U.S. Equipment Rental Industry To Top $32 Billion in 2013

The equipment rental industry hit a sweet spot in 2011 that continued well into 2012. In our opinion, the market will benefit from a number of tailwinds allowing it to continue growing at double-digit rates into 2014 and perhaps beyond. Overall, we are forecasting that 2013 will see U.S. rental of construction equipment increase 16% to more than $32 billion.

The economic uncertainty that has prevailed for several years has actually been a big benefit for the rental industry. Equipment users facing an uncertain future have turned to renting as a way to conserve cash. Renting is also an alternative for users who might be unable to obtain equipment purchase financing. The case for rentals is still strongest for equipment users that are utilizing their machines 50% of the time or less. Anyone who has a need for a production machine that is a primary tool in their fleet would still be better off purchasing it.

Another factor contributing to the growth of rental is EPA emission regulations that went into effect on January 1, 2012. The regulations require many new machines built after that dates to be equipped with Tier 4 interim engines. Machines equipped with Tier 4 interim engines cost more than machines with Tier 3 engines. Furthermore the operating performance is not known. Preliminary indications are that the new engines are more expensive to operate as well. The higher operating cost indications are based on the experience of on-highway truck users who have been operating Tier 4 engines since 2012. The higher machine purchase price and uncertain operating performance also have caused uncertainty over the future residual values of new machines which is another factor that has driven users to favor rentals.

Recent data indicate that 52% of all new machines sold are going into the rental fleets of national rental companies, authorized dealer rental fleets and rental fleets owned by independents.

Construction Employment vs. Industry CE Rentals

Our forecast for the economy as a whole is for slow growth. Economic growth in 2013 will stem from an improving housing market, continued high levels of demand from the energy sector and improving non-residential construction investment by manufacturers.

Value of Construction put in place

(Millions of dollars)

 

 

Type of construction

2012 vs. 2011

Percent change

2013 vs. 2012

Percent change

Total construction

8.0%

10.%

Residential

20.0%

30.0%

Nonresidential

3.0%

6.0%

Lodging

25.0%

15.0%

Office

2.4%

2.0%

Transportation

11.0%

15.0%

Power

19.2%

12.0%

Manufacturing

1.0%

4.0%

 

Overall, we expect 2013 growth of equipment sales to be approximately 5.4% compared with 2012. We expect the sales slowdown that began in the second half of 2012 to extend into the first half of 2013 and most of the 2013 growth to occur in the second half. Assumptions for the construction sector are:

The national rental companies had a great year in 2012. Revenues grew in a range from 8% to 38% with an average of approximately 12%. 

Rental revenues

Third quarter vs. same period one year ago

*Sunbelt first quarter ended July 31

Company

2012 vs. 2011

2011 vs. 2010

2010 vs. 2009

2009 vs. 2008

Essex Crane

38.0%

65.5%

-39.2%

-38.7%

RSC Equipment Rental

Merged with UR

24.0%

-9.8%

-30.6%

Sunbelt*

19.6%

21.0%

25.5%

-25.5%

United Rentals

8.7%

19.0%

5.1%

-27.0%

H&E Equipment Services

27.2%

26.8%

   

HERC

12.2%

14.1%

 

 

 

Rental revenue growth driven by supply and demand. Fleet utilization rates (based on time) were the highest they have been since 2008 which has allowed companies to aggressively increase their rates.

Third-quarter year-to-date
fleet time utilization

Company

2012

2011

2010

2009

RSC Equipment Rental

Merged with UR

*73.0%

   

United Rentals - Total

69.8%

74.0%

71.0%

67.0%

Booms & Lifts

74.8%

     

Earthmoving

63.2%

     

Essex Rental Corp.

 

39.0%

35.1%

46.6%

Crawler cranes

43.4%

     

Rough terrain

69.3%

     

Tower cranes

54.7%

     

Boom trucks

61.9%

     

Sunbelt Rentals

70.0%

72.0%

   

H&E Equipment Services

72.9%

68.9%

67.1%

 

HERC

Not
published

64.5%

 

 

 

Rental Rates

Nine months ended Sept 30*

*Sunbelt first quarter ended July 31

 

Company

 

2012

2011 vs. 2010

Percent change

2010 vs. 2009

Percent change

2009 vs. 2008

Percent change

Essex Rental Corp.

10.7%

     

RSC Equipment Rental

Merged with UR

4.6%

-4.4%

-9.4%

Sunbelt Rentals*

4.0%

10.0%

-5.0%

 

United Rentals

7.5%

7.5%

-2.1%

-12.5%

H&E Equipment Services

10.5%

8.9%

-9.6%

-15.1%

HERC

3.5%

13.3%

-5.4%

-8.6%

 


Companies are hard pressed to keep up with growth. As a result we saw massive capital expenditures in both of the past two years. Most of the companies have said they will continue adding to their fleets in 2013, however, the mix will be different. In 2011 and 2012 rental companies anticipated that demand for earthmoving equipment would come back before demand for aerials and lifting equipment. In both years rental companies changed the mix of their fleets toward earthmoving and away from platforms and lifting equipment. Billions were spent which greatly benefited the equipment manufacturers. 

Capital expenditures

(Millions of dollars)

Purchases of Rental Equipment

Nine months ended Sept. 30

Company

2012

2011

2010

2009

2008

RSC Equipment Rental

Merged
with UR

$176.0

$33.5

-$101.3

$152.3

United Rentals

$1,321.0

$1,390.0

$346.0

$29.0

$434.0

H&E Equipment Services

$175.0

$90.6

     

HERC

$606.0

$412.5

   

 

 

Higher capital expenditures drove down the average fleet age of many of the national rental companies which has the added benefit of lowering their maintenance expenses. 

Average fleet age

Year ending September (Months)

*Sunbelt first quarter ended July 31

Company

2012

2011

2010

2009

2008

Herc

Not published

78.0

43.0

42.5

34.0

RSC Equipment Rental

Merged
with UR

41.0

43.0

38.0

34.0

Sunbelt Rentals*

33.0

40.0

46.0

38.0

34.0

United Rentals

46.4

46.6

47.7

42.4

38.0

Essex Rental Corp.

   

14 .0

14.0

14.0

H&E Equipment Services

38.6

43.2

   

 

 

Rental company profits have benefited from a perfect storm. Rising demand for rental, increased rental rates and higher fleet utilization are all actors that have allowed companies to make huge investments in new fleet, which lowered their operating cost and increased their margins.

ebitda margin

Nine months ended Sept 30

*Sunbelt first quarter ended July 31

 

Company

2012

2011

2010

2009

2008

RSC Equipment Rental

Merged
with UR

40.1%

32.5%

32.5%

44.5%

Sunbelt Rentals*

42.5%

37.3%

32.5%

34.5%

36.8%

United Rentals

46.8%

38.8%

26.6%

26.6%

32.1%

H&E Equipment Services

27.3%

21.9%

18.8%

18.8%

23.3%

HERC

41.0%

42.1%

41.7%

41.7%

45.0%

 

Rental locations increasing

We believe the U.S. equipment rental market for construction equipment reached approximately $28 billion in 2012. Based on the trends of the underlying markets, We believe the total market will grow to more than $32 billion in 2013. That forecast is based on our estimate that there will be approximately 14,000 rental locations in 2013 and the average revenues per location will be slightly more than $2.3 million.

United Rentals will probably close nearly 200 locations this year as it rationalizes locations obtained in its merger with RSC. In addition, it’s likely Ahern Rentals, which is fighting for survival, might be forced to close some branch operations. But we believe there has been significant growth of locations among independent rental companies that will cause the absolute number of branches to increase a little over 100 locations. While the absolute quantity of locations remains relatively constant, the revenues generated per location continue to increase.

Growth of the construction
equipment Rental market

 

 

 

Year

 

 

Estimated

number

locations

 

Estimated

rent revenue

per location (thousands)

Estimated

CE Rentals

industry

rent revenue

(hundred thousands)

 

Percent change from

previous year

2013

14,100

$2,313

$32,615

16%

2012

13,975

$2,019

$28,224

12%

2011

13,830

$1,822

$25,200

17%

2010

14,208

$1,518

$21,571

-15%

2009

14,648

$1,733

$25,377

-30%

2008

15,750

$2,302

$36,253

-4%

2007

15,865

$2,372

$37,636

8%

2006

15,708

$2,218

$34,848

20%

2005

15,400

$1,886

$29,040

9%

2004

14,000

$1,895

$26,530

11%

2003

14,005

$1,723

$23,927

1%

2002

13,250

$1,790

$23,717

-4%

2001

13,500

$1,837

$24,800

0%

2000

13,932

$1,780

$24,784

3%

 

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