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The Smartest Tool in the Shed
By Megan Wild
March 5, 2018
The American Rental Association (ARA) has recently released its five-year revenue forecast for the equipment rental industry. By 2021, the revenue total will be close to $60 billion.
This year, ARA expects rental revenue in the United States to rise 4.5 percent, and to hit $51.5 billion. In 2019, it is projected to grow another 5.6 percent in 2019, followed by 5 percent in 2020, and 4.4 percent in 2021.
ARA’s recent U.S. projection, issued in February, is similar to the forecast ARA put out in November 2017 for this year. The projected revenue growth was adjusted slightly higher for the remaining four years of the forecast period, however.
Not only are revenue estimates rising for the five-year period, but they are increasing in every segment. The ARA Rental Market Monitor indicates revenue on construction/industrial equipment rentals is anticipated to reach a total of $40.5 billion in 2021. The revenue is forecast to climb 4.3 percent in 2018, 4.5 percent in 2019, 4 percent in 2020, and 3.4 percent in 2021.
The general tool segment is estimated to increase to hit $4 billion in 2021, with gains of 4.7 percent in 2018, 5.9 percent in 2019, 7.8 percent in 2020, and 6.7 percent in 2021. Revenue for equipment rental is also expected to grow in Canada. The total for 2018 is projected to be $5.35 billion.
From there, the totals are forecast to rise 4.1 percent in 2019, 5 percent in 2020, and 4.7 percent in 2021, to peak at a total of $6.125 billion at the end of the five-year period. This projection is also very close to the estimates ARA issued in November 2017.
Why will the industry see such robust growth? The ARA cites several reasons in its forecast.
Tax Cuts Spurring Growth
The ARA points to the recent passage of the Tax Cuts and Jobs Act in the U.S. as a major factor in stimulating spending for rental equipment. The tax cuts take effect in 2018.
According to ARA officials, tax cuts stimulate the overall economy, which can increase business investment spending and job creation. Both, in turn, can lead to rising consumer spending.
Rentals Can Be a Smart Business Decision
Businesses often choose to rent equipment as part of their business strategy. Rentals can conserve capital as the businesses pay only the lease costs rather than the cost of acquiring the equipment. They often have the option to purchase if that becomes feasible economically.
Renting equipment has many positive benefits. Businesses can ensure they aren’t acquiring costly equipment in times where backlogs may be relatively short and interest rates climbing. Although the U.S. tax cuts are expected to be fiscally stimulative, U.S. interest rates are also rising, which can reduce business and consumer spending. The resulting uncertainty can make it prudent to rent.
Businesses that rent equipment can also save on maintenance and storage costs, which can be considerable. Many leases come with maintenance contracts or the period of the lease may be short enough for the maintenance not to be a consideration.
Renting for Practical Reasons
Companies can also use rentals to try out equipment before they purchase it. Renting ensures:
● Crews learning how to handle the equipment.
● Proving whether it is productive and optimal in the project.
● Keeping the technology is up to date.
Leasing is also a good option for companies whose projects are geographically far-flung. Transport and storage of heavy equipment can be a major cost factor. With leasing, however, the transportation and storage costs are borne by the leasing company. In cases where a business works jobs on both the East and West Coasts, for example, different branches of the leasing company can bring the rentals to the site.
Rentals can also serve as risk management. If newer equipment becomes available, rentals can be returned and the upgraded models leased. If backlog dries up, leases can be renegotiated. Some rentals may also be tax-deductible.
For the next few years, at least, renting construction equipment will continue to be the preference for many companies. This will boost the market in the short term and perhaps the long term if many of the reasons for the rise continue.
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