Symbiotic is an appropriate word to describe the relationship between a rental company and its suppliers. Without one another, neither would be as successful. But just like any relationship between human beings, the rental company/equipment manufacturer relationship requires constant care, attention and massaging from all the people involved. And logically, as is also typical with human relationships, the one between rental companies and equipment manufacturers is easier during good times than in bad.
It's fair to say the economy in North America today is challenged, and these are not the easiest of times for the construction market or the parties that serve it. As a result, rental companies and equipment suppliers are working harder than ever to maintain and grow the partnerships they have in place, despite the rising costs of doing business.
Materials costs have risen sharply over the past several years as have fuel costs, and, naturally, equipment suppliers are passing along some of these costs to customers in the initial sales prices of machines. So how are these price increases affecting those important partnerships and how are rental companies managing the cost increases in their day-to-day operations?
For Paul Bennett, vice president of sales and marketing for Boise, Idaho-based Tates Rents, the higher cost of equipment has caused the company to first carefully consider whether or not to sell used fleet and then whether to replace it with late-model used machines or with brand new machines.
For Greenville, S.C.-based AMECO the overall spike in equipment costs has led the company to analyze all of its equipment categories to determine which ones should remain at the core of the company's fleet offering, and for which ones the cost of ownership has become too high to reasonably recoup the costs with rental rates.
Both rental companies acknowledge that costs are increasing on every side of the equipment lifecycle, driven by shortages in raw materials and rising fuel costs, and they say they understand the reasons behind those increases and are looking internally to come up with smarter business practices and ways to manage leaner. While many manufacturers are doing their best to swallow some of the high costs, some of the added costs must inevitably be passed on to the customer.
“I would say they are trying to absorb as much as they can, but they are also passing along as much as they can get away with,” says Dean Smith, vice president for global asset management group for AMECO. “Where it sometimes gets us is not necessarily in the hard cost, but in the availability. Crane manufacturers for instance will have cranes built and ready to go out of the factory, ready to be put on a truck and be shipped, but they don't have tires.” As a result, the rental company will likely lose revenue on a project while the machine waits on tires.
Sarah Rothenbuhler, owner of Birch Equipment Rental, Bellingham, Wash., acknowledges that manufacturers have to pass on their cost increases, and she also recognizes that the services they provide such as on-site, hands-on training are invaluable.
“Of course they're passing their cost increases along, but our manufacturers are in here at our facilities all the time providing hands-on training, and making sure we understand their fleet designs,” Rothenbuhler says. “We're in a low income, high cost tide right now, and we've been here before. Our good, long-term contractors, they know and they are dealing with the same thing.”
Rental veterans know that the economy and construction spending are on a parallel cycle, and that boom times come and go, but the fuel issues that are on top of everyone's minds may not be resolved with the end of a cycle or by time alone. Instead, manufacturers are scrambling to develop more fuel-efficient machines, create hybrid prototypes and to become approved for biofuel usage. With costs going up in every direction many rental companies are watching manufacturers closely for the latest solutions.
“Our customers are concerned with fuel consumption more now than ever and it is a selling tool to have an efficient piece of rental gear,” says Bennett.
Manufacturers such as Volvo Construction Equipment and Komatsu are developing hybrid machine models, and many other manufacturers are getting their machines approved for use with biofuel.
Smith notes that the development of hybrid technologies would likely influence AMECO's equipment buying decisions, citing that many of the companies AMECO does business with globally look to it as a U.S. company to give them innovative ideas. “If we can introduce to them some fuel efficiency and some cost savings then that would be huge, so yes, we are definitely looking for our suppliers to modify their equipment to be more fuel efficient. And the biggest thing is the hybrid engine right now.”
“We work for a lot of large global contractors and they have mega projects where a few percent savings here or there on a lump sum project is something that's important to them, so as a service company to those large players everything we can bring — whether it's new technology or a more cost competitive way of doing it — that's where we leverage that vendor base and determine how marketable is that advantage and whether we can extract some value out of it too,” says Gary Bernardez, AMECO CEO.
Rothenbuhler jokes that rising fuel costs are leading Birch Equipment to consider delivering by bike rather than fuel-guzzling truck, but points out that the high prices lead her company to continue to concentrate more on communication before making deliveries or pick-ups, and training drivers to avoid idling.
According to Bruce Miner, central shop manager for Birch Equipment, managing the efficiency of the company's management and service fleets are just as important as the fuel efficiency of the equipment. “Idle time is huge,” Miner says. “Train your staff and monitor them; make sure that they don't keep stuff idling. That's been one of the biggest savings that we've noticed.”
Beyond fuel, Rothenbuhler says, costs on everything petroleum based such as batteries, tires, filters and lubricants are being driven up by the high price of oil. Internal training and creativity among rental company personnel can help offset those costs in part. Birch recently changed its replacement tires from a biased tire to a radial tire, and now gets 3 to 4 times the use out of them. The company also implemented a battery recovery program about seven years ago, which allows them to extend the life of their batteries by up to 66 percent.
“Prices are going up for everybody and we're just trying to keep up,” Rothenbuhler says. “It isn't the initial cost, it's the cost of ownership that's really getting us.”
Lean times often give rental companies the opportunity to show customers the value-added benefits of their service offerings such as on-site service and maintenance repairs, operator equipment certification and job-cost reporting. In turn, rental companies can reflect on their equipment suppliers and the services they can provide.
The equipment rental companies interviewed by RER for this article agree that price isn't the No. 1 concern when choosing and maintaining loyalty to an equipment supplier. Instead, trustworthiness, availability, aftermarket support and service, and fostering of a partnership often come first — good news for equipment manufacturers who work hard to achieve all these qualities and stand out among the competitive iron landscape.
“We really look at ourselves as partners with the manufacturer,” Rothenbuhler says. “And a lot of our manufacturers look at us and other rental companies the same way. The relationship keeps you going through the slowdown. It's a pretty competitive market out there. Everybody's looking for a better, more efficient, more cost effective way to do things, but we still need that consistent quality of operation.”
AMECO's Bernardez notes the importance of partnerships between the rental channel and manufacturers for the benefit of both, and, ultimately, the end users as well. “We've got to give [manufacturers] better visibility than we have in the past on the expectations and requirements we have coming up in the next 6, 12, 18 months because one of our key competitive weapons is quick global response,” says Bernardez. “We support some government-related work around the globe that's very quick hitting; we've got to have vendors who are able to help us, so when we do call on short notice we get the best service we can get.”
Communication down the rental channel is a two-way street, but when manufacturers and their rental partners stay abreast of each other's challenges during a slowdown, their businesses and partnerships can come out stronger on the other side.
“Don't forget we are all in business to take care of the customer from start to finish,” Bennett says. “[Suppliers must] keep us informed of the newest products and technology. Education is key.”
Regardless of whether the economy is booming or lagging, rental companies expect the same support from their manufacturers, just as their customers expect the same level of service and support on the equipment they're renting. That circle of service is infinite regardless of the economy or the tide of the business cycle.
