It appears that the conventional model of equipment ownership is gradually eroding in the Middle East. Tales of wealthy contractors purchasing entire fleets of brand-new construction machinery are fast becoming the stuff of legend, rather than reality.
This shift is manifesting itself in a number of ways. For example, it is precipitating the rise of fleet leasing and finance [page 10], as local suppliers look to provide flexible payment options to meet the changing needs of their customers.
Another example of how this trend is affecting the region’s equipment industry is the ever-growing popularity of the rental sector. More and more, contractors operating in the Middle East are turning to hire firms to provide the kit that they need to get the job done. But why?
Moshen El Najjar, general manager of Saudi Arabia-based Peax Equipment Rental, argues that there are a number of benefits for contractors who choose to rent rather than buy.
“Renting a machine means that instead of buying a unit that you only require occasionally, you can use your capital in a more effective manner,” he explained.
“Secondly, rental firms like Peax take responsibility for issues such as servicing, repairs, and spare parts provision.
“Thirdly, there is the technology. Year in, year out, manufacturers upgrade the features of their products. If a customer buys a unit, he will most likely be stuck with it for five years. Choosing to rent enables end users to keep up to date with the latest technological advances.
“Finally, it is extremely difficult for a contractor to forecast what his equipment needs will be two or three years in advance, especially in the Middle East. Keeping expensive kit on his books can prove costly when his business dips. If he rents, however, he has the flexibility to increase or decrease the size of his fleet based on actual demand,” added El Najjar.
Since establishing a UAE office in 1996, Rapid Access has grown to become one of the largest rental players in the Middle East. Today, the powered access specialist – part of Lavendon Group – boasts branches in every GCC country, and operates a 3,000-strong, multi-brand fleet of aerial work platforms (AWPs).
Alexis Potter, sales and marketing director at Rapid Access, says that although AWPs have always fared well in the rental sector, customers are also looking to tap into the expertise that specialist hire firms are able to provide.
“Our business model takes the form of a consultancy,” he told PMV.
“We identify the machines that are most appropriate to our clients’ needs. Moreover, we’re the world’s largest supplier of IPAF training. Our main regional training centre is here in Dubai, and we operate others across the GCC. We show our customers how to use AWPs safely and effectively. We enable their employees to become qualified AWP operators,” he explained.
Whereas Rapid Access focuses on providing training for its customers, one rental company that is being pulled in the opposite direction is Qatar-based Nixon Hire.
“In the UK, Nixon Hire is a non-operated plant and equipment hire firm,” commented the company’s managing director, Graham Nixon.
“Basically, we supply self-drive units to the market. In Qatar, however, we’re getting pushed into supplying operators. That’s because over here, the visa situation makes it difficult for contractors to bring in the right people themselves.
“Employees have to be fully accredited and they have to speak English, which presents a challenge in itself. Even so, we’ve had success recruiting qualified operators from Nepal and Sri Lanka who meet the right criteria,” he said.
It might not be easy, but by supplying both high-quality equipment and qualified operators to the Qatari market, Nixon Hire is taking advantage of soaring demand within the rental sector. Even so, this is only half the battle, according to the firm’s MD.
“The biggest problem that we’re experiencing at the minute is simply getting paid by our customers,” revealed Nixon.
“This represents a huge challenge in this market, and it’s one of the reasons behind our decision to enter into a joint venture with Q-FAB in 2014. We wanted to use their resources and customer base to alleviate this pressure.
“Even so, this problem is really affecting our business. It seems that everybody in Qatar is in the same boat – just trying to get paid. Sometimes, it can feel like we’re taking two steps forward and three steps back.
“However, if we can overcome this challenge and recruit suitable operators, that’s game over. There is massive demand for equipment in Qatar at the moment,” he told PMV.
Whilst Al Najjar points out that customers who prefer to purchase their equipment are still out there, he is equally confident that the rental sector is set for further growth in the Kingdom.
“There are still some old-school customers who prefer to buy and maintain their own fleets, but there are also a lot of local companies now considering mixed fleets, consisting of both owned and hired units,” he explained.
“Our major clients – Saudi Aramco, SABIC, Saudi Cargo, etc. – meanwhile, are not private companies. They must look at quarterly financial results and how best to utilise their funds. With this in mind, rental equipment is attractive to such firms, and I think that this will continue to be the case,” predicted Al Najjar.
Although Rapid Access operates predominantly in the rental sector, it also acts as an authorised dealer for some of the industry’s largest AWP manufacturers. Nevertheless, Potter and his colleagues seem happy for this rental-oriented shift to continue in the Middle East.
“Rental suits us; we offer a sales service and we’ll continue to respond to what our clients need, but we’re primarily a specialist rental business,” he emphasised.
“We’re noticing this preference for rental more and more. If a construction company has a specific project for which they’re going to need to reach the same height for a number of years, then of course, it makes sense to buy.
“However, if your company operates in a sector like mining, or oil and gas, then it’s best to tie up your money in getting that stuff out of the ground. In turn, Rapid will concentrate on your powered access requirements,” he explained.
Meanwhile, following the signing of its JV with Q-FAB, Nixon Hire is looking to strengthen its Qatari fleet and enter fresh territories.
“We’re making significant inroads in used-equipment finance,” commented Nixon.
“Nixon Hire is huge in the UK, and we plan to take advantage of this in Qatar with an aggressive business strategy for 2015. Our plan is to bring good-quality, used equipment into Qatar from our UK fleet. We’ll mix this up with new equipment from Q-FAB to stimulate growth.
“After that, we also want to be present in other markets; we want to enter Oman and the UAE through our joint venture with Q-FAB. For this, we are following a three-year plan. By the end of this period, we’d like to be in at least two markets outside of Qatar,” he revealed.
There may exist challenges in the form of payment and recruitment, and there is no denying that the rental sector is highly competitive. However, the levels of demand that hire firms are currently experiencing in the Middle East are indicative of a sector in rude health.
As the region’s PLCs continue to divest their equipment operations in order to focus on their core competencies, it seems that the shift away from ownership towards rental is likely to proceed unabated for the foreseeable future.
KSA market is fully charged
In terms of power rental, Saudi Arabia currently represents the largest market in the Middle East.
Infrastructure investment, an emerging manufacturing sector, and growing construction activities are driving electricity demand at remote locations across the Kingdom.
Saudi Arabia Power Rental Market (2014-2020), a report by 6Wresearch, projects a compound annual growth rate (CAGR) of 20.3% between 2014 and 2020 for the country’s power rental sector.
At present, diesel generators account for the majority of revenues in the power rental market, but a shift in towards gas-powered units is anticipated as governmental emissions initiatives increase. Nevertheless, the diesel genset rental segment is expected to maintain its dominance throughout this period.
Applications linked to oil and gas, industry, and construction generated more than 80% of market revenues within KSA’s power rental sector in 2013, with significant contributions from the Kingdom’s eastern, central, and western regions.
Predictions of further growth spell good news for Al Najjar and his colleagues, as he explained.
“Power generation equipment accounts for the lion’s share of Peax’s business,” he told PMV.
“It represents approximately 70%, in terms of both our revenues and equipment numbers.
“Saudi Arabia’s rental market is looking positive, although I wouldn’t like to tempt fresh competition into the field. This is a very specialised sector. We’ve seen many people who think it’s easy – just buy a large fleet and rent it out.
“Of course, there’s much more to it than that. If you don’t know what you’re doing, you can really burn your fingers,” the Peax GM warned.