Why are GCC contractors opting to rent machinery?

With the global construction equipment rental market set to pass $75bn by 2024, James Morgan finds out whether GCC end users are turning away from the traditional purchase-based acquisition model

Changing tide: low market liquidity and  project uncertainty are driving growth in the Gulf’s equipment rental segment.
Changing tide: low market liquidity and project uncertainty are driving growth in the Gulf’s equipment rental segment.

Since time immemorial, equipment procurement professionals the world over have been faced with one overarching question: to buy or not to buy?

Occasionally, the answer to this question is straightforward. If you require a niche machine to perform a specific task for a limited period, for example, it makes sense to either rent or to enlist the services of a specialist sub-contractor. Conversely, if you’re likely to use a machine day in, day out until its engine will no longer start, it’s probably best to have your name on the registration document.

But this argument is not always so one-sided. Owning a large fleet of machinery is far from ideal if your project pipeline dries up unexpectedly. It can be equally frustrating to have to turn down a major contract due to scarcity of equipment.

In the Middle East’s current construction market, where uncertainty is rife, fleet managers are in an unenviable position.

On a global level, the construction equipment rental sector certainly seems to be gaining momentum. The value of the market is expected to increase significantly during the next eight years.

According to a report published by Global Market Insights in January 2017, the value of the construction equipment rental market is on track to hit $75.18bn by 2024. Factors such as lower administrative overheads, reduced maintenance costs, and the need to comply with stricter regulations, are expected to drive growth in the market, according to the authors. Improved leasing options have also served to enhance overall customer service by ensuring high product quality, shorter response periods, timely delivery, and scheduled pickups, they added.

According to Global Market Insights: “The [construction] industry is characterised by increasing natural gas drilling activities, coupled with augmentation of the highway network and formation of smart cities. This will lead to a corresponding demand in the construction equipment market, and also give impetus to the rental sector.

“Commercial and residential real estate has also driven construction equipment market size,” the report continued. “Developing technology with greater efficiency and accuracy in material handling has placed high emphasis on safety and productivity at the workplace.”

The earthmoving machinery market, which includes products like excavators and wheel loaders, is expected to be worth more than $40bn by 2024. The value of the concrete and road construction equipment segment, meanwhile, is likely to grow to more than $10bn during the same period, according to Global Market Insights.

As original equipment manufacturers (OEMs) continue to develop autonomous and semi-autonomous machines, large rental companies are expected to offer these technologies to their customers in a bid to improve onsite performance and safety, and to reduce energy consumption.

Having recognised the segment’s growing importance, some manufacturers have begun to produce models specifically designed for rental companies and their customers. And technology is not the only consideration when it comes to machines tailored for this market; factors like operational simplicity and ease of maintenance also represent key focusses.

Such trends are especially pronounced within the field of access equipment, which has long since been a mainstay of the equipment rental segment.

Michael Maynard, regional operations director for international rental company, Rapid Access, says his team has witnessed increased demand in the Middle East, although this growth has varied from country to country.

“Last year was a good year within certain markets, and a mixed year in others,” he tells Construction Week. “Rapid Access saw a downturn in Saudi Arabia. However, our UAE, Qatar, and Kuwait businesses witnessed phenomenal growth, which more than offset the decline in the kingdom.”

Maynard confirms that technological advancements are, to some extent, serving to pique the interest of rental customers in the Middle East.

“We are certainly seeing increased levels of interest in health and safety,” he notes. “[Customers want to know about] our machines’ latest attachments and features.

“Health and safety is improving all the time in the Middle East. When I first started working in the region 11 years ago, I would sometimes give prospective customers free trials because they’d never used powered access equipment before. Today, due to the nature of the region’s construction community – wherein people move between countries from project to project – we’re seeing that construction professionals have experience of operating powered access equipment, and want to continue using it on new developments after they have relocated. This obviously benefits Rapid Access because we have depots in every GCC country.”

Thomas August, regulatory safety, health, environment, and quality (SHE-Q) manager for lifting firm, Mammoet Middle East, says that safety is also a priority within the crane-hire segment. He explains: “If you’re working with big, multinational companies, the safety culture is very high. There are lots of rules to follow; lots of procedures even to get your people through the front gate. But when you come away from these blue-chip companies, the standards start dropping very quickly.”

Rental firms and specialist service providers have the potential to improve health and safety within the Middle East’s construction sector. By offering customers access to expert maintenance teams and trained operators, such firms can significantly reduce risks onsite.

Nevertheless, Maynard points out that, while the latest technologies and safety features are attracting more attention than ever before, they are not the main drivers behind growth in the rental segment.

He explains: “We have seen a [shift towards rental] in this region and, while we are receiving increased numbers of technology-related enquiries, I wouldn’t say it’s a huge factor in the Middle East just yet.

“Owing to low market liquidity, many companies are looking to reduce capital spending. They don’t want to tie up capital in assets, so they are choosing to rent equipment instead. This shift is also being spurred on by a change in the types of project we’re seeing.

“Historically in Qatar, for example, we’ve seen long-term infrastructure and oil and gas projects that take years to complete. For these sorts of development, contractors tend to buy equipment and allow it to depreciate over the lifetime of the project. But now, there are fewer long-term contracts in the market, and increasing numbers of smaller, shorter-term ones. Contractors cannot afford to follow the [conventional purchased-based] model for these developments, so rental is their preferred option.”

It seems that the Middle East’s current construction environment is playing into the hands of the rental segment. Low market liquidity, ongoing project uncertainty, and the increasing prevalence of shorter-term developments are causing many contractors to question whether purchase-based procurement is the best option.

With the construction sector expected to continue at similar levels throughout 2017, this situation shows no immediate signs of abating. The manufacturers and distributors most likely to thrive in the longer term are those that continue to invest in rental-specific models and provide flexible procurement options.

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