Andy Wright column: six themes for the future of rental

So, we appear to have an industry that’s dividing into two camps.

The first is highly specialised and that specialist focus is driving continued growth and returns even against a softer market environment.

The second camp is generalists, who are struggling to deliver acceptable returns and are continuing to de-specialise areas of their business and make a continuous range of cost reductions to try to solve the return on investment challenge. This is further reducing revenues and pushing these businesses into the doom loop of reducing front line costs and driving revenue further down, resulting in the need for continued further

IRN columnist Andy Wright.

Given this context, there are clearly some important questions for all players in this market. Where does the rental industry go to next? What are the big themes that are emerging or likely to emerge? And how do we stay relevant during the transformation of the industry that’s to come?

For all equipment rental companies, the next phase looks less like growth through simple fleet expansion and more like a shift toward becoming technology-enabled, infrastructure equipment solutions provider.

In support of this view a few major themes are emerging:

1. Rental penetration keeps increasing

Contractors and industrial clients increasingly prefer flexibility over tying up capital in owned fleets, especially with uncertain project pipelines, high equipment costs and non-optimised utilisation risk. Large firms are now using ‘blended fleets’ — owning core assets while renting peak-demand equipment.

The increased reliability of product and service via rental specialists, driving uptime and availability, will continue to drive this area.

2. Electrification of the work site is gathering pace

As the cost of diesel grows and the cost of providing clean energy continues to reduce, this will become an ever-increasing area of differentiation for forward thinking organisations. Electric equipment is becoming ever more available, is proving that it can do the job at least as well as diesel plant, and the cost of adopting this new approach is becoming ever closer to that of the older technologies.

There is a plethora of new products available now, from BESS to solar to electric plant to hybrid generators and they are being utilised on an increasing scale.

Infrastructure, rail, utilities and public-sector projects require ESG compliance. Rental firms that can provide these solutions will likely gain share and strengthen their positions.

3. Infrastructure mega projects are increasing and will continue to absorb capacity

Infrastructure investment is going to double over the next five years. This will be in the areas of energy capacity projects to increase grid capacity or improve power distribution to meet the needs of renewing an ageing power grid, as well as providing more capacity for areas such as data centre growth, continued EV rollout and electrification generally.

Energy projects will also include other utility upgrades such as the planned investments in the water sector and much needed improvements to road, rail and air transportation.

All of these will utilise large volumes of high-value rental equipment across the market.

4. Digitalisation becomes mandatory

Rental businesses that still operate like traditional depots risk margin compression. Software and technology supported operational efficiency are becoming just as important as fleet size.

The customer base is driving the industry toward IoT/telematics, predictive maintenance, dynamic pricing, online booking, usage-based billing, AI fleet optimisation, to name but a few areas where change is coming and necessary to stay relevant.

5. Labour shortages favour rental specialists

A major structural advantage for rental firms is that customers increasingly cannot recruit mechanics or operators themselves. Rental companies are becoming outsourced maintenance and support providers, not just asset owners.

This strategic issue for customers offers an opportunity for rental companies to add valuable profit margin to their services and supplement the ‘dry hire’ equipment that is not making sustainable returns. That will push the sector toward ‘equipment + operator’ bundles or a managed site services solution.

6. Consolidation is a likely outcome

Given all of the areas of required change and investment above, this may well drive further consolidation of the market as smaller regional hire firms may struggle with rising fleet costs, technician shortages, compliance burdens and digital investment requirements.

Consolidation is critical for the future of the industry so that businesses are not only just staying alive but also for them to thrive as a consequence of reduced capacity in the market, providing an opportunity to raise prices and be adequately rewarded for the great work that they do.

The biggest strategic question now is whether rental firms become i) high-tech infrastructure service solutions businesses, or ii) remain commoditised fleet providers competing mainly on price.

It’s my view that the market will reward the first group far more highly in the future.