Higher Expectations

October 20, 2004—For years, the equipment rental business has suffered from depressed rental rates, which has more to do with over supply than lack of demand. Construction spending has been strong for several years, yet rental fleet utilization has only recently approached acceptable levels. In some cases, utilization is even running too high. Believe it or not, there is such a thing as an over-utilized fleet!

In some regions, notably the west and northeast United States, rates are at a five-year peak. Previously I've been critical of United Rentals' pricing practices, but in these regions the company is showing leadership getting rates up. According to one friend in southern California, who competes with United Rentals, “They have some of the highest rates in the area.”

I have seen first hand the positive effects of this phenomenon. It stands to reason that if a rental company can improve its return on investment then it can invest in newer equipment. Buyers that have been aging their fleets a little longer than they would prefer are starting to get out their checkbooks again.

Backlogs among equipment producers are stronger than ever, especially among telehandler manufacturers. In fact, some OEMs have been caught by surprise and can't deliver certain equipment classes until after the first quarter of 2005. Even modest price increases—the first in years—forced by rising steel and petroleum prices, are doing little to dampen this rising optimism. New equipment is flowing into rental yards all over the country. It is really quite exciting.

So why are higher rates good for those of you who depend on renting equipment to get the job done? Higher rental rates really can lower your overall cost of doing business, but it is up to you to make that happen. Newer equipment means more productivity, fewer break downs, and better worker morale. Better margins for rental companies should also mean that they are able to do a better job of providing you the essential and appropriate operator training. If you are paying a higher rate, you need to demand that you get what you deserve—late model equipment, first-rate service, and access to proper operator and safety training. There are many of rent companies out there prepared to deliver these services to you. If your rental equipment supplier isn't willing to, I would take my business elsewhere.

Higher rental rates warrant higher expectations. The best rental companies are ready to prove they can deliver on those expectations.