To Buy or Rent? Answering the Age-Old Question as the Construction Season Looms
Whether performing a simple lateral connection or completing a multi-million dollar system installation, pipeline and utility contractors depend on their equipment to get the job done and keep their revenue stream flowing. Purchasing equipment makes sense in many cases, but sometimes renting equipment may be the better option. So how does one know when to buy or when to rent?
To help answer that age-old question, as well as offer their views on the rental equipment market, we asked Matt Flannery, president and COO, of United Rentals, one of the largest equipment rental companies in the world, offering a plethora of construction equipment to address myriad jobsite applications.
What is your outlook on the equipment rental market entering 2018? Bullish? Bearish? Why?
FLANNERY: Based on what we see and hear from our customers, we think the equipment rental outlook is solid. Our customer confidence surveys through September were very positive, consistent with similar surveys done by trade groups. Many of the key leading construction indicators — including contract backlogs, Dodge and the Architectural Billings Index — have been encouraging as well. The same can be said for the leading industrial indicators. Together, these point to a healthy U.S. economy that we think should benefit construction activity and the equipment rental market.
During the 2016 election, there was talk about increased support for infrastructure construction and repair. What impact did it have on the market in 2017? What about looking ahead?
FLANNERY: There was good reason for all that positive talk during the election — a great deal of our nation’s infrastructure is in need of repair and improvement. It seems that some state and local governments have had to move forward and tackle problems that can’t wait.
The good news is that there is broad bipartisan support for a solution. Anything that does get legislated should be additive to what we think is already a growing market.
The American Rental Association forecast that the equipment rental market was expected to reach $49.4 billion by the end of 2017 and well over $50 billion by 2021. What do see as the main drivers of this growth?
FLANNERY: We don’t speak to our business as far out as 2021, but based on what we see and hear today, the U.S. construction and industrial cycles feel intact. Beyond that, we continue to believe that rental penetration should provide a tailwind to help our industry outgrow its underlying markets.
On the other side, what factors may be limiting growth? What changes would help lead to more activity in construction?
FLANNERY: Overall, the U.S. economy feels healthy — any discussion really needs to start there. More certainty around pro-growth tax policy and regulatory reform could help; we would expect that to spur our end markets in various ways. A federal infrastructure bill would augment the activity already underway at the state and local levels.
What trends are you seeing in terms of equipment finance?
FLANNERY: I don’t know that we’ve seen much change. Capital remains available to credit-worthy companies. Used equipment values have remained solid; this gives banks and other sources of capital confidence in supporting our industry.
What are the primary considerations when considering rent vs. finance?
FLANNERY: There’s a lot of support for a rental strategy when equipment isn’t needed 100 percent of the time. For one thing, renting allows contractors to focus on what they do best, instead of taking on the costs of mechanics and parts inventories, and vehicles and drivers to transport the equipment. An equipment owner also assumes the logistical demands of buying, selling, storing and insuring the assets, in addition to emissions control and other regulatory factors. Most important, renting has big upsides in terms of productivity and safety. It’s a way to get exactly the right equipment for the job while conserving capital and avoiding technological obsolescence. For the vast majority of our customers, the rental option makes their life easier and is an economically superior way to operate.
The equipment rental market was expected to reach $49.4 billion by the end of 2017 and well over $50 billion by 2021.
How are the equipment needs of utility contractors different from the construction market at large? How does your company cater the needs of utility contractors?
FLANNERY: We’ve had a lot of success addressing the varied needs of utility contractors with the breadth and depth of our fleet, which currently stands at $11.6 billion of original equipment cost. This includes our General Rental fleet and our specialty solutions of Trench Safety, Power & HVAC, Pump Solutions and Specialty Tools. We can function as a single-source provider to a utility contractor, offer technological advantages such as Total Control and online ordering, and serve that customer relationship across 49 U.S. states and all 10 Canadian provinces with our branch footprint.
How has the equipment rental market evolved over the years? Where do you see it headed?
FLANNERY: The rental business is a service business, but years ago people thought of it as being in the equipment space. That has really evolved — today, customers understand the role of rental in supporting worker safety and jobsite productivity. We see technology as enhancing that even more in the future.
Our industry is becoming increasingly attractive to entrepreneurs and to talented men and women who are looking for a meaningful career.
Tags: Equipment Financing, Equipment Rental, May 2018 Print Issue, Pipeline Equipment
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