We've been hearing a lot about the secular shift towards rentals in the past few years as companies turn from buying their own equipment to renting in larger numbers than ever before.
If you look at the numbers of the RER 100, the total rental volume of the 100 companies tops last year by nearly 18 percent. That's a pretty good number and if you read down the list you'll see at least 10 companies with rental volume increases of more than 30 percent and more than 20 others posted increases of greater than 20 percent.
How did it happen? It certainly wasn't because residential and commercial construction increased by 18 percent, much less 20 to 30 percent. Not even close. The numbers released by governmental organizations have been low single-digit increases, not 20 or 30 percent. And you who are in the business certainly haven't seen that kind of increase in jobs.
So where did the increases come from? A lot of opportunity has come from the energy sector. Any rental company doing business near the Bakken or Marcellus shales have most likely had significant increases in business. The petrochemical market is doing very well; wind farms have become a viable business. Anybody who has been able to cater to companies involved in pipeline construction, the oil and gas business or mining concerns has probably seen a lot of demand.
But a lot of the RER 100 increases have come from companies not profiting from the energy market. So if the increase isn't coming from construction, or from energy, where is it coming from? The logical answer is that the “secular shift” we've heard about is real. And why not? Just as rental companies have lacked capital in recent years, so have contractors. They don't want to spend $50,000 or $75,000 or even $25,000 on a piece of equipment, much less multiples of those numbers on multiple pieces of equipment. So obviously they are looking to rent to cut down on fixed costs.
So how long-lasting is this shift? Are these customers renting now because of the obvious economic trauma they've been through and a deeply cautious attitude when it comes to spending? The economic recovery we're going through now is far from robust. We all read the same reports, for the most part, we all follow the news. We all know about gridlock in Washington, the European debt crisis, the unresolved housing situation. You don't hear much talk of a double-dip recession these days, but while optimism is far more widespread than it was a year or so ago, people are still cautious, and companies are still mindful of the need for caution.
But what happens if the recovery really gains traction? Do some of those companies decide to rebuild their own equipment fleets? Or do they decide that outsourcing and the ability to cut down on fixed costs is really good for them?
Time will tell and there are a variety of factors involved. But to a large degree, it depends on you and your performance. If these customers who perhaps recently converted to rental, or recently increased the percentage of their business going to rental, don't get the service they need, their conversion to the secular shift will be a short one. But if the level of service they receive from the rental industry goes beyond their expectations, they're more likely to see it as a permanent business model that works for them.
So the question becomes what are we doing to expand and deepen the level and quality of service we are offering? Are you thinking of the quality of service you are offering now as well as what you can do to keep improving it? I'd hope so or this secular shift will fall by the wayside when business increases significantly. When they ask for equipment and the rental company doesn't come through, when that delivery isn't on time, when a piece of equipment breaks down and isn't replaced immediately, might they not then decide there are easier ways to solve their equipment requirements?
Surveys done by several rental companies indicate that there are key points rental customers care most about: on-time delivery, security of supply, accurate billing and speed of response in case of a problem. And a company that will provide the right equipment for the job and equipment that works. It's not rocket science. Take care of these basics and the secular shift will be long lasting. But fall down on the job and the shift will go back the other way as quickly as they can say “How much does it cost to buy this machine?”