One of the keys to driving strong bottom-line results for utility construction operations is efficient fleet management – and smart equipment financing is a major component to achieving this.
Based on our experience working closely with utility contractors, we’ve highlighted some of the top trends currently affecting how managers and operators are – or should be – building and financing their fleets:
1) Booming Industry Demand Causing Equipment Shortage
The utilities industry is experiencing record-high levels of activity as a result of projects including road upgrades, grid modernization, and the response to recent extreme weather events. According to S&P Global, there was an increase of approximately 14 percent in capital expenditures in the sector in 2018.
This naturally drives the demand for both utility contractor services and the equipment critical to their operations. As a result of unprecedented activity, the industry is experiencing a shortage of new equipment and lead times are extremely long.
Firms that remained competitive through utilizing the latest and greatest equipment are now finding that with proper maintenance, refurbished bucket trucks can be essentially as good as new.
Further, contractors are able to lock in much less expensive fixed-term financing for these used assets now, in anticipation of rising interest rates, rather than waiting on new equipment.
2) Rental Conversions Gaining Popularity
Smart fleet managers typically have a mix of rented, leased and owned equipment. The short-term rental component is meant to allow flexibility to quickly scale up or down to adapt to shifts in demand.
That said, due to an industry boom that is expected to continue, operators are finding value in converting a large portion of short-term rentals to fixed-term leases.
While the monthly payments are similar, a much higher portion of lease payments will go towards equity vs. with the rental payment. Since the equipment is likely to experience a long usable life and demand, firms have the option to ultimately to acquire the equipment at a lower operating cost than rental program.
Further, an increase in industry mergers and acquisitions activity has resulted in some operations are converting their rental agreements to gain the assets and bolster the value of their firms.
3) The Pursuit of Green Fleets
Utility contractors, along with other construction professionals, are increasingly recognizing the benefits of building a green fleet in compliance with existing and upcoming federal and state standards.
The good news is that as energy-efficient technologies improve, these pieces of equipment are increasingly affordable, and made even more so due to cost-effective financing options.
For example, we work with a company that has developed energy-efficient and environmentally friendly hybrid bucket truck and digger derrick options. While more expensive than traditional models, their hybrid bucket trucks offer many added benefits such as fuel savings that can add up significantly over time.
Our partnership with the company allows them to offer leases on these trucks, enabling customers to keep their equipment fleets fresh while benefiting from reduced operations and maintenance costs.
Chris Lewis is a Senior Regional Manager at Summit Funding Group, an Ohio-based company that provides equipment lease and finance solutions to businesses across the U.S. and Canada.