I think the price of shipping equipment and parts purchased by rental companies is going to rise dramatically, and this increase will be intensified for rental companies that are far away from where the equipment is produced or warehoused. I've been in relatively remote places in the U.S. in the past few weeks where shipping is already trending higher and I feel that several factors will likely make shipping significantly more expensive for many or most rental companies to come. Just one factor will be the newly enacted ELD rules (electronic logging device). This ruling should cause truckers and trucking companies to charge more for their services. I think this (ELD) will be a big story in the rental industry in the near future.
So, what is ELD all about? Truckers have long been required to keep hand-written logs showing the number of hours they spend driving to prove they're not exceeding the mandated limit of hours. Of course, like airline pilots, it would be unsafe for truckers and others if they do not get enough rest. Put simply, ELD uses GPS technology to electronically monitor truckers to accurately track the road time to ensure truckers are not cheating (as some truckers did, of course, with the paper logging). Overly tired truckers are more likely to be involved in accidents with their big rigs. The unintended consequence will be, in my opinion, a significant increase in the cost to the trucking company and these costs are likely to be passed on to the customer – the rental company.
One of the rental business owners I spoke with told me he recently paid $50 for expedited shipping of a set of clips that cost $2. The part was needed for the rental equipment to operate and the equipment was needed for a reservation. This company is in a relatively remote part of the U. S., but it still is not what the business owner was accustomed to paying, and this appears to be a trend.
I believe there will be a time in the not too distant future where technologically advanced rental companies will be able to use 3-D printing technology to actually produce some of the vital parts needed for timely repairs. I have been researching this technology for years and have seen massive advances that have commercially viable applications.
It's not just that shipping costs are rising, the time it takes to have equipment arrive to you appears to be increasing as well. Of course, time is more important than shipping costs in some instances so consider this as well.
Expect inflation on other fronts too
Rising trucking and shipping costs are an important “leading economic indicator” for rising inflation. There are other inflationary pressures that will add to the rising shipping expenses, including the much higher costs of the trucks used for shipping. The rising costs associated with the manufacturing of parts and equipment will be going up significantly too. Energy, steel, aluminum, and many other raw materials are trending much higher – and continuing trade war related inflation is not likely to end completely regardless of international agreements.
There are some things one can do to reduce the impact of these rising shipping costs. Even though this is a huge topic, here are a few possible ideas and other considerations that might be helpful to start with:
- Be certain you have excellent purchasing procedures in place. Being timely and concentrating on efficiency are key to keeping costs down.
- Reevaluate your stocking level for key repair parts (and rental equipment as well). It's possible that having slightly more of a few select parts and certain rental items will make sense in this new higher shipping cost environment.
- Consolidate your orders among your different departments and branches when possible and practical.
- Consider raising rental rates (in a strategic fashion) to help to offset the rise in shipping and other equipment acquisition costs. (An objective, highly experienced rental business consultant can help with this process.)
- Of course, be sure to implement better training to help reduce equipment breakdowns and therefore decrease the need to have components shipped.
- Consider updating your fleet perhaps a bit sooner than you typically do. This, of course, could help reduce your need for some of the parts you would need to order on older equipment.
Perhaps we have been spoiled by relatively low shipping rates in the past and now shipping costs are getting up to what the fair price should have been. But even if this is true, it's better to know now that these costs are likely to rise significantly. I believe rental company decision makers will be able to plan and make adjustments more effectively if made aware of what trends are likely on their way.
