Time for Construction Equipment Rental Industry to Reinvent Itself
Covid-19 pandemic has hit the infrastructure industry severely, and consequently, the equipment rental industry is passing through a challenging phase. The work progress is sluggish and has not started at many sites since the lockdown. Payments are still stuck. The industry is not only facing an acute shortage of skilled manpower but the labour cost has also gone up by around 25 percent. Logistics cost has also increased. Interest on loans and EMIs of equipment rental companies has not been waived off yet by the government. Therefore, the overall operating cost of a rental company has significantly increased.
If one sees the world trends over the past one year, the rental industry was already passing through a rough patch; Covid-19 has just made it worse. According to market reports, the construction equipment rental market value is likely to fall by ~30% during 2020 due to a fall in the global economic growth, which, in turn, is resulting in a slowdown of construction work timelines.
But this is not the time to panic; it is the time to look forward. Challenging times always lead to transformation and new trends. This is also the time for the equipment rental industry to reinvent itself; in fact, reinventing is a collective responsibility of all the equipment rental companies.
For the first time, the rental industry is becoming united in protecting its interests due to the rapidly changing social and economic milieu. The equipment rental industry cannot run on ‘reactive mechanism’; rather, we should foresee industry trends, start seizing opportunities, and push for changes which would benefit us in the long run.
It can no longer grow strong by taking a conservative approach. First, it needs to diversify its businesses and enhance its competence. Secondly, it needs to market itself better in order to promote the financial viability of renting over owning equipment.
The global construction equipment rental market is characterized by the presence of numerous domestic and regional players, resulting in a highly fragmented market environment. The five key players, namely, United Rentals, Ashtead Group, Herc Rentals, H&E Equipment Services, Loxaman, and Kanamoto Co, account for 18% of the market share, and the remaining 82% share is held by other players (domestic and regional players).
If we see the global trend over the past two years, the construction equipment rental market is being driven by mergers and acquisitions and joint ventures between companies who want to diversify, build capacity, and sustain their businesses in the event of a slowdown. Construction equipment rental companies in India should also focus on strategic collaborations and partnerships, mergers and acquisitions to increase rental penetration and market share. It should be noted that equipment rental companies that offer better value and user experience to customers will emerge winners in the post Covid-19 scenario. Therefore, the focus of rental companies should be on strengthening their capabilities while understanding the market dynamics.
Changes and advancements in construction technology around the world has led to demand for newer technologies in construction equipment. The Indian equipment rental industry should enhance its capacity accordingly, as new technologies, especially telematics and artificial intelligence, are going to transform the equipment industry, and maintaining a fleet of such technologically advanced equipment will become necessary. Artificial Intelligence will make tracking and monitoring of equipment quite easy and reduce the cost of operations.
New technology means lesser breakdowns, faster work, and timely completion of projects. It will help in specialization and pave the way for the construction equipment rental industry to diversify into unconventional sectors like municipal works, mining, concrete segments, etc. It will also create the need for skilled operators and machine crew to handle the new equipment.
Equipment rental companies should promote the rental concept more proactively by participating in tradeshows like EXCON, bauma CONEXPO, INTERMAT, IFAT and Concrete Show India etc, as these events offer the right platform for companies to network and showcase their products, performance, and capabilities. Participation in trade events and exhibitions will also boost the image of the equipment rental industry.
There is a need for conscious deliberations on buying versus renting equipment. In such a scenario, rental companies should impress upon the users the benefits of renting equipment and how it will increase their profitability. Procurement of new construction equipment is quite capital-intensive: it often requires making down payments and investing a large portion of the operating capital of the company. Overhead costs such as interest on loans, insurance, licensing, storage, and taxes, post the purchase of the equipment, add to the overall cost of the equipment.
Equipment owners are also accountable for transportation between job sites. On the other hand, if a contracting company rents an equipment, the responsibility of transporting the equipment to the work site lies with the rental company – which also bears the direct overhead cost. What’s more, rental companies also keep on upgrading their fleet and their equipment’s machine parts from time to time, in order to provide their customers with upgraded and advanced equipment.
As per market reports (which have been revised due to the Covid-19 situation), the construction equipment rental market in India and in the ASEAN region is expected to see growth during the forecast period 2020 – 2025. The global construction equipment rental market is expected to register a CAGR of about 4.78% during the forecast period.
It is the most opportune time now for the equipment rental companies of India to reinvent themselves and be well prepared for a brighter future when demand is bound to escalate to new heights.
NBM&CW July 2020
