Equipment rental activity remained mostly steady in the fourth quarter according to the Baird/RER 4Q Equipment Rental Survey. Rental revenue was down from the third quarter but was consistent with the first half when the weather was unfavorable for most of the period. Utilization and rental rate growth were similar to the previous two quarters. Qualitative commentary slanted positive but also highlighted somewhat mixed end-market demand, with oil-and-gas a drag for many. Expectations for rental revenue and rental rate growth in 2020 were similar to 2019, although many pointed towards the upcoming elections as a source of cautiousness and uncertainty, with fleet spending outlook being lowest since the third quarter of 2016.
Fourth quarter activity was mostly steady with the previous two quarters with rate pressures continuing but not necessarily getting worse. Average rental revenue growth was 5.2 percent year over year in the fourth quarter, compared to an increase of 7.1 percent in the third quarter and 5 percent in the first and second quarters.
Average rental rates increased 1.5 percent year over year in the fourth quarter. Growth has been steady for the past few quarters, rising 1.2 percent in the third quarter; 1.3 percent in the second quarter and 1.8 percent in the first quarter, all on a year-over-year basis.
Fleet utilization was 65.4 percent in the fourth quarter, remaining in the two-year range of 64 to 66 percent, with the first quarter of 2019 (56 percent) proving to be an outlier because of extremely harsh winter weather.
Growth in the cost of new units increased 0.8 percent, the slowest growth in the survey’s history. OEM price increases and steel surcharges appear to be dissipating and, in some cases, unwinding.
Respondents expect revenue growth of an average of 5.9 percent, consistent with the actual growth rate from the four 2019 surveys, which averaged 5.6 percent.
Respondents expect a 2.4 percent increase in fleet purchases during the first six months of 2020, the lowest increase since the third quarter of 2016. Earthmoving equipment purchases are expected to increase 2.8 percent, with access equipment purchases growing 1.4 percent.
Respondents expect rental rates to increase 1.8 percent in 2020, compared to the survey average a year ago of 1.4 percent.
Forty-six percent of respondents expect to spend more for access equipment replacement in 2020, while 29 percent expect to spend less than 2019. For earthmoving equipment, 21 percent expect replacement purchases to be higher than 2019, while 39 percent expect lower expenditures for replacement.
Average fleet size in units grew 2.5 percent year over year in the fourth quarter, the slowest growth since 4Q16, and the continuation of a multi-quarter deceleration. Respondents expect a 2.4 percent increase in fleet purchases during the first six months of 2020, the lowest expectation since 3Q16.