Revenues increased 15 percent in the first quarter of 2022 compared to the first quarter of 2021 according to participants in the quarterly Baird/RER Equipment Rental Survey. Expectations are for 7.5-percent growth in the second quarter and 9 percent for full year 2022. However, labor shortages and the difficulties of obtaining new equipment are making it more difficult to capitalize on a more robust environment. Forty-nine percent of respondents saw revenue and utilization higher that their initial budget in the first quarter with 10 percent finding it below.
Rental rates were up 4.4 percent year over year, the highest growth in several years. The improvement in rental demand and improved and improved equipment utilization provided pricing flexibility. Rental rates are expected to increase 5.1 percent in 2022, somewhat better the forecast from last quarter (+3.9 percent).
However, there are concerns about the ability to keep rental rates at a high level. As one respondent said, ”All levels of inflation (wages, fuel, parts, transportation) combined with supply chain woes – not sure rental rate structure can keep up.”
Average rental revenue increased 14.8 percent year over year, higher than last quarter’s growth, which was 12.8 percent. Worker shortages, supply chain constraints, and inflation pressures remained recurring themes. Seventy-four percent of respondents reported increased absenteeism during the quarter as a result of the Omicron variant, although only 15 percent said it led to lost revenue.
Selected comments from participants provided a good capsule of the issues rental companies are facing:
“We are seeing positive impact in the market due to the increase in oil prices and increase in the energy sector,” said one. “We diversified our business during Covid and are seeing a positive impat of diversifying our fleet.”
“We are seeing an increase in long-term rentals on mini-loaders and other versatile equipment that will help contractors offset loss of labor while keeping crews productive.”
“Long lead time for engines from Cat, Deere and other suppliers are causing long lead times for equipment deliveries and missed revenue opportunities,” said a third.
“Interest is up but product availability is the issue,” added another. “I’m placing orders now that won’t be delivered until June of 2023.”
A fifth added that supply chain issues are disrupting everything, and that contractors are being delayed on commercial projects “significantly.”
Fleet utilization very high
Fleet utilization was a strong point at 61.8 percent compared to 60.4 percent for the fourth quarter of 2021 and 57.9 percent for the first quarter of 2021. Utilization was the second highest in survey history, only surpassed by the first quarter of 2018 when it was 65.3 percent. The utilization rate for access equipment – which accounts for 27 percent of survey revenue – rose to 63.9 percent compared to 60.1 percent in the first quarter of 2021. However, the utilization rate for earthmoving equipment, which also accounts for 27 percent of survey revenue, declined from 59.7 percent in the first quarter of 2021 to 55.4 percent in the just-concluded quarter.
Respondents are expecting a 7.4-percent revenue increase in the second quarter, with 28 percent expecting a 5 to 10 percent revenue hike, and 25 percent expecting a 10 to 15 percent increase. Average rental revenue expected to be up 9.2 percent in 2022, slightly down from the 9.5-percent increase expected last quarter.
Growth in the cost of new units increased 7.2 percent, slightly up from last quarter when it jumped 6.8 percent. OEMs are increasing equipment pricing to offset cost inflation, including still rising steel prices. One respondent noted that lead times were two years out in some cases. Respondents said new access and earthmoving equipment availability and lead times continue to worsen, with 82 percent of respondents reporting that access equipment availability has gotten worse the past several months, with 37 percent saying the problem is modestly worse and 45 percent significantly worse.
Still, average fleet size (units) increased 5.7 percent year over year in the first quarter, the strongest growth since the second quarter of 2018. Respondents expect fleet purchases to increase 8.5 percent year over year over the next six months. Respondents say access equipment spending is expected to be up 8.2 percent over the next six months, while earthmoving equipment spending is expected to rise 10 percent.
Respondents also weighed in on the labor shortage, with 55 percent saying the labor shortage has had a negative impact on their business because of rising wages, impacting the bottom line. Last quarter 48 percent expressed concern over the issue and two quarters ago, 32 percent. Twenty-seven percent reported that not having enough workers had a negative impact on their business compared to 37 percent last quarter. Thirty-eight percent said the labor shortage had a negative impact on their customers.