Wednesday, 5 March 2014

A rental comeback in Construction

On the back of some positive signs of growth and recovery, the construction industry is emerging from the residual effects of the housing bubble and the GFC. With the current slow rate of economic growth, construction contractors have been forced to adopt more cost-effective and streamlined business practices, such as renting as opposed to purchasing construction equipment.

With signs of appears to be a construction recovery, the rental industry has experienced unprecedented growth both in Australia and worldwide. Accordingly to an American Rental Association (ARA) report, the equipment rental industry reached over $33 billion in revenue in the US alone in 2013, largely due to double-digit growth in the construction sector in the US. The ARA also reports that revenues in the equipment rental industry are further projected to grow 10.2% in 2014 and 14.9% in 2015. Similar results can be expected in Australia given the global trend. 

So what is the driver behind the increasing preference to rent instead of purchase equipment in construction? Why is renting a more cost-effective and efficient way of operating a business?

The economy 

With growing unemployment in the Australia, economic growth for 2014 is expected to be slow. This has caused the market to be cautious about taking risks, particularly given the uncertainty in the housing market.

For construction contractors, slow economic growth, market uncertainty and conservative lending attitudes from financial institutions all lead to the conclusion that renting construction equipment is a more risk averse option than taking a loss from capital investment.

The savings

Many small and mid-sized contractors who diversify their services to include mining, utility and pipeline contract rely on rental equipment to deliver their services. The cost of renting is significantly less than that of buying and maintaining new machinery for each specialised job. This is particularly so when you take into account the invisible costs such as the cost of equipment depreciation and repairs.

The savings from renting can be invested in other aspects of business, such as staff training, hiring more skilled workers or business networking and marketing.

The convenience

Many contractors develop an ongoing relationship with their rental company or dealer. This has the advantage of giving them access to a large inventory of equipment, all catalogued, priced and ready to be used. All it takes is for the contractor to place an order on the phone or online, and then await receipt in a few days.

By contrast, buying a similar piece of heavy machinery usually involves a much longer process of research and waiting period.  

Renting also gives a contractor an opportunity to test a piece of equipment to see how it works onsite before committing to a purchase or a long-term rental.

Managing your rentals

Despite the passing of the GFC, the construction industry is likely to continue to face periods of market uncertainty and slow growth. It is important to prepare and adapt your business to the current economic environment by choosing to make changes to your pre-GFC business practices. Start today by changing from owning to renting your equipment.

Effective rental management is not just about an exchange of money and equipment. To maximise the benefits of renting equipment, both rental companies and construction contractors may find that they will benefit from a rental software that delivers fast, accurate and informative results.  

Learn more about how inspHire rental software can help your company manage equipment costs and contact us today! 

No comments:

Post a Comment