Financial Viability Driving Crane Rentals
What was the impact of the pandemic on Crane Rentals and what scope for growth does the industry expect in the near future?
The pandemic caused many small crane rental companies to sell their cranes. Many sold all their assets including cranes to pay their EMIs. These cranes were idling due to the lockdown during which phase all ongoing work in projects was stalled indefinitely.However, with the pick-up in construction of infra projects throughout the country, demand for cranes has increased manifold; now, even a small crane rental company has work coming its way. Demand for higher capacity cranes has also increased as they are required in major infra projects, including for expansion work in industries like cement, oil refineries, petro-chemicals, wind energy, etc.
So, we see the scope of crane rentals increase due to the ever-expanding number of projects in India, where cranes are being used in all sectors and industries. And when you consider the rental cost versus the cost of a new crane, the difference is enormous and therefore attractive for the long-term financial sustainability of a rental company.
How have the rental rates changed of late and how can they be controlled?
The cost of cranes, their maintenance, cost of labor, stocking of spare parts, and other value-added services have increased the expenses but not the rental rates. Modern cranes are seeing increased demand and thereby competition, which has brought down their rental costs. For instance, the F-15, 15-ton Escort machine which costs about Rs. 38 to 40 lakhs approx, has a rental price of around 75k/month (with flexible hours and flexible days), while previously it was Rs. 1.10 lakh/month (for 10 hours - 26 days).I think it is wise to keep a uniform rental price for different equipment types and their capacities. In the rental industry, the current trends show that rates depend on individual liabilities and liquid assets.
The difference between rental rates and purchase rates of cranes poses a huge challenge for small rental companies to even meet their monthly liabilities. Customers ask for old machines of 5-10 years at the lowest rental rate, which won’t even cover the monthly EMI on the crane.
A trend has developed where one gives rates based on their liabilities rather than thinking about the future, so that the situation worsens as customers go for cheaper rates, and mobilization or demobilization charges are not even considered for cranes of any capacity. Since the crane owners are not united, customers are comparing and deciding on the rental rates amongst each other. This leads to a loss for the crane rental industry and for the member companies.
What collective steps should rental associations and big rental companies take to mitigate problems in the rental industry?
The rental industry is very unpredictable. Government support is lacking and there are no supportive laws for the crane rental companies. We are also facing taxation issues at state borders.Although the number of crane rental companies in India is increasing each year, survival is still very low because of the lower rental rates and the higher purchasing price of new machines. Foreign-based crane companies are also opening offices in India, which will increase competition and escalate the price war. This needs to be addressed by the Crane Association as well as the Government.
Another necessary practice would be to monitor companies that have a reputation of being bad payers. Unless the customer/contractor does not settle any outstanding payment of previously rented cranes, no other rental companies should rent their cranes to this defaulting customer/contractor.
What kind of support from OEMs would help rental companies to grow?
We would welcome support from crane manufacturers, especially by way of immediate availability of stocks and repairs. There's no doubt that companies should establish a point for reaching out to or addressing the issue most appropriately and as soon as possible.India has a shortage of professional crane mechanics as compared to foreign countries. Manufacturers should support or build a repair team in india for refurbishing cranes and crane parts since India is a big importer of used cranes.
Lifting & Specialized Transport January - February 2022
