Equipment Finance and Rental

equipment

Whether performing a simple line tap or completing a multi-million dollar network installation, 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 two industry experts to share their knowledge. They are:

  • Paul Dreher, Fusible Piping Product Manager, Core & Main, and
  • Matt Flannery, COO, United Rentals

Core & Main is a prominent player in the rental of HDPE pipe fusion equipment, while Unite Rentals is the largest equipment rental company in the world, offering a plethora of construction equipment.

What is your outlook on the equipment rental market entering 2018? Bullish? Bearish? Why?

dreher
Paul Dreher

PD: We see the rental business being bullish in 2018. Particularly in our case, where the majority of our rental equipment is used for HDPE pipe fusion, a market which pipe shipments are up nearly 24% over 2017 and from what we are hearing from the pipe producers, there is no slowdown in site. This growth is largely fueled by the surge in oil patch/water transfer applications.

MF: 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?

Matt FlanneryMF: 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 latest indications are that the White House may present some sort of a plan in January. 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?

MF: 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?

PD: Certainly, the underground construction industry needs the $1 trillion dollars in infrastructure spending that has been talked about to become a reality. Additionally, when most think and talk about infrastructure, they think of highways, bridges, and transit. We need the emphasis placed on underground infrastructure as well.

MF: 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?

MF: 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?

PD: When weighing whether to rent or finance a piece of equipment, there are many factors to consider. First, what is the rental rate and duration the equipment is needed vs. the purchase price of the equipment? Will the equipment be used again in the future and at what frequency or utilization rate? Additionally, what is the anticipated maintenance cost, and do you have the ability to self-maintain or have a local distributor/dealer who can provide that service? Finally, the future resale value of the equipment, cash flow, and any potential tax-related issues should be considered.

MF: There’s a lot of support for a rental strategy when equipment isn’t needed 100% 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.

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?

PD: We cater to the needs of utility contractors and concentrate on the best ways of providing dependable expertise. In fact, our ability to provide assistance with financed sales came directly from our customer’s needs. They had long-term equipment needs for which it made sense to purchase rather than rent, however they didn’t want to purchase outright immediately, so financing made sense for them. We then aligned with national banks who understand the utility contractor industry to provide that option for our customers.

MF: 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?

MF: 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.

Concluding thoughts …

PD: Our rental business is a key component to providing a complete package to our customers. We have the ability to sell them the pipe, fittings, and accessories as well as rent them fusion machines for the installation. It may be their first fusible HDPE project, or a size range that they don’t currently have the equipment for, that drives the need for them to rent from us. If it makes sense for our customer to purchase equipment, then we also have the ability to help them with leasing. Either way we are able to fulfill their equipment needs, providing that complete package.

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