Adaptability and flexibility are terms being used to highlight the characteristics that organizations will need to develop to survive the new COVID-driven normal. No one has a firm grip on what this new normal looks like, but there is a general consensus that we will need to remain adaptable to whatever new normal becomes our reality.
This desire for adaptability, linked with a growing desire to preserve cash and potentially limit capital expenditures creates an increasingly attractive value proposition for equipment rental. As a result of this, there has been healthy growth in the equipment rental market, largely driven by reduced cost and risk for end-users, an increase in rental services, and much lower customer effort involved in accessing and using rental equipment.
The equipment rental market has seen healthy growth over the previous 3-5 years. According to the American Rental Association, rental in the US has been expanding at annual rates of 5-7% for the past few years and pre-COVID forecasts called for a 3-5% growth rate over the coming years. Globally, the market Is valued at between US$90-100 billion, and while a large chunk of that comes from Europe and North America, there are clear signs of growth across the rest of the world given the increasing expenditure on infrastructure projects. The growth rates identified above are reflected in broader industry segments such as construction equipment, farm equipment, and material handling equipment.
A Preference for Rental
There are many reasons why rental is a more attractive preference for equipment end users. The first and foremost is flexibility where organizations can access equipment when and as they need it. This allows them to offload equipment for their balance sheets, significantly reduce capital expenditure, and focus investment on their core businesses. Rental also helps customers reduce complexity and save money. Outsourcing the ownership of the assets leads to a reduction of time and expenses in procurement, maintenance, logistics, and disposal, essentially by shifting the risk of these activities on the rental provider. And finally, a rental model enables customers to access a more modern fleet of equipment with updated features and technology, something that’s cost-prohibitive with an owned fleet.
The growth in rental demand is being met by equipment providers. Original equipment manufacturers (OEM) and their dealers (factory owned and independent) are increasingly offering rentals as a way to augment their primary sales and service businesses. In many markets, margins on new sales are declining due to increased costs and greater competition, while service and parts margins are also beginning to face an increasing amount of competition.
Therefore, OEMs and their dealer networks are increasingly looking to rental as a means to offset product-related margin decreases. There is a lot of competition being driven by a growing number of dedicated equipment rental providers. These organizations, such as United Rental, Sunbelt Rental, Herc, and Ahern, are not only growing in number, but also in size and sophistication. As they garner a greater share of their customers’ fleets and wallets, they are beginning to offer higher levels of equipment options, availability, and an increased portfolio of services tied to specialist knowledge, expertise, and products.
All organizations involved in the rental game now have access to an increasing suite of digital tools at their fingertips. These tools include:
- Customer-facing Applications – These allow customers to view available equipment, reserve equipment, manage their rentals, process payments, and more. These take away a number of steps in the rental process, inject convenience, and improve the overall customer experience.
- Asset Tracking – GPS-based fleet tracking and fleet management solutions have become the norm to assist organizations in keeping tabs on their vehicle fleet. Originally placed to track asset location, these solutions have become more relevant when looking to determine the usage and mileage of a short-term rental for appropriate billing and invoicing purposes. Several rental companies are now beginning to extend asset location services to their customers with an eye on helping these customers keep tabs on their rented vehicles and tools.
- Diagnostics/Telematics – On top of location coordinates, manufacturers, dealers, and rental organizations now have greater access to vehicle performance information. This is particularly useful when it comes to planning and scheduling condition-based maintenance activities. Instead of static time-based maintenance, service departments can now plan for activity- or usage-based maintenance which lowers the overall downtime, increases availability, and allows for better resource planning. Usage data can also be used to appropriately charge and invoice the customer especially if they exceed the terms and limits of the rental contract.
- Service and Maintenance Management – Rental availability and utilization are primary metrics used to measure rental performance. To ensure the highest level of availability, it is essential that field- or shop-based repair or maintenance is conducted in the most effective way possible. Process-driven solutions can eliminate the delays and errors associated with paper handoffs. Mobile applications with complete access into service and asset history can empower technicians to address relevant service needs in the most timely and effective manner. What’s more, improved mobile tools can also help service organizations better track and validate rental equipment damage to ensure appropriate accountability from rental customers.
- Analytics and Dashboards – These tools offer vehicle or fleet-level insight to various stakeholders to support decision making. A rental manager might need to view the available capacity to support upcoming customer needs while a business owner might want to track rental margins or fleet age to determine the appropriate mix of the rental fleet.
Of the equipment dealers that we have worked with, all have indicated an increased interest in rentals as part of an equipment portfolio to meet customer needs. This is due to the draw of:
- Higher margins in comparison with new equipment sales.
- Lower cost of support and maintenance especially if the age of the rental fleet is managed.
- Premiums on rental equipment sales vs. used equipment. Dealers report a 10-15% premium especially if the maintenance and service history is well documented.
- Forays into new services. Rental relationships offer the opportunity to move into project management services for rental customers thereby expanding the customer’s share of wallet.
For those OEMs and dealers looking to uncover new opportunities for customer and revenue growth, rental is a path that they must consider. In the short-term, COVID-related shutdowns might lead to a dip in the equipment rental market, but in the long run, we see greater market-driven appetite for the flexibility of rental offerings. This appetite is driven by reducing the effort customers need to expend in order to get the equipment that they need, allowing the OEM to drive increased add-on services and options, all while reducing the upfront cost and risk associated with buying equipment outright. It is a win-win for all involved.