Industry Rental Status

July 29, 2001
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Rentals of high-end survey equipment like this Leica GPS System 500 tap into the occasional-use market and can help raise a product's profile.


It could be said that the equipment rental industry in this country was ripe for the picking. Born after World War II, it grew to about $18 billion in annual revenues by 1997. It remained highly fragmented with more than 10,000 businesses but no truly dominant players. The 100 largest U.S. equipment rental companies mustered a mere 22 percent of total industry revenue among them.

Then everything changed. Four years ago, public companies catapulted into equipment rentals like a tidal wave. A frenzy of acquisitions rolled up hundreds of independent rental companies into chains like NationsRent, Prime Equipment, National Equipment Services, Hertz and others. When the dust cleared last year, United Rentals led the pack with about 750 locations in the United States, Canada and Mexico.

The attraction hinges on potential earnings. Only about 15 percent of all equipment in the United States is currently rented, statistics show, leaving the door wide open for growth. And there is reason to believe that renting is growing in popularity among equipment users who want to shed the responsibilities of storage, transportation, insurance, maintenance and technological obsolescence. Then there’s the elimination of capital investment—even more attractive in a shaky economy.

Mark Payne of GeoPlane Services (Universal Ensco)recognizes that a rental operation needs to approach business differently than your typical survey supply shop. "We're a service company, not a product company."

Light saturation in U.S. rental market

Throughout this evolution, traditional rental chains, while providing surveying firms with general rental equipment, have kept a discreet distance from high-end survey equipment. Sophisticated survey rentals remain a niche market served in large part by specialist companies. But this may change as the national chains search for new revenue streams, and manufacturers seek to protect their channels. These trends are already in evidence in Great Britain—a rental market that has consistently demonstrated it is two to five years ahead of the U.S. curve.

In the UK, an estimated 70 percent of all tools and small equipment are rented. The largest chain in this category is HSS Hire Service Shops, owned by The Davis Service Group Plc, which has recently expanded in the United States. HSS’s British chain includes a division called Safe & Sure, which specializes in safety and survey equipment rentals (they have no comparable U.S. division at this time). Managing director Lister Fielding confirms HSS’s interest in expanding its survey equipment offerings: “We are constantly trying to find new areas where we can provide quality products that other (rental companies) are not as committed toward, and earn strong margins as the reward for that.”

HSS has developed what Fielding describes as “a growing relationship with PENTAX” in the UK to explore survey equipment rental opportunities. While HSS does not currently offer GPS and total stations, “I can see this market developing rather quickly provided that (rental businesses) make the effort to maintain the equipment in superb condition, offer the necessary instruction and advice, and provide any IT skills that may be required,” Fielding says.

Lister Fielding says HSS's Safe & Sure Division will investigate expansion into GPS and total stations.
Manufacturers and their dealers are a natural bridge to specialty rentals, and Leica Geosystems is one company that has investigated both ends of the rental stick. “Leica approached us back in December,” recalls Vice President Mark Payne of GeoPlane Services (Houston, Texas), a division of Universal Ensco. GeoPlane Services specializes in the sale, training, repair and rental of GPS units, and carries both Leica and Trimble equipment. “Leica saw that we were a big rental warehouse and asked us to take on their line. They realized we could offer them an additional way to move their products through vertical markets.”

Recent years have seen an increasing number of equipment manufacturers in all sectors help their dealers jump feet first into rental. Many of these companies view renting as a way to protect product lines and revenues while catching some of the tailwind that has propelled rental industry growth. But renting equipment is more than just a twist on sales; it’s a meticulous service business by definition. It takes an experienced company like GeoPlane to make a success of both sales and rentals, since they require dramatically different mindsets.

“Our rental operation is a service company, not a product company,” Payne emphasizes. “Our people have a tremendous number of years experience among them. We have a geodesist, professional land surveyors, a certified trainer and four certified repair technicians on staff … it’s what separates us from your typical survey supply shop. When you rent equipment, it needs to be there on time, in good shape, and be a good fit for the application. There’s always some amount of handholding involved.

“Rentals are a strong business for us because there are many cases where people don’t want to make the investment for a short-term project,” Payne adds. “They want to get in and get out, return the equipment and not have the burden of the overhead. They may never have call for exactly that type of equipment again.”

John Clark, Leica’s Southwest Region Manager, concurs that a focused rental operation offers certain advantages. “Many of our dealers around the country have very strong rental programs of their own, with excellent in-house facilities. Leica also sees rental demand growing through our direct sales representatives, and we reached a point as a company where we had a choice to make: did we want to invest heavily in an expansion of our in-house rental fulfillment capabilities, or source some of it out? GeoPlane was our solution for our direct territories.

“Renting equipment puts a different type of pressure on an operation,” Clark notes. “When someone needs an extra GPS receiver, they almost always need it immediately. When they make a major capital purchase of a GPS, they often need it quickly but not that quickly—a week or so might be fine. In that sense, the rental business has something in common with the parts business.”

On the other side of the Atlantic, Leica Geosystems (UK) operates its own rental division that directly rents Leica’s more sophisticated survey equipment to end users. “Our rental fleet consists strictly of GPS and high-end total stations,” notes John Fraser, after sales and support manager for Leica UK. “For the more basic survey items needed on the construction site, a customer would turn to his Leica dealer who carries a different level of rental fleet.”

This is typical of the UK’s stratified approach to rentals, which is based largely on product type. Great Britain actually has two distinct rental industries: tool hire (tool and small equipment rental) and plant hire (most synonymous with construction equipment rental in the U.S.). The United States has a more blended industry.

Fraser speculates that the burgeoning interest in survey equipment rentals by British rental companies may stem from more than profit opportunities. “There is a trend that has tool and construction rental companies renting out more survey equipment. New market development is undoubtedly a factor, but there is also the service aspect. By offering survey equipment, a rental outfit can go to a construction company and offer the complete package—keep that customer in the fold.”

Other Rental Categories

Fleet management is a second trend that can be expected to turn up more often on American soil in the future. Under this arrangement, a rental company or manufacturer assumes physical control of a customer’s survey equipment fleet and becomes responsible for storage, maintenance, cleaning, calibration and transport to jobsites. Actual ownership of the equipment remains with the customer.

While not yet widely adopted in the States, fleet management is an opportunity that dovetails with a general trend toward outsourcing. Schneider Corporation, Indianapolis, Ind., is a case in point: “We outsource the maintenance of our vehicles to a firm that specializes in that service,” says Gary Kent, Schneider’s director of surveying. “The quality of work is better and the turnaround much quicker. But to my knowledge, outsourcing our equipment management is not something that has ever been discussed. We have a couple of good instrument companies near our office and they respond pretty quickly when we need help. Usually the turnaround time is more important than the cost.”

Osmose Inc. of Buffalo, N.Y., a specialist in maintenance services for utilities, railroad and marine industries, took a hard look at outsourcing its fleet management, according to Supervisor of Support Services Karen Heuer. Osmose owns over 100 GPS units and is a longstanding customer of GeoPlane Services. “We went to Mark in December of last year and asked him to make a proposal,” Heuer says. “We had just undergone some changes in our internal service structure and took a step back to look at the big picture. We needed to decide whether we wanted to continue to track and maintain, ship and service our equipment in-house.”

In the end, Osmose decided to beef up its internal capabilities instead. “I hadn’t seen evidence of a lot of other companies going (the fleet management) route, but it just seemed logical to explore it—especially as GeoPlane is a wonderful source for us. We have ongoing rental agreements with them, both for supplemental rentals on big projects and replacement rentals for down equipment.”

“Supplemental” and “replacement” seem to be defining words in survey rentals at the moment, with many end users still preferring to purchase the bulk of their equipment. Nevertheless, rentals fill a niche. “Renting accounts for about 5 percent of our revenue,” estimates Brian German, general manager of Pacific Survey Supply, a Medford, Ore., dealer serving national markets. “We rent out equipment primarily as a service to customers, most of whom also buy from us. Sometimes it’s just not practical for a company to make a large capital investment toward a single job, or they may want to try out a piece of equipment before they buy it.”

Pacific Survey will apply rental fees toward purchase if the customer decides to buy the equipment within a 30-day window.

Availability is a compelling factor for rentals. As national rental companies fight for a bigger piece of the equipment pie through new niche markets, the survey industry presents a chicken-or-egg dilemma. If survey companies are to rely strongly on rentals, there must be widespread availability of equipment to rent. On the other hand, large rental chains are unlikely to invest in pricey survey fleets and support services until demand suggests a reasonable return on investment. That time may come if the British market is any indication.

One factor that works in favor of renting is the increasing mobility of large-scale regional and national companies in the surveying field. This can make it more practical to source locally, rather than transport equipment. Another factor is the significant capital investment required by items like GPS, together with ever-evolving technologies and specialized maintenance. Instead of encouraging survey rentals, however, these very attributes may actually help cement some supplier relationships. They also present significant barriers to entry by small to mid-sized rental companies.

“A typical rental company is not likely to carry the type of sophisticated surveying equipment we need,” Kent concludes. “This could be because most survey companies do the same thing we do—spend thousands with a supplier, so they tend to take care of you when you need help.” That relationship cycle may be the single greatest challenge to the widespread growth of rentals in this industry.

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