December 1, 2023
The equipment segment has continued to grow in 2023, but for many equipment rental companies, revenue growth has slowed versus the boom years of 2021 and 2022. While the prior two years saw double-digit percentage revenue growth, this year has shifted back to single-digit percentage revenue growth on average.
There has been a shift over the course of this year from limited supply and excess demand to a more balanced supply and demand curve. The lead times to receive equipment on order have come down significantly in the last year for most categories — that is a major improvement from what we experienced the last two-plus years. Interest rates have played a key role in this evolution, both for equipment rental companies and our customers.
Higher interest rates have made it more expensive for equipment rental companies to finance fleet growth. The cost of capital increased significantly from 2022 to 2023, as the prime rate increased to 8.5 percent as of October 2023. Most companies using traditional financing have seen interest rates increase 5 percent in the last year, and the expectation now is for interest rates to stay elevated well into 2024 — if not the whole year.
The same impact is felt by all stakeholders in construction, and that is having an impact on construction starts — especially in private commercial and residential projects. The institutional (government-funded) projects continue at a steady pace, and that’s expected to continue in 2024. Based on my research, many economists expect the privately-funded projects to increase moderately in 2024. There are several factors impacting the construction industry, including materials prices, labor shortage and local/regional banks’ appetite for loans.
Just like construction, there is an ongoing need for the industry to attract talent to equipment rental companies and give companies and their people the tools to grow as the industry grows and evolves. The American Rental Association (ARA) Equipment Rental Shared Interest Group (SIG) has focused its time this year on solutions related to these key issues impacting ARA equipment rental members.
In workforce development, ARA is focused on building on the progress made in 2022. In addition to recruitment and industry awareness, members need resources to help them retain the great people post-recruiting. ARA will continue to work on projects to support members with retention, including reinforcing existing tools (Intro to Rental and certifications) and developing best practices and advanced certifications. We also agreed to test lunch and learn topics for employee engagement and retention, seek options to help members find grant opportunities in their state and work on a general construction certification program with technical schools.
To build on workforce development initiatives, the Equipment Rental SIG agreed leader-based certifications should be the priority going forward. Two certifications — General Manager and Shop Manager — were recommended to the ARA education team to further develop leadership and management skills. In addition to leader-based certifications, we discussed and agreed that equipment certifications would add value to our teams. To start, we suggested developing equipment certifications for mini-excavators and skid steers. All of the certifications are in addition to the excellent education content already produced including ARA Certified Mobile Elevating Work Platform (MEWP) and Professional Driver Education Program (PDEP) as well as content in the works for 2024 such as the ARA Certified Forklift Training Program.
The labor issue also will be impacted by one of the buzzwords in the business world today, artificial intelligence (AI). Rental Management recently focused on AI in its October 2023 issue. As our world continues to evolve and we work to address the labor issue, finding ways to utilize AI to build efficiencies into our operations will be critical. One of the Rental Management articles, “10 Ways Rental Companies Can Leverage AI,” is a must read for those looking to incorporate AI into their business.
As we prepare for 2024 and beyond, ARA is actively working on solutions to help members analyze their business, make smart decisions and get ready for the future. One foundational building block in this effort is the ARA Standard Equipment Taxonomy (SET). The SET provides the industry with one, standard methodology for organizing equipment categories. Without SET, it is hard to compare data among companies because of the differences in equipment nomenclature. SET was launched in September 2023, and is a pathway for standardized industry data analysis.
As we look forward, we will be paying close attention to inflation and interest rates and the impact they have on the construction economy. At the time this was written, we are preparing for the industry to have modest growth in 2024. It will be critical that we find smarter and more efficient ways to operate our businesses and serve customers. For the industry to grow, we need to have a growth mindset and be the catalyst for advancement and growth. We need to recruit and retain great people, give them the tools they need to succeed and utilize data to make good fleet management decisions. ARA’s investment in workforce development, education, industry data and forward-looking programs will play a key role in supporting members to grow in 2024 and beyond.
John Jeanguenat is president of RentalMax, Carol Stream, Ill., and the American Rental Association (ARA) Equipment Rental Shared Interest Group (SIG) co-chair.
