Rentals are paving the way forward for the construction equipment industry, and to ensure long-term resilience and growth, we are championing initiatives like unity, standardization, and commitment to fair practices.
The Indian construction equipment market, valued at USD 6.66 billion in 2022, is poised for a remarkable annual growth rate of 9.0% from 2023 to 2030, driven by the ambitious infrastructure development agenda of the Indian government. Initiatives such as Bharatmala Pariyojana, Smart Cities Mission, Sagarmala, Metro, Namami Gange, NHSRCL, and Make in India etc which have catalyzed substantial investments in the construction sector, resulting in a surge in demand for construction equipment.
Equipment Rentals have made significant inroads into the construction sector, with over 40% penetration in categories such as crawler cranes, hydraulic cranes, piling rigs, etc. Contractors are encouraged to consider an asset-light model by renting equipment rather than purchasing, given the considerable growth in the rental industry.
Procuring equipment versus renting: key considerationsAs the equipment rental industry expands, construction companies and contractors find themselves at the crossroads, weighing the advantages of machine ownership against the flexibility offered by rentals.
Procuring new construction equipment demands a substantial capital investment, contributing to significant financial burdens post-purchase. In contrast, the rental model transforms fixed costs into variables, offering financial respite by requiring payment only for the actual utilization of the machinery.
Renting equipment emerges as a strategic move to reduce fixed and staff costs, minimizing the financial risks associated with fleet ownership. Outsourcing equipment needs translates into a reduction of managing, maintaining, and operating costs, saving both time and resources.
Equipment rental allows construction companies and contractors to focus on their core business activities, fostering efficiency and productivity.
Signalling a forward-looking approach for sustained growthIn the last four years, India’s equipment rental industry has experienced remarkable growth, surging beyond 30%. The Construction Equipment Rental Association (CERA), established in 2017, has played a pivotal role in this transformation by focusing on standardization and fostering relationships with stakeholders. As India has now positioned itself as the world’s third-largest construction market globally, investments in the infrastructure sector become paramount. CERA aims to increase the penetration of rentals to 50-60% in the next two years.
Global collaboration to tackle rental industry’s issuesRecognizing CERA’s impact, the Global Rental Alliance (GRA) welcomed it as a new member, further solidifying its global influence. GRA’s induction marked a milestone for CERA, providing a platform to discuss critical issues facing the rental industry globally such as industry promotion, talent acquisition, sustainability, digitalization, etc. CERA’s collaboration with GRA is poised to fortify the country’s equipment rental sector and further promote the rental concept.
CERA’s recommendations for resilienceCERA urges rental companies to implement disciplined fleet management, right-sizing fleets to match demand levels, and explore innovative rental models. Drawing inspiration from successful practices in Europe, where companies pruned fleets to align with lower demand, Indian rental businesses can also navigate through economic downturns more effectively.
Labor, operating cost challenges, and technological advancementsThe industry still grapples with an acute shortage of skilled manpower, coupled with a 25-30% increase in labour costs post-Covid. Rising logistics expenses further contribute to a surge in overall operating costs. Addressing these challenges is crucial for maintaining competitiveness and ensuring the industry’s viability.
Anticipating rapid changes, CERA highlights the role of IoT, artificial intelligence, telematics, and paperless equipment inspections in reshaping the rental industry. With GPS technology becoming mandatory on all equipment, the focus is shifting toward skilled and certified operators to enhance safety and efficiency.
Fostering unity for addressing challengesCERA has taken proactive measures to address critical challenges facing the rental industry. Among these, the issue of recovery and payment delays demand immediate attention. To tackle this, CERA is creating a framework that promotes timely transactions and fair practices. We understand that these issues can significantly affect the cash flow of rental companies, hindering their ability to invest in new equipment and maintain operational efficiency.
Standardization is another strategy to streamlines business operations and to create a level playing field, fostering a sense of unity within the industry. Standard terms provide clarity, reduce disputes, and enhance the overall professionalism of the rental sector.
A major concern is the stagnant rental rates. We are engaging with stakeholders to address this concern and create mechanisms that allow for reasonable rate adjustments, considering factors such as inflation, operating costs, and market dynamics.
We are striving to strengthen the collaborative spirit within the rental community so that we can collectively address challenges, negotiate fair terms with clients, and advocate for the best interests of our industry. Through open dialogues, knowledge-sharing, and a commitment to common goals, our aim is to build a resilient and united front.
Client assessment and due diligence are integral to responsible and sustainable rental practices, hence, we emphasize thorough evaluations before entering into rental agreements. This not only mitigates risks associated with payment delays but also ensures a transparent and trustworthy business environment.