This month’s cover story, beginning on page 14, presents a forecast for 2014 from the point of view of rental companies. It’s not an overall view of the economy because that is something completely different.
I started researching this rental forecast by reading what general economists were saying. I read Kipplinger Letters, reports from Beacon Economics, UCLA, Indiana University and various other universities’ economic think tanks, Forbes, the Congressional Budget Office and a host of other economic forecasts online and in magazines. If you want to get depressed, I suggest you read some of these. Well, you probably should read them anyway because it’s important to have a well-rounded view and as broad a perspective as possible. But as soon as I started e-mailing and talking to rental people — and I interviewed a few dozen for this piece — my perspective began to change significantly.
One of these reports talked about the U.S. continuing with the same “tepid” pace of economic growth (“stuck in a sub-2 percent rut,” it said) again in 2014. Not too encouraging I grant you. But none of the rental people I talked to said they were stuck in a sub-2-percent rut; although there were a couple that didn’t really expect growth in 2014.
Most were 7- to 10-percent up in volume in 2013 compared to 2012, some considerably more. And, in general, profitability improved because companies were running more efficiently and avoiding the temptation to throw caution to the wind and over-fleet as they had in the past. So while these economists — and I assume they know a lot more about economics than I do and might have Masters Degrees and PHDs to prove it — might very well be right, the rental industry is definitely looking at a different reality than the macro economy as a whole.
Looking ahead to 2014, most rental companies seem to be optimistic and a good part of their optimism is that their customers are more upbeat. A lot of customers have a solid backlog of work on their books going into 2014. Companies that do business with smaller contractors who are more likely to work day-to-day or week-to-week said those smaller customers are busier and more optimistic than they’ve been in a while, and all of that bodes well going into 2014.
And as I write this in mid-December, the House and Senate look as though they might actually be putting together a budget deal for the next couple of years. That would certainly be an encouraging sign.
When asked to discuss concerns they had going into the new year, there emerged a considerable list, which you can read about in the article. High among them, unsurprisingly, is the Affordable Care Act, and it seems the uncertainty about its effects was the biggest concern about it, rather than a clear understanding, so we’ll certainly be examining its impact more as 2014 progresses. The continuing impact of Tier 4 also looms large and the obvious main concern is the cost of equipment rising further but rental rates not keeping pace. And while evidence is showing that rental rates are rising a bit, they are not increasing proportionally to the cost of equipment.
An interesting issue raised by a few people is the question of whether or not rental companies will recall the lessons they might have learned from the last recession. It’s a valid question and the cyclical nature of this industry makes that tendency inevitable. After a number of years of sub-par business, things seem to be moving again. Companies that really wanted to grow and expand obviously kept a lid on things during the tight recessionary times and their immediate aftermath. Now finally it seems safe to grow again. Credit is more available. That extra branch, some extra fleet, those product lines you want to try out are beckoning.
I’m not going to sit here and tell you not to go for it! The old business maxim that if you aren’t going forward you are going backward, that if you’re not expanding you’re contracting, still exists, no? But might we end up in the same place, with too much fleet out there perhaps chasing too few jobs and causing more downward pressure on rental rates and here we go again?
Yeah, it could indeed happen again. It’s a valid concern but at the same time everybody wants to grow their business.
So please take a look at our cover story and tell us what you think, and whether or not you have similar expectations for 2014 as most of those quoted do. We’ll be eager to hear your input.