rate could be double that.

Gobi Desert Rentals already has a fleet valued at US$8 million – including cranes, aerial platforms, trenchers, lighting towers, gensets and compressors – and a further $20 million worth of equipment is due on site within the next six months. “We think the asset base will be $80 million in five years time”, he tells IRN, “And we’ll have two or three facilities.”

After Tsogttsetsii the plan is to open a facility next year in the Oyu-Tolgopi area where there is a massive project to develop copper mines.

The investment required for the first facility is just one of the complications of running a rental business in the country. Mr Karlsen says 80% of their business – with mining companies and infrastructure contractors – will be wet rentals, with operators. The equipment will also have to be specialist, because he says it would be impossible to rent the Chinese equipment that is commonly found in Mongolia: its low cost making renting superfluous.

One other focus for the company will be renting to contractors who are installing wind turbines. Newcom’s parent company, Newcom Group, runs several other businesses, including Clean Energy, which is developing wind farms in the country. “The first 31 wind turbines will be built this year, and there will be hundreds every year,” says Mr Karlsen.

Gobi Desert’s competition will come in part from Wagner Asia’s Cat Rental Stores – it has around five rental stories in the country – but also from the many hundreds of small owner-operators renting out their own equipment and services. “In the US, there is a clear job description on rental”, says Mr Karlsen, “Here there’s a blurred line between contractors and rental. I’m doing contracting work now, and I’m bidding on contracts to build buildings. Hertz doesn’t do that.”

To those businesses interested in coming to Mongolia, he points out that it isn’t quite the modern-day ‘wild west’ that people might imagine; “Tourists go to Ulan Bator and want to be met by camels at the airport, but it’s Range Rovers they see.”

Europe

The economic uncertainties surrounding Europe and the impact these are having on rental confidence, in particular fleet investment plans, is no secret. Yet there is no shortage of rental businesses reporting good levels of demand.

GAP Group in the UK, for example, is expanding on the back of work with its major accounts and by opening new specialist divisions (see interview with issue). And while the construction sector is not faring well, there are still major projects underway, such as the £15.9 billion London Crossrail project, which is creating a lot of activity for rental companies.

In Germany, Hamburg-based HKL Baumaschinen reports that the Eurozone crisis has so far had no affect on its business, although that may change. Ulf Böge, the company’s director of marketing, tells IRN, “Currently, the construction industry remains lively, with busy rental activity. However, the forecast for 2013 is expected to be slightly quieter than what we have seen so far this year.”

He says the trend towards rental continues to grow in Germany; “Of course, our customers’ decision to rent is somewhat influenced by economic considerations. Also, the rental of construction machinery and equipment is moving more towards a services market”.

HKL continues to expand its depot network, as well as enlarging and modernising some of its existing sites. New branches have been established in Pforzheim, Jena and Lübeck, and, says Mr Böge, “we have other new towns firmly in our sights, some of which will be put into action this year.”

The company also continues to establish its new Austrian business, which has been operational since June, in Vienna and Linz. “Our goal is to be present in each of the Austrian provinces in the near future”, says Mr Böge.

HKL has also been targeting smaller trade customers – joiners, plumbers and other small builders – with its new Mietshops, renting tools and small machinery. “With our Mietshops, we provide services to all industrial tradesmen, for whom our products were previously ‘too big’”, says Mr Böge.

If Germany’s economy remains relatively strong for the time being, what about rental companies in Italy, one of the markets most impacted by the recent slowdown? One business here, Mollo Nollegio, based in Alba in north west Italy, has managed to almost double its revenues to €17.2 million between 2007 and 2011, including 20% growth last year.

It rents a wide range of equipment, although aerial platforms and cranes are a major element of what it does.

Mauro Mollo, managing director, tells IRN that one of the company’s secrets is having a dense network of 13 branches within a relatively small area in the Piedmont province, which includes Turin. He thinks it’s better to be strong in a small area than to offer a wider, less focused service.

“The economic crisis influences our business”, he says, “but we’ve always been specialised in small products for small companies and rented for a short period of time. This vision allowed us to [compensate for] the lack of big projects.” Mr Mollo is not expecting an improvement in Italy’s economy next year.

The company also has the confidence to invest. It spent €11 million last year, a large chunk of which went on new telehandlers, including rotating models, as well as more aerial platforms and general construction equipment.

New service offerings have also been very successful. Mollo Nollegio more than doubled its business renting truck mounted platforms with operators and almost saw the same rate of growth for its new portable toilet rental business.

Mr Mollo sees his company’s future as a generalist one; “We believe a lot in the generic products’ business”, despite the logistical and organisational challenges it brings.

North America

North American renters in the recent IRN100 list reported average growth last year of 17%, with the largest players seeing +20% increases in rental revenues. Are small and mid-sized renters seeing the same opportunities?

Willie Swisher is president and CEO of Noble Iron, the rental business acquired by Canadian software company Texada Software and which operates in Southern California and Southeast Texas. His answer to the question is yes, to some extent; “We have seen demand and pricing rebound slightly in Southern California and we are new to Houston, Texas – the market never saw the slump that Southern California experienced. We are optimistic about 2013 and believe we will continue to see improvement in all markets.”

Like the big players, Noble Iron is expanding its fleet, boosting the number of aerials by 15% during the last 12 months and expecting similar growth during 2013. Unlike the big players, however, Noble Iron will not be in a rush towards new customers in the industrial sector; “No, we are not focused on the industrial sector but are focused on customer diversity and expansion. The move by many in the industry to an industrial focus provides independents like us the opportunity to gain market share in the commercial construction sector.”

For Mr Swisher, the United Rentals-RSC acquisition offers opportunities rather than threats; “The merger is an exciting move in the industry and we believe it is not the last of major consolidation. There are many customers who may want the United/RSC experience but we at Noble Iron believe there is a world of customers who want something different.”

Meanwhile, Jackson Schlieve, manager of the aerial division at Dawes Rigging & Crane Rental, part of ALL Erection & Crane Rental Corp, says utilisation levels for its aerial platforms and telehandlers are as high as 90-95% at some of its branches in the Midwest.

“The rest of 2012 looks very good for rentals”, he tells IRN, “With the federal Renewable Energy Production Tax Credit (PTC) set to expire on December 31, rentals are booming to keep up with the demand from contractors trying to complete wind farm projects by then.”

He says ALL Erection remains “cautiously optimistic about market recovery and are strategically adding to their entire rental fleet, including aerials and forklifts.”

The shift to industrial customers evident among the big rental players is something that ALL Erection has been involved in for many years, in particular through its crane rental operations, but Mr Schlieve says there is a renewed focus in that area; “Right now the wind power market is still strong, and coal-fired power plants are doing required updates and modernisations.

“So we are still going in power generation with both aerials and cranes. Infrastructure projects are also on the rise. For Dawes—and this is true for all of our Midwest branches—there is an across-the-board uptick in construction, concentrated on expansions and upgrades of existing facilities.”

Products most in demand are heavy duty, 12000 lb capacity telehandlers, often for wind power projects; tracked boom lifts for bridge building jobs; and “anything with 80 ft and longer reach for general construction projects and in the industrial sector.”

South America

Latin America’s rental sector remains one of the fastest growing in the world, even if growing pains are becoming more evident in markets like Brazil.

Energy rentals continues to be a major growth area, with major regional players like Energy International, APR Energy and of course Aggreko playing a central role. In addition there are smaller, national companies, like Panama based Power Gen SA, which has nine depots and operations in both panama and Puerto Rico.

Chilean company SKC Rental is one of several companies expanding its operations in the country. The company’s managing director, Pablo Lam, tells IRN that next on its agenda is its first depot in Columbia, likely to be opened before the end of this year. This follows its move into Peru and more recently Brazil.

But what of Brazil? Durval Gasparetti, former chairman of ALEC and current president of its council, says the rental sector was impacted in the first half of the year by Brazil’s economic slowdown, with the state of São Paulo – home to more than 70% of Brazil’s rental industry – worst affected. GDP growth was originally estimated at around 5% this year, but now looks like it will be closer to 2%.

Mr Gasparetti says the government had taken some measures to stimulate the economy and that the economy is headed for a rebound in the second half of 2012; “In 2013 we will have a better year than 2011 and 2012.”

Paulo Esteves, director of rental company Solaris, says the market has been growing almost too fast; “The situation now is one of very strong competition. A lot of new companies and newcomers have come into the market.

“Last year, growth was amazing – as many machines came into the market in one year as entered the market over the course of 10 years…This year is not as strong as last year – 4000 aerial platforms came to Brazil last year.”

Solaris itself grew its fleet by around 30% and Mr Esteves expects it to grow by 15-20% in 2012; “Our concern is looking for return on investment.”

For Mr Esteves, one particular issue is the cost and availability of parts; “It’s different here than in the US or other areas where you can order a part and have it overnight. Since 2007 we have sold 1000 used machines. With these machines, there are no parts…we have to look for parts in the US to support our customers.

“Many other competitors are facing this. New rental operations open up shop, do really well for two or three years but then start to face the same parts/service problems that Solaris has experienced.”

According to Mr Esteves, there will be consequences; “The market has grown too fast. In the next two to three years this market will be more consolidated, but regional and national rental companies will survive.”

Sergio Kariya, managing director of Mills Rental, Solaris’ big competitor in Brazil, highlights the growth of the telehandler market, which he links directly to Brazil’s Minha Casa Minha Vida (‘My House My Life’) house building programme; “In one year [2011] we had 10-years’ worth of telehandlers coming into the market”. However, with phase 2 of the project now taking place, fewer telehandlers will be needed and more aerial work platforms.

One characteristic of the Brazilian market is the increasing presence of Chinese suppliers. According to Mr Kariya, more than a third of the new machines sold in Brazil in the first five months of this year were Chinese.

Australia

Allan Besseling may be new in the CEO’s hotseat at Kennards Hire in Australia, but he’s not new to the business, with a career in equipment rental going back to 1986 and 17 years of that spent at Kennards.

He will need all that experience as he guides the family-owned company through what is not quite as buoyant an economy as some may think looking in from the outside.

Australia’s natural resources market continues to be strong, but that isn’t the full story. “The construction sector is contracting”, Mr Besseling tells IRN, speaking from Kennard’s head office in Seven Hills, a suburb of Sydney, “It’s having an impact on some of our customer base.”

Consumer sentiment is down - “people are holding on to their dollars”, he says - in part in response to uncertainties generated by the Eurozone problems and the cooling down of the Chinese economy (which has an impact on the demand for Australia’s raw materials).

While the development of natural resources such as natural gas, iron ore, coal and oil in Western Australia, Queensland and the Northern Territories is helping to fuel infrastructure developments, Kennards’ core market – and depot network - lies elsewhere, in the major metropolitan areas of Sydney, Melbourne and among a customer base of contractors, small builders, trades and homeowners. (For a different perspective on the Australian market, see our interview with Force Access in the Sept-Oct, 2012 issue.)

Mr Besseling acknowledges that the natural resources sector “it’s not our key strength, except in some product areas, like pumps. Our core is our core. However, in certain products our geographical spread lends itself to a bit more of that. We do work in the Northern Territories and we are quite settled in far north Queensland. That gives us opportunities in the resources market.”

He says there will be no grand change of strategy to target this opportunity. However, the company was already developing in a way that gives greater access to that market, for example, the development of its specialist divisions, such as pump and power, and geographical expansion, like last year’s acquisition of Top End Hire that gave it locations in the Northern Territories.

The specialist divisions will continue to receive attention, which is no surprise since it was Mr Besseling who formed the Lift & Shift division in a joint venture with Kennards in 2003 and who was most recently chief executive of all Kennards’ specialist operations, covering pump and power, concrete care, traffic and lift and shift. Each of these divisions now have around five locations each, sometimes shared with other specialist divisions and housed in Kennards’ general stores.

Will there be more specialist divisions? “Yes, we’re looking at that now”, says Mr Besseling, although he is unwilling to give any more details.

Given that Kennards is expanding its powered access division, adding bigger machines such as 32 ft rough terrain scissors, would it not be natural to speculate that there will be an access division? Mr Besseling refuses to be drawn.

As well as the new divisions, Kennards continues to expand the depth of some product lines, including access and power tools, and expanding its geographical coverage.

“We’re expanding our network, we’re investing in new product areas – extending in specialist areas, and gaining a little market share”, says Mr Besseling. For example, recent openings include a new concrete care and lift and shift location in Dandenong, Melbourne, and lift and shift and pump and power operations at Gabott to serve mining operations in north Queensland.

Despite the softness of the construction sector, Mr Besseling is optimistic; “Our economy is still growing. Where there is uncertainty – which is the current sentiment – it does push some people into hire. We’re seeing that. In the past they made it a capital investment; now, they want to keep money a little tighter. That has a positive impact on hire.”

For Mr Besseling there is no single key to continuing Kennards’ growth story, which has seen revenues increase from A$115 million in 2005 to almost A$215 million last year.

“We’re concentrating on the fundamentals. Making sure we’re delivering what we promise”, he tells IRN, “Growth will be a by-product of three things – customer service, operational excellence, and getting the right people.”

BOX STORY

Top 100 projects

Anyone interested in big construction projects should have been in Lima, Peru, last May at the 10th Forum of Latin American Leadership where the Latin America’s top 100 infrastructure projects were the topic of discussion.

Valued at US$200 billion, the 100 projects give a useful snapshot of where the action is in the region. Not surprisingly, Brazil led the ranking in terms of number of projects, with seventeen valued at $59.9 billion, and most notably the bullet train linking Rio de Janeiro and Sao Paulo requiring an investment of $18 billion.

Second in the list is Mexico, with eight projects valued at $28.4 billion, followed by Peru with around 24 projects costing $24.2 billion. Colombia was close behind with eight projects and spending of around $23.4 billion forecast.

Transport is the biggest sector getting investment, accounting for around 45% of the projects, dominated by railway initiatives, followed by roads, airports, shipping and bridges. The second largest sector is oil and gas, then energy, followed by construction.

TABLES

Worldwide Rental Revenues in 2011


Europe

Rental Construction

Revenues Penetration Rate

UK €4.7 bn 2.7%

France €3.4 bn 1.6%

Germany €3.1 bn 1.1%

Italy €1.4 bn 0.8%

Spain €1.3 bn 1.2%

Sweden €1.3 bn 4.6%

Norway €0.76 bn 1.7%

Netherlands €0.7 bn 1.3%

Belgium €0.6 bn 1.9%

Poland €0.47 bn 0.8%

Finland €0.39 bn 1.3%

Denmark €0.35 bn 1.5%

Other EU-27/EFTA €2.0 bn

SUB-TOTAL €20.4 bn

Russia €0.7 bn

TOTAL €21.1 bn

Note: Figures are from the European Rental Association (ERA) and exclude operated plant and party/events. Russian figures from consultancy RusRental. ERA’s figures for Construction Penetration Rate represent the proportion of all construction spending that goes to rental.

North America

Total

USA/Canada US$31.4 bn

By sector

Construction US$20.8 bn

General tool US$8.1 bn

Party/Events US$2.5 bn

Source: American Rental Association (ERA)

Rest of the World

Japan €12.0 bn (Y1200 bn)

Australia/New Zealand €3.3 bn (A$4.2 billion)

Latin America ~€1 bn

Asia Pacific <€750 m

Africa <€450 m

Middle East -€350-450 m

India <€200 m

TOTAL (Est) ~€18.0 bn

Sources: Japanese Rental Association, IRN estimates.

Market Share Estimates - 2011

Europe Top 10 In Europe

Loxam 3.9%

Ramirent 3.2%

Cramo 3.3%

Algeco Scotsman 2.2%

Speedy Hire 1.8%

Kiloutou 1.6%

HKL Baumaschinen 1.3%

MVS Zeppelin 1.25%

Lavendon 1.15%

Select Plant Hire 1.12%

Top 10 Share 20.8%

(Note: Excludes crane rental companies.)

North America Top 10

United Rentals 12.9%

Sunbelt Rentals 3.9%

Hertz 3.5%

Williams Scotsman 2.3%

Home Depot 1.8%

AMECO 1.5%

Mobile Mini 1.2%

Ahern Rentals 1.1%

H&E Equipment 1.0%

NES Rentals 0.9%

Top 10 Share 30.1%

Sources: IRN100 survey published by International Rental News (IRN).

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