Rental Industry Feeds Contractor Machine

If you’ve ever needed a 40-ton off-road dump truck, but shied away from the multi-thousand dollar price tag, do like the pros — rent.

From telescoping forklifts to garden tillers, the light to heavy equipment rental business is estimated to be worth $21 billion annually. That number, according to the American Rental Association in Moline, Ill., includes the association’s worldwide membership, but is probably under estimated since not every rental company is a member.

Elaine Barreca, public relations manager with the ARA, didn’t have data specific to Northwest Arkansas, but she said between 20 percent and 40 percent of the equipment on an average U.S. construction site is rented. And, in places like Atlanta, that number has been polled as high as 90 percent.

The reasons are simple: contractors don’t have to make large capital investments in specialized equipment that can run as high as $400,000, and they don’t have to pay for maintenance, insurance or — the accountant’s nightmare — depreciation.

A 70,000-pound to 80,000-pound excavator, the $300,000 to $400,000 type most commonly seen around Northwest Arkansas, can run between $6,500 and $8,000 a month for a rental, depending on the contract. Rental of a 125-foot aerial lift, retailing for about $165,000, can cost about $10,000 per month.

On the low end, a contractor would spend about $78,000 leasing an excavator for a year, but close to $120,000 a year leasing the aerial lift.

John Hugg is a partner at Little Rock-based Hugg & Hall Equipment Co., a sales, service and rental supplier of medium to heavy construction equipment. Business, he said, has increased about 10 percent annually for the last decade.

Combined revenue through rentals, sales and service were about $70 million last year from his six statewide locations that in addition to Little Rock include Springdale, Fayetteville, Fort Smith, Conway and Camden.

About $14 million was from the rental segment, Hugg said.

Mark Dillard, vice president of Kinco Constructors LLC of Springdale, said his company owns its own fleet of trucks, backhoes and cranes, but that it frequently rents to enhance the fleet for certain jobs or specialized applications. He agreed with the 20 percent estimate for the amount of job-site apparatus that’s rented.

“It’s getting more and more expensive and more and more specialized,” Dillard said of the contraptions his company uses to build projects like the University of Arkansas Health Center.

Huggin’ It

Rick Vollmer, vice president of rental operations for Hugg & Hall in Springdale, said the sales and service side of the company’s business is synergistic. The company rents Volvo equipment but is also a Volvo dealer, so it can supply parts and maintenance to rental and sales customers and to other Volvo users.

The company recently sold a 447,000-pound, $2.5 million Hitachi excavator to a contractor in Harrison who is working on widening U.S. Highway 65. Chris Shields, operations manager for Hugg & Hall, said he believes it’s the largest in the state at two-stories tall. And because Hugg & Hall is a Hitachi dealer, it will probably keep all the machine’s service business as it chews through the north Arkansas countryside.

John Hugg, along with partner Robert Hall, purchased the company from his father in 1990. Charles Hugg acquired the company in 1970.

Hugg & Hall has about 250 employees, about 100 of whom are mechanics.

The rental and equipment supply business will continue to grow at a healthy pace because it doesn’t always make sense for contractors to own and operate their own equipment, John Hugg said.

Without an expensive piece of depreciating equipment on a contractor’s balance sheet, a company can be more competitive in its pricing, he said.

Surveys have shown that about 50 percent of job-site construction equipment in the United Kingdom is rented, John Hugg said, and he believes the 20 percent U.S. average will continue to rise as equipment becomes even more specialized.

Vollmer said niche products like electric boom lifts with zero-radius tail swing, and aerial lifts with built-in on-board welders are becoming popular because they help get work done more efficiently.

Scissor lifts are by far the most popular rental item in the Northwest Arkansas market according to Hugg & Hall’s principals. The lifts are essentially powered and portable work platforms that provide the function of a scaffold. They’re self-propelled and can be repositioned in minutes, whereas a scaffold can take hours or days to erect and dismantle, taking up valuable labor and time.

John Hugg said his company has a fleet of about 400 lifts, from 15-footers to the 125-foot aerial type.

Chris Payne is the general manager of Springdale’s RSC (Rental Service Corp.), a privately held nationwide agency based out of Scottsdale, Ariz. He said telescoping forklifts are very popular too, and that he tries to keep between 30 and 50 in his stable at all times.

Usage Ratio

Obviously, rental companies try to keep the equipment in the field and out of the repair shop or storage yard. Hugg & Hall has six dedicated rental sales people who constantly make contractor rounds, asking about upcoming project needs, Vollmer said.

“It’s a very strong relationship business,” he said.

As for frequency, Vollmer said Hugg & Hall had between 25 and 30 different machines leased to one site for the nine to 10 months while the Reynolds Razorback Stadium was being renovated.

What Vollmer hopes to do with the machines when a job’s done is transport them to another work site, or ship them to another Hugg & Hall location, to keep their usage ratio high.

“One minute you’re building a Lowe’s, then something else. [The fleet is] contantly rotating,” Vollmer said.

Payne said RSC has about 500 locations nationwide from where he can request supplemental equipment or shuffle his overstock as the case may be.

Overall, rental prices are very competitive, Vollmer said, so area agencies with a local presence like his, United Rentals of Greenwich, Conn., and RSC constantly adjust prices to meet market demand.

And rental prices have gone up slightly in recent years, Vollmer said, because steel and fuel prices have been up.

As for a major maker of the construction equipment, the Associated Press recently reported that Peoria, Ill.,-based Caterpillar’s fourth-quarter profit margins were narrowed by the cost of raw materials. James Owens, CEO of Caterpillar told the AP he expects steel prices to level off in the second half of 2005. If not, the maker will have to raise its prices, he said.

Hugg & Hall’s rental prices include all the service a piece of equipment may need and delivery from site-to-site.

As far as acquisition goes, Vollmer and John Hugg were getting ready in early February for the industry’s largest trade show, the Rental Show, which will be held from Feb. 14 through 17 in Las Vegas.

Vollmer said the company may make some major decisions about what equipment to purchase at the show and will probably “wheel and deal” with suppliers.

He said his rental fleet experiences turnover virtually every day, that it takes a constant massaging to make sure he’s got the right mix of machinery in the market.

Because of the high demand nationwide and problems in the lift industry, a group of scissor lifts might be purchased in February, Vollmer said, and the order not completely filled until late summer.

Barreca, the ARA spokeswoman, said the 14 acres of exhibit space for the show has been sold out since November and that the ARA expects strong attendance and healthy supplier sales.

Public But Not United

Vollmer said the rental industry went through an acquisition phase in the 1990s when large companies bought many independent “Mom-and-Pop” agencies.

But the industry is starting to see many of those independents open new rental businesses, he said.

In fact, excluding Hugg & Hall, the Northwest Arkansas market is fairly balanced by large companies such as Park Ridge, N.J.,-based Hertz Equipment Rental in Springdale, RSC in Rogers and United Rentals in Fayetteville and Rogers, and smaller independent companies like Diamond Rental & Sales of Johnson and Precision Rental & Equipment Inc. of Lowell.

Neither United Rental’s nor Hertz’s local management responded to phone calls for this article.

Hertz is a wholly owned subsidiary of Ford Motor Co. of Dearborn, Mich. “The company’s worldwide industrial and construction equipment rental operations generated $905 million in revenue and $22 million in losses before income taxes during 2003,” according to the firm’s annual report.

United claims to be the largest equipment rental company in the world, according to its fourth-quarter returns.

Despite positive industry talk from Hugg & Hall and the ARA, United’s adjusted net income steadily fell from $147 million in 2001 to $71.8 million in 2003, a 51 percent decrease. The company’s 2004 numbers aren’t expected until late March.

Payne said RSC has begun building a new 6,500-SF facility with three acres of yard storage in Rogers. The contractor on the job was using RSC rented equipment, he said.