Equipment is the name of the game for utility contractors. The right tool for the job can mean the difference between a successful and efficient (and profitable) project.
But sourcing and maintaining equipment becomes a separate challenge. You can’t afford to keep an inventory of all of the specialized tools that can be helpful for contractors, so renting and leasing equipment comes into play.
To help contractors make the decision to purchase, lease or rent a piece of equipment, we turned to the experts in the field. We asked representatives from Komatsu, Sunbelt Rentals and United Rentals, what information they can share to help navigate the plethora of options available.
Our expert panel comprised:
- Gregg Christensen, Vice President-National Accounts, United Rentals
- James Dennis, VP, Specialty Fleet Operations & Procurement, Sunbelt
- Rich Fickis, President, Komatsu Financial
- Jimy Joseph, Director, Rental, Komatsu America
What are the pros and cons of buying equipment?
Christensen – It is often best to own or lease equipment in heavy rotation and rent equipment that a contractor only uses occasionally. However, there are exceptions including specialty equipment, such as trench protection systems, where equipment rental makes good business sense. Having at least six months of historical data on the usage and maintenance of owned equipment is extremely valuable when making buy vs. lease vs. rent decisions. Telematics used in conjunction with fleet management software can provide this data.
There are multiple criteria to evaluate when approaching a buy-or-rent equipment decision. For one thing, purchasing equipment often requires large down payments, diverting a significant portion of a company’s capital. Additional expenses associated with ownership include insurance, taxes, licensing, interest on loans and paying for a storage yard. Renting provides the opportunity to reduce capital expenditures and reallocate those dollars to higher ROI activities, such as technology.
Dennis – There are several pros of renting equipment, primarily lower overhead costs and increased flexibility.
When renting equipment, the onus for maintenance, repairs, storage and transportation of that equipment is on the rental partner — not the customer. Not only does that save on the direct costs of owning equipment, but also on indirect costs like potentially needing to keep a tech on staff to maintain equipment.
Renting equipment also offers increased flexibility, which is particularly important in the utilities industry. When you have an emergency situation, you need a partner who can deliver equipment when and where you need it without worrying if that piece is in the shop or if it’s occupied on another project. You can also take on unique or niche jobs because you have access to a wider variety of equipment and technology than you might have in your yard on a day-to-day basis. Another flexibility bonus is the ability to try out new equipment or technology to determine whether you should make the investment to own.
Fickis – One of the biggest benefits of owning equipment is building the equity in the asset. In today’s low rate, or 0.00%, environment, customers are able to build equity more quickly because a large majority of the payments are going straight to principal. This eliminates future loan to value risk on their asset portfolio. There is also the tax benefit of taking depreciation on the assets on their balance sheet. This benefit has been even more prevalent the last several years with bonus depreciation applicable. Lastly, ownership allows a customer to allocate assets as they see fit with no restrictions on machine application, machine spec and attachments, or hours utilized.
Pros and cons of leasing equipment?
Fickis – Leasing generally offers the customer a lower risk option with a predictable total cost of ownership. With Komatsu’s complimentary KCare maintenance, a customer knows their monthly payment, monthly usage tax, and maintenance cost for a set period of time that aligns with the lease term. They then have the option to return the asset, renew the lease, or purchase the machine. The lack of a full payout obligation and the options at the end of the lease offer flexibility so the customer can make a decision that best fits their needs at that point in the economic cycle. Customers often use this flexibility to match leased fleets of equipment with long term jobs in their backlog. Leasing also allows a customer easier access to updated technology as they can return assets on a periodic basis and replace them with our newer models
Pros and cons of renting equipment?
Christensen – Understanding equipment utilization and total cost of ownership helps in making smart, data-driven decisions about when it makes sense to rent a unit rather than own or lease it. Units with a utilization rate below 50 percent are a good place to start when evaluating fleet for assets that could be good candidates for rental consideration. But there are no hard and fast rules. For instance, even if the overall time utilization of a unit is under 50 percent, if a contractor uses it every day, the company probably should own it.
When renting, contractors pay only for the equipment they need, at the time they need it. Rental equipment contract periods provide the flexibility to get the right equipment for a job for any length of time, so a firm doesn’t invest in buying machines that will only see a short period of use.
Also important in this decision is the equipment rental provider. When assessing rental providers as a source of supplemental equipment, contractors should adopt a business-centric approach. The evaluation should examine: Can the rental company provide the equipment most likely to be needed for core projects? How deep is their fleet; will availability be an issue? Can they deliver equipment to the locales where it is needed? Do they have the expertise to help manage owned and rented fleet?
Joseph – There are many pros to renting equipment. Cost is a primary advantage of rental equipment because it provides a contractor with access to a wide variety of equipment without the need to make a large investment. This allows contractors to keep up with workloads while still managing the risk of an economic downturn. Owning and operating costs of equipment continue to increase. By renting equipment, contractors can avoid or minimize storage costs, labor costs of technicians, etc. Additionally, construction and utility equipment has gotten more advanced (Integrated Machine Control, telematics, etc.). These advancements help contractors get more efficient, but it comes with added costs. By renting equipment, contractors have access to the latest technology, without having to make that large upfront investment.
A con of renting equipment is that a contractor builds little, to no equity in the equipment. Additionally, in a strong construction market, demand for rental equipment can exceed supply, and a contractor who relies entirely on renting equipment may find themselves without the machines they need to complete their jobs.
What types of financing are available? Through the dealer/manufacturer? Bank? Other? What is the most common route for utility contractors?
Fickis- Financing through the OEM and utilizing a captive finance company like Komatsu Financial offers the most flexibility when it comes to financing Komatsu equipment. We have long-term expertise in structuring construction equipment loans to fit a customer’s specific needs. This flexibility in financing options has led to Komatsu Financial financing over 80% of all new Komatsu sales. Our offerings include leasing programs from 12 months and up, as well as low rate subsidized financing on most of our product line. Our strong dealer network has trained finance staff that will work with customers to provide credit approvals structured to fit your business needs within a few hours.
What is the trend regarding interest rates? What is the outlook on which way they are heading?
Fickis – In 2019, we saw a gradual reduction based on the Fed’s aggressive approach to reduce market rates. Certainly, there are many factors that could impact rates but looking into 2020, we anticipate a relatively stable rate environment and customers can likely expect the same throughout the year.
What training options are available with your purchase or rental?
Christensen – Maintaining up-to-date training on safety regulations and equipment solutions is indispensable to help keep workers safe and productive. Contractors need to select safety and operator training programs that have a team of expert trainers with real utility project experience and know the local, state, provincial and federal regulatory issues that affect worksites. These programs need to include professional training courses – offered online, onsite or at the training provider location – such as excavation for competent person instruction, confined space entry training, safety and fall protection, site-specific regulatory compliance and operator certifications for equipment.
It is important for contractors to keep their crews trained, certified and safe, above ground and below. This is a priority on any project, and in many cases, it is the law. It starts with finding the right training and certification resources. An equipment rental provider should help reduce the overall cost and complexity of training and credential tracking.
Dennis – We take operating safety and training very seriously at Sunbelt. Our rental professionals go to the jobsite to advise and train operators on the various types of equipment currently being utilized. Sunbelt also offers online certifications and trainings, as well as Train the Trainer courses to help customers develop a more robust internal training program on their own.
Joseph – Komatsu and our dealer network has invested significantly in providing our customers with the right training for our equipment. Our Komatsu product managers spend a significant amount of time at jobsites with customers to better understand their needs as well as provide them with training on our equipment. When Komatsu first introduced the fully integrated Machine Control dozer, we also worked with our dealers to add Technology Solution Experts or SMART Construction Consultants who provide training and support to our customers on our intelligent (integrated) Machine Control dozers and excavators.
As a general rule, when a contractor rents a piece of equipment from a Komatsu dealer, the rental sales representative will be present when the machine is delivered to ensure that the machine operators are familiar with the controls. Additionally, the rental sales rep spends a major portion of their day on new and existing customer jobsites to support our customers with their rentals.
Closing thoughts …
Christensen – Managing the complexity of the modern worksite is a major challenge with huge opportunity for improved performance. Addressing this challenge goes beyond equipment. In selecting equipment partners, contractors need to take a holistic approach that brings together equipment, data, safety and expertise to unlock more productivity and value. Taking this approach can help a company get the job done safely, on time and on budget.
Dennis – What contractors may not know is that Sunbelt really offers full-service solutions — it’s not just about delivering and picking up equipment. We work with customers from start to finish – helping them understand the equipment they need; delivering and installing equipment; providing on-site support, monitoring and service; tearing down and picking up equipment; and following up to ensure customer satisfaction.Equipment, January/February 2020 Print Issue, Sourcing, Tips