Equipment Rental Industry has been growing in US and in many other parts of the world. The size of market in US is already USD40bn while in Europe it is Euro23bn+. These are markets with reasonably high rental penetration – US has 53% while UK in excess of 75%. Consider a market like India, where Rental Penetration is around 10% but GDP is growing at 7%+ and is expected to grow at an even faster rate in the coming years. This presents a huge opportunity for growth of Equipment Rental Industry and new players are setting up shops.
The average Equipment Utilization hovers in the range of 60%, and Gross Profit margins vary for most companies (on Rental Revenues) between 30 – 60%. These numbers may indicate a few things –
- There is fair bit of excess capacity that exists (utilization level of 60%) even in Rental Fleets
- Utilization levels in owned fleet is usually lower – so chances are we have sizeable excess capacity
- Gross margins are already quite good, much higher than margins on new Equipment Sale (which are typically less than 10%)
- Markets like India have a huge upside and even US will grow to higher levels of Rental Penetration
Given the healthy gross margin, in markets with growing demand for Equipment, there is a clear case for business model that can utilize the idle capacity
With what has happened in Taxi Industry with Uber, the question is – how far is Equipment Industry from such disruption. Technology is available – cloud, mobility, analytics, asset tracking/GPS/location based technologies are available. Modern fleet are sensor laden, sensor-driven. Algorithms to optimize aren’t far away.
So two key ingredients appear to be available for Uber like disruption – excess capacity that can earn healthy profit, and Technology to makes the market more transparent, and transactions easy.
There are, however, a few nuances that make Equipment Rental Industry more complex, more nuanced. First – the stakes are much higher than ride-sharing in a car. A power plant project hiring a Crane has a lot to consider – the Equipment Quality, the operator’s certifications, safety record of the Rental Company, the operator, site’s conditions, contractual nuances, maintenance support/replacement fleet in case of any breakdowns, service quality record of the provider. Be as it may, it all boils down to credible information being avaialble at fingertip for the customer – and the trust quotient.
It is not hard to imagine, that sizeable value is waiting to be unlocked, cost of technology with cloud, mobility, business optimization algorithms, location-based technology, sensors – are all coming together to redefine the markets. One thing is for sure – Rental Rates will come under pressure, and bigger companies will face increased competition from smaller ones – even a single Equipment Owner enterprises. All things considered, disruption is not far away.