As the need to drill deeper, quicker increases so does the capital expenditure need to operate the machinery designed to meet these more extreme demands. However, with no guarantee of expensive machinery being kept constantly busy more and more contractors are turning to rental as a viable means of getting specialist machinery onsite only when it is needed.
Robert Law, managing director of AGD Equipment in the UK, explains that a major benefit to his rental customers is the, "greater flexibility of choosing the right machine for the right job." He then goes on to note that "if a contractor owns a machine, they will use it for as many jobs as they can regardless of whether it is right or not. But if they opt for a rental contract there is no investment, no maintenance costs and lower overheads."
The subject of reduced investment is also highlighted by Robin North, of North Equipment, who says: "The user benefits from the fact that they don't have the capital expenditure of purchasing rigs and are able to turn the hire on and off to suit work in hand. The machinery is only being paid for when it is being used, in effect earning its own keep."
However, monetary savings are not the only benefit to contractors who make use of rental services as Rich Anderson, ECA Philadelphia branch manager, notes that if a contractor is looking to take on a project that will need specialised equipment that they do not have they can still bid for job knowing that a hire fee will be far less than the purchase price for a particular piece of equipment that might be used just once. "Renting from a supplier like ECA is the more cost-effective way to go," he says.
While a typical rental package from ECA will include the machine and a preventive maintenance package, the tools, assembly, and training are all additional. Anderson also cautions that contractors hiring equipment from ECA need to "consider that we will only rent to companies that have insurance. We want to help the client achieve profitability on their project, but we still have to protect our interest. We highly advise training to limit damages and help the client use the equipment the way it was intended to be used."
"A typical hire package would include the rig and any associated equipment such as extensions, break-down cover etc in order to complete piles to the specification that the rig is designed and built for," says North about his company's usual agreements. "Normally, it would not include augers, concrete hoses [for CFA rigs] and transport to and from the site. Prior to the hire, a contract is negotiated with the customer which determines any additional items such as drilling inserts, concrete hoses etc."
Like Anderson, North is keenly aware customer expectations have to be managed: "It is our experience, when customers rent rigs for the first time that considerable time has to be spent in explaining our terms and conditions, in particular, what they are responsible for should the rig be damaged and that it must be covered with adequate insurance in the event that the rig could be a total loss."
Continuing on this theme, North explains: "It is our policy, when hiring a rig, to send one of our service team to the site to ensure that the driver fully understands the method and operation of the rig. An important point is instrumentation which, if not explained in detail, can cause problems later on with the customer supplying recorded information of the piles completed. Also, from a safety point of view, it is very important that the driver understands the operation and limitation of the rigs. There is a problem within the industry with customers hiring in inexperienced operators from agencies."
However, despite such potential issues, Anderson says there are significant benefits to be had from renting equipment to contractors rather than simply relying on new sales. "Renting rigs is great for three main reasons," he says. "Most customers will not purchase specialised equipment but renting it to several customers over the course of its life, will pay for the rig and post a profit against that asset. Secondly, putting rigs into the market. Some customers are comfortable with purchasing them after they have had the ability to rent and try out the machine for a few months. And, finally, some supplier use the rental market to help finance equipment into the market by posting rental revenue against the asset's depreciation."
North sees similar benefits in the UK market where, he says: "Ideally, the rigs are rented out with a margin which covers maintenance and write-down costs allowing the rig to be sold after a pre-determined period to realise both the capital and a margin." While, with the rig seeing a greater deal of utilisation thanks to its use across a wide customer base on a rental basis than with a single buyer, AGD Equipment's Law suggests "rental operators should be able to maximise the return on their investment."
Knowing when that initial investment has been returned is a key factor for rental operators as this can dictate the working life of any equipment in the hire fleet. "In North America," says Anderson, "we gauge the life of a machine around 10,000 hours. We are a rent-to-sell business, so we replace after the machine sells or it hits 10,000 hours."
In the European market, plant life is measured differently with Law stating that AGD keeps it hire rigs for no longer than five years. A similar time scale is operated by North Equipment as Robin North explains: "The frequency with which rigs are replaced is dependent on the amount of use that they have had within the hire fleet. Mid-range rigs, which have a hard life, would probably need replacing every four to five years before running costs and reliability suffer. Larger equipment would need to be hired for six to eight years to give a return on capital. We also have to take into account rules and regulations which are constantly changing regarding emissions, noise levels and safety policies; this can quite often affect the life of a hire rig."
Of course, the value of the rig at the time of disposal can also play a role in when it is taken out of the hire fleet for sale on the open market. If the capital expenditure has been recovered it naturally makes sense to move the rig on and introduce new and potentially more efficient equipment to the fleet.
Once the decision has been made that a piece of hire equipment is no longer viable a buyer needs to be found. For North, this means selling them on to what he describes as "green shoot companies who are looking for rigs to buy so that they can enter into or expand within the foundation market."
For ECA it is a case of looking outside of its domestic market "where there is a where a well-diversified network of worldwide brokers" Anderson goes on to explain that "we look to sell hire machines to the African, Asian, or Middle Eastern markets. Regulations are not as strict and they can work the machine upwards of 25,000 hours at times. Tier compliance is also a major issue we have to face. Tier 4 Final is becoming the norm in our market and most projects will not accept our older Tier 2 or Tier 3 machines. We look to these foreign markets where Tier compliance is not an issue."
Constantly changing regulations, although an issue for rental businesses to be aware of, are also a benefit to them as new regulations are driving more contractors to hire equipment rather than justifying the ongoing expense of refreshing entire in-house fleets to meet new standards. Anderson notes that recent studies have shown that the rental market increasing every year. "Some companies do not want to take the risk of owning equipment. We see this when general contractors dip their hat into the specialised application market."
Anderson's view is reflected in Europe with Law's observation that "the market for rentals is definitely on the increase. Larger companies do not want to invest these days unless they have long guaranteed requirements or specialist machine requirements. Rental represents 50 per cent of our turnover but 80 per cent of our profit so it is very important to us. The industry doesn't fully rely on it, but it is important to the industry to have this service available."
North takes the view that rental agreements can be used as a sales tool, too: "The rental market is very important to us as it becomes a platform with which the customer has a chance to build a relationship with the owners and staff of the company and also gives them the chance to try a range of rigs for which we are distributors. A hire can often be turned into a purchase."
Using rental agreements to lever further business is also an important option for ECA in the US as Anderson points out: "We use the rental market to help finance machines, gain market share, and market our equipment to potential clients."
While there is no doubt that the rental market is a viable option for vendors it can also prove costly. "The biggest problem we face is that some customers are hard on the equipment," says Anderson. "This is a risk we know we enter by being involved in the rental business. We work on training opportunities to educate the customer as best as possible for both of our benefits. It is in both the clients' and suppliers' best interest to have the equipment working and operating correctly. We can easily see damages of US$100,000 plus that could have easily be avoided by proper training on the equipment."
North is more sanguine on the issue of misuse of hire equipment. "The majority of our customers are considerate in the use of the rig and understand that a piling rig will be subject to some on-site damage and accept reasonable costs involved for the repairs." Of course, the most successful hire companies will have already taken such issues into account before drawing up the hire contract and for the contractor that cost should be accounted for and absorbed during the project bidding process. Whereas if they had purchased the rig outright it would be an additional and potentially unpredicted cost, should unexpected repairs be needed, which once again makes the option of hiring more attractive than buying.