Clint Wood is the Chief Operating Officer for Crane Network LLC
Crane rental organizations are under a lot of pressure in 2017 to provide top-of-the-line equipment that is safe and can do the job. A number of strategies have affected the rental market and fleet management this year. Crane Network’s Chief Operating Officer Clint Wood discusses their influences.
Companies that rent cranes are operating under the effect of many factors this year, including depressed rates. The demand is lower than what was expected in 2017, which is seemingly the trend continuing from 2016, and rates for crane rentals have continued to slide. Unfortunately for crane rental companies, the cost of business has not decreased unless significant personnel changes were made, or underutilized assets have been liquidated.
This has created the scenario in most regions around the world where available equipment is more plentiful than jobs requiring the equipment. The result is falling rental rates as crane companies become hungrier for projects to keep people working. In turn, this is also creating a problem in the payment system from contractors, as they continue to become constrained by these events delaying payments for completed projects. Fewer margins and a longer time to get paid is the perfect storm for disaster for a lot of heavy equipment dealers and rental houses.
The current market is obviously challenging to North American crane companies and their European counterparts. Companies that have deep reserves, smaller asset liability to third parties, well-managed fleets, and strategic geographical locations continue to operate above the disparity. However, they question why they are losing jobs at what would have been normal quoted rates. The result is a bargaining war where reputation used to be king.
For smaller and mid-sized rental houses that are continuing the pattern of hoping operating assets and manpower will cover the repayment liability, this may create a larger balance sheet problem. Continuing repayment plans and operating the rental organization with smaller margins, without seeing the forest for the trees, could lead to a lot of selling off or liquidation in the industry for less than equipment worth. This scenario will then result in lower costs for resale machinery at less than book value of the machine. It’s not a good result and an obvious sign of depression through the industry that will have a wide ripple effect on many organizations.
Chain of Events and Cyclical Seasons
It is clear that the industry is seeing these results, and the pain and suffering are a basic flow chart. Oil and gas industry and other opportunity work has dried up, so to speak, and companies with crane assets have started scrambling looking for work all over the map. Rates have been slashed to keep going, and the end result is contraction and liquidation at less than value. Companies are wondering why they can’t get top dollar for their bright shiny machine that they purchased for a project a few years back. They are facing the reality of selling equipment at 50 cents on the dollar.
What’s the answer? Diversification, simply put, by evaluating opportunities, spreading into other geographical areas, and considering a relationship with an international partner that is engaged in emerging markets. Find a friend in North America, negotiate rates, and work together rather than as competitors that want to cut each other’s throats. Move assets to where the work and rates can remain more constant or are less diluted strategically. It has been on our view that North American companies are extremely hesitant to move assets offshore for a number of reasons, but that may be the answer to this cyclical season.
Opportunities for Growth
With safety gaining importance at jobsites and compressed work schedules, there is a growing demand for new and well-maintained cranes. Offering a well-maintained crane can allow some leverage for decent profit margins. Well-maintained fleets can insulate the crane rental house from competition, as there continues to be a high demand of good cranes in the market, despite the growing financial liabilities led by the depressed demand. Given the growing demand of well-maintained cranes, we see companies acquiring newer. more aggressively priced machines with amazing finance packages direct from manufacturers. Newer cranes at attractive rates, how do you think this will help the cycle in rental and disposition?
Be smarter and find different avenues in which to continue to grow and prosper. Step outside of the comfort zone. Create opportunities through talent acquisition and find an emerging avenue for project work, like focusing on heavier lifting jobs or wind maintenance instead of erection.
The competition is severely saturated in the mobile and crawler cranes under 150 tons, so segment or specialize. Most wind farms are currently 10 years old and getting older, requiring maintenance with higher reaching specialized equipment to change out gear boxes and provide other services to the units.
There is less competition in specialized and heavy-lift equipment projects. Get some insulation in your company from the cold seasons by changing the approach, creating specialization, and offering alternative solutions to the ever-changing requirements. Lifting jobs for core and industrial infrastructure projects are gradually becoming more complex worldwide, and require companies to change and be ready to adapt to the needs.
Adaptation by making smarter decisions and changes not only in your company but in the industry as a whole is the moral of the story. Continuing to chase the same projects in the same neighborhoods is not the answer this season. Diversifying and making a friend in the industry and providing complementary services will increase rather than degrades your balance sheets.
Stay warm as the winter season approaches. Crane Network is here when you need assistance with disposition or renting your equipment. Even if you just want some honest answers on your fleet appraisals, we are ready. Now, back to work.
