China wrestles with rental growing pains
01 November 2023
The challenges facing AWP rental businesses and the future potential of the market were the focus of attention at the 10th International Rental Conference (IRC), held in Shanghai on 23 October.
The Chinese market is facing “pain points” after more than eight years of dramatic growth, which has seen the total AWP rental fleet grow to more than half a million units.
Rental prices are seeing significant falls – up to 70% from the peak in some product categories - and lengthening payment times, with 12 month delays not uncommon.
Speakers from OEMs, rental companies and technology specialists suggested a range of solutions, including expanding rental product ranges, focusing on added services rather than price, and a closer partnership between rental companies and OEMs.
Wang Shijin, chairman of Shanghai-based rental company, China Construction Bright Future (CCBF), which runs a fleet or around 2000 AWPs, generators and air compressors, told the more than 200 delegates that the rental market was suffering from a problem he characterised as “too high, too low, too long, too short”, meaning AWP production rates that are too high, utilisation rates that are too low, payment times which are too long, and product life and customer loyalty that are too short.
“The delay in payments means that all revenues become account receivables”, said Mr Wang.
He predicted that these problems will lead to 30% of China’s rental companies disappearing in the next three years. He said there was a clear recognition of these problems in the industry, yet there was a “rat race” of self-destructive behaviour.
He said actions to change the market dynamic would include a shift to electric equipment, a rebalancing of rental fleets to have a smaller proportion of self-propelled boom lifts in their fleet – to match the 3:7 boom/scissor ratios typically seen in western rental companies.
“And rental companies need to expand horizontally in products”, said Mr Wang, “We have generators and air compressors, spider-type cranes. The value created by generalist rental companies is much greater.”
Zeng Guang’an, the chairman of Liugong, who gave the keynote address, also argued for the creation of generalist rental businesses; “In China, many rental companies are still in one equipment category.
“Rental companies need to change to multi-categories of equipment. And they need to balance to the product types in their fleets.”
He acknowledged the problems faced by rental companies, and said that Liugong had seen a decline in scissor sales in September for the first time since the market exploded in 2015.
Mr Zeng said rental companies needed to work closely in partnership with OEMs and that developments in cleaner power technologies as well as technologies such as telematics and autonomous operation would present opportunities for rental companies.
He added that new technologies offered the prospect of lower total cost of operation and less reliance on expensive labour, which would help rental businesses.
In addition, said Mr Zeng, traditional construction equipment dealers would have to adapt to the growing role of rental and consider developing their own rental operations; “But rental is a highly sophisticated business – dealers need to change from selling and leasing, they need a new mindset. There will be a reshuffling of dealers in China, and many will disappear.”
The rental market in China
Chai Zhaoyi, managing director and founder of Shanghai Pangyuan, China’s largest tower crane rental company, said OEMs were too focused on creating new products and on the needs of end users, rather than their main customers, who are rental companies.
“In the current market, pain is shared throughout the supply chain. OEMs are asking us, why are you always reducing rental prices, and we are asking them, why are they always launching new products?
“The customers of the manufacturers are no longer the big contractors, but rental companies. But OEMs do all the R&D and marketing surrounding contractors. OEMs have to understand who their customers are.”
Some speakers offered a vision of rental beyond being a simple commodity business based on price.
Paul Rankin, chief operating officer of Loxam’s Powered Access Division – one of three international speakers at the conference – said Loxam was differentiating itself from competitors by offering additional services such as safety related products, including its Harness On device which prevents a machine from being started without a lanyard being connected.
The Harness On is built in China by Dingli in China, exclusively for Loxam, which also holds the patent.
He said rental businesses in Europe were facing some of the same pressures that Chinese rental companies were seeing.
He said one of Loxam’s responses to payment difficulties was using telematics technology to discuss with customers how they are using the machines they have on rent, trying to save them costs and develop a relationship of trust.
Technology’s role in the future of rental
Another speaker, Han Xiaoming, chairman of Tianyuan - which develops a wide range of technology for rental as well as operating its own rental businesses for excavators, forklift trucks and piling equipment – said it was important for the rental sector to embrace new digital technologies; “In the near future, it will be the core of your survival. The technology is here, whether you like it or not.”
Chi Shen Gay, senior vice president, Asia Pacific & Japan, for Trackunit, explained how telematics data can be used by rental companies to improve their efficiency, and Peter Douglas, CEO of IPAF, announced the launch of IPAF’s e-learning platform in China, which will be delivered through the widely used WeChat platform.
Tei Gyomei, managing director of Hitachi Shanghai, offered a masterclass in rental asset management, explaining in detail how rental companies need to consider both financial utilisation and time utilisation in order to calculate how long to keep machines and plan their fleet additions and disposals.
Rental companies, he said “need to have a long-term vision when it comes to asset planning.”
The IRC conference is organised by KHL Group and International Rental News and took place the day before the opening of the fourth APEX Asia exhibition, which runs from 24 to 27 October.
Opening the conference, James King, CEO of KHL Group, said; “Over the past 10 years the topics of this conference have changed greatly. The early years were focused on introducing the rental industry as a relatively new market to China.
“Some of you here will remember the excellent first ever keynote speech from Michael Kneeland, CEO of United Rentals, the largest rental company in the world.
“Since then CEOs of major rental companies from Europe, America, Japan, Australia, Brazil, Singapore, plus many more, have all travelled to Shanghai to share their knowledge and experience with you at this conference.
“As with anything in China, you understood the business advantages of rental immediately, and with great passion, drive, enthusiasm, and commitment China is now home to some of the largest rental companies in the world.
“It is truly amazing what you have achieved in a relatively short time. Many congratulations to the people in this room who have accomplished this.”
The 11th IRC conference will be held in Shanghai in November 2024.