Looking ahead to analyze business prospects in the rental industry, RER recently interviewed Joe McCaffrey, business development manager of Able Equipment Rentals, based in Copiague, N.Y., about lessons learned from the recent recession, how the rental industry has changed, customers' expectations and the economic landscape for the year ahead.
RER: What lessons have you learned from the recession we've come out of and how will those lessons help you going forward?
McCaffrey: We were fortunate to enter the recession with a great fleet, a great staff, great credit and good productivity. Still, the financial and economic system collapse was a shock. During the recession we accessed some cash reserves and some credit and used the time to improve productivity even more so. The lesson learned? Always keep your composure and make the healthiest choices even if the outcomes are temporarily disappointing.
RER: Have we in fact emerged from that recession and what are your expectations for 2012?
McCaffrey: Although the National Bureau of Economic Research declared the recession officially over in June 2009, other indicators, such as the U.S. Census Bureau on construction spending, the U.S. Labor Department figures on construction employment and the McGraw-Hill Dodge Report 2012 Outlook all predict continued headwinds into 2012 and that construction in the U.S. will remain far below the peak of 2006 for quite some time.
RER: Is there any danger of a “double dip” recession, particularly as it pertains to our industry?
McCaffrey: There are many threats to the U.S. economy and a ‘double dip’ is not out of the question. The threats include political gridlock, continued debt deleveraging, depressed real estate valuations, commodity price fluctuations, natural disasters and general falling demand. Those threats outnumber the way out — growth — and of course no one yet knows where the growth will come from. As for construction, the industry fell so far and so fast we don't see the same degree of downside risk that faces the rest of the economic sectors (we are ‘knocking on wood’ as we say this). In the minimum, there will be construction replacement, refurbishment, maintenance and other activities all requiring construction equipment rentals. The few new private and many new large municipal construction projects recently started will add substantially to that minimum.
RER: How has the industry changed and what changes do you anticipate going forward?
McCaffrey: Construction quality and standards continue to dramatically improve and we are proud to be part of that trend. However, the flip side of that is the expectations of construction users (buyers) have in turn increased while their appetite to pay even a reasonable amount has diminished. Construction companies and related industries are caught in the middle as manual labor, time, planning and materials have remained at pre-recession levels and haven't deflated. Productivity, coupled with being choosey with whom you do business are key, and will be the defining elements of any profitable construction-related company going forward.
RER: What are your expectations for your own rental business for 2012?
McCaffrey: For 2012, we have turned slightly bullish from cautiously optimistic. We have our fingers crossed that the brisk level of activity will continue.
RER: What kind of investments will you make in the area of equipment, branches, IT, and other areas?
McCaffrey: We plan on making investments in four key areas that will be at 400 percent over 2011. We will purchase equipment (increasing and diversifying our fleet in 2012), we will expand the footprints of our facilities, we will increase the size of our repair, parts and service business unit and we will continue to expand our trucking and heavy-haul capabilities. We are lucky to have a sister company — Able Rigging Contractors Inc. — that we share many synergies with. We have a great existing sales and administrative staff, and a robust IT system that will tide us over to 2013. 2012 will be all about major capital expenditures and the continued successful cross-selling of our companies' services.
RER: What kinds of attitudes are your customers communicating going into 2012? Cautious, optimistic, uncertain, a lot of work on the books?
McCaffrey: Our client base is mixed in their opinions for 2012. Business activity for most of them is good but their cash flow is still constrained. One of the biggest drags for them is the untenable level of delays over construction payments due them because of change orders implemented by their clients — the construction buyers. In most cases, there is very little dispute that work was performed satisfactorily, but nonetheless, GCs and subs getting paid is presently a major issue.
RER: How was business in 2011 compared to 2010 percentage wise and what are your expectations for 2012?
McCaffrey: Our business in 2011 was up 7 percent from 2010. We are anticipating that trend to continue in 2012.
RER: How were rental rates in the second half of 2011 and what do you expect from rental rates in 2012?
McCaffrey: They improved slightly and we are anticipating that trend to continue as well.
RER: Any particular issues concern you — potential oil price hikes, equipment price increases, European credit situation, long lead times in obtaining equipment, possibility of double-dip recession?
McCaffrey: We worry most about the unknown as we can't plan for that, everything else we can deal with.
As for European liquidity, solvency and recessionary issues as they pertain to the U.S. economy; monetary, fiscal and financial industry experts are unclear what the impact might be, although worst case predictions are a 1-percent reduction in U.S. GDP and construction is a big part of U.S. GDP. We see two specific possibilities in construction. One is the presently unknown effects on large European-based multinational construction companies that have gained a lot of market share in the U.S. How tied is their financing to European capital and credit vs. U.S. capital and credit? If they become constrained in their access to financing, will U.S.-based construction companies fill a gap if one develops? The second is with the banks themselves. We see U.S. banks as having increased opportunity in Europe but would that draw their resources away from financing U.S. construction activities?
Our most tangible distraction is transportation. Keeping our trucking and heavy-haul fleet in pristine condition, facilitating permitting where necessary, labor, fuel and toll costs are all major expenses for us and we are constantly tweaking these processes.
“Always keep your composure and make the healthiest choices even if the outcomes are temporarily disappointing.”
- Joe McCaffrey, business development manager of Able Equipment Rentals.