Is the rise of rental upon us? Consider the trends
Uncertain markets, sporadic and fiercely contested projects, maintenance overheads — are all the major building blocks in place for the rise of rental?
Is the rise of rental upon us? Consider the trends
For many years the equipment markets in the Gulf have been notable for their consumptive approach to machinery: from the asset-hoarding contractors in Saudi Arabia that refuse to sell their mothballed kit for fear of losing their coveted Class A status, to more whimsical purchasers who replace machines after a fixed number of years with little respect to the residual or resale value.
Though contrary behaviours, both of these practices contributed to a climate of inadvisable over-purchasing in the region that was all fine and dandy before 2008, but also directly contributed to the oversaturation and bottoming out of sales in the immediate aftermath of the global economic downturn.
However, as concrete limits to the region’s finances fall into place in the wake of the drop in oil prices, the market increasingly seems to be adjusting to the growing realisation that rental might not be so bad after all.
Indeed, in a study published just this July, TechSci Research predicted a CAGR of 12% in Saudi Arabia’s equipment rental sector over the next five years (from 2014 until 2020).
For a cautious contractor engaged on a limited project, it is easy to see how opting for a short-term equipment lease or rental arrangement might be preferable, and critically, that market is increasingly one of cautious contractors working from limited project to limited project.
In the Saudi study, over 70% of the country’s current construction equipment rental market emanates from the cities of Makkah, Madinah, Riyadh and Ha’il. The greater numbers of contractors choosing to rent is directly attributed to the high costs of construction equipment.
Maintenance costs are another strong driver, as owning your own equipment means managing your own maintenance and, after warranty, stumping up for any major overhauls yourself.
In contrast, as more and more OEMs deepen their aftersales networks in the region, the incentive to outsource maintenance operations to the dealer, or another third-party, only grows.
Many larger rental outfits have pretty slick operations in the GCC and coordinate directly with manufacturers for parts and aftersales. Such economies of scale can be hard to beat.
Herein lies the slippery slope: if you are outsourcing everything with the exception of ownership, and the future value of a machine is not guaranteed, why not simply save yourself the starting capital and simply outsource it all?
Is the rise of rental upon us? Consider the trends
Uncertain markets, sporadic and fiercely contested projects, maintenance overheads — are all the major building blocks in place for the rise of rental?
For many years the equipment markets in the Gulf have been notable for their consumptive approach to machinery: from the asset-hoarding contractors in Saudi Arabia that refuse to sell their mothballed kit for fear of losing their coveted Class A status, to more whimsical purchasers who replace machines after a fixed number of years with little respect to the residual or resale value.
Though contrary behaviours, both of these practices contributed to a climate of inadvisable over-purchasing in the region that was all fine and dandy before 2008, but also directly contributed to the oversaturation and bottoming out of sales in the immediate aftermath of the global economic downturn.
However, as concrete limits to the region’s finances fall into place in the wake of the drop in oil prices, the market increasingly seems to be adjusting to the growing realisation that rental might not be so bad after all.
Indeed, in a study published just this July, TechSci Research predicted a CAGR of 12% in Saudi Arabia’s equipment rental sector over the next five years (from 2014 until 2020).
For a cautious contractor engaged on a limited project, it is easy to see how opting for a short-term equipment lease or rental arrangement might be preferable, and critically, that market is increasingly one of cautious contractors working from limited project to limited project.
In the Saudi study, over 70% of the country’s current construction equipment rental market emanates from the cities of Makkah, Madinah, Riyadh and Ha’il. The greater numbers of contractors choosing to rent is directly attributed to the high costs of construction equipment.
Maintenance costs are another strong driver, as owning your own equipment means managing your own maintenance and, after warranty, stumping up for any major overhauls yourself.
In contrast, as more and more OEMs deepen their aftersales networks in the region, the incentive to outsource maintenance operations to the dealer, or another third-party, only grows.
Many larger rental outfits have pretty slick operations in the GCC and coordinate directly with manufacturers for parts and aftersales. Such economies of scale can be hard to beat.
Herein lies the slippery slope: if you are outsourcing everything with the exception of ownership, and the future value of a machine is not guaranteed, why not simply save yourself the starting capital and simply outsource it all?
Construction machinery: Digging deeper