Rental revenue growth is still on the upswing, but is somewhat choppy, according to respondents to the third quarter Baird/RER equipment rental industry survey. End market demand commentary is nearly universally positive, with the exception of negative weather impacts, although for the third consecutive quarter several participants mentioned perceptions of peak demand conditions. The majority of comments point to still strong demand expected in 2019.
Expectation for the second half is higher than third quarter growth with respondents expecting revenue to increase 7.9 percent in the second half compared to 6.5 percent in the third quarter.
Rental rates improved 2.2-percent year-over-year in the third quarter, which is better than the 1.4-percent year-over-year growth the survey showed in the second quarter. Respondents expect second half rental rates to rise 3.2 percent compared to last year’s second half.
Fleet utilization was between 64 and 66 percent for the fourth consecutive quarter, which are the strongest readings in the history of the survey. The utilization rate was 65.7 percent in the third quarter. The utilization rate for access equipment, which accounts for 34 percent of survey revenue remained flat year over year at a still strong 70.9 percent, while the utilization rate for earthmoving equipment (27 percent of survey revenue) increase 40 basis points to 65.1 percent.
The cost of new units increased 4.6 percent year over year, higher than the second quarter’s 2.2-percent gain, and also higher than the 2 to 4 percent range during the past few years.
Steel and aluminum tariffs imposed by the Trump Administration have impacted equipment demand, and 54 percent of respondents (weighted by revenue) have altered investment plans. Twenty-three percent of respondents accelerated equipment purchases, while 32 percent said they will lower investment. Approximately half reported surcharges are originating primarily from domestic manufacturers, while others are seeing surcharges applied more broadly.
The average fleet size, in terms of units, grew 5.4 percent year over year in the quarter, down from the previous quarter (6 percent rise) and towards the low end of the 5- to 9-percent jump the past six quarters. Respondents expect a 6 percent increase in fleet purchases during the next six months.
In response to tax reform, there was an initial surge of optimism surrounding fleet investment, but the impact has been minimal the past two surveys. Eighty percent of respondents reported not increasing fleet spending as a result of tax reform. In the April and January surveys, commentary was more optimistic.
Fifty-three percent of respondents expect earthmoving equipment replacement demand to be higher in 2019 compared to 2019, while 40 percent expect access equipment replacement demand to rise.