Simon Hartley talks to Westpac’s industry economist Paul Clark, who analyses how the businesses in the sector operate.
The $4.7billion renting and leasing industry around the country employs up to 11,000, and the passenger vehicles market segment alone has about $1.64billion annual turnover.
Westpac's industry economist Paul Clark said a total $4.7billion is estimated to have been turned over in 2017, industry revenues having grown strongly since 2014 at an average 11%.
"Strong economic growth, rising tourism numbers - both foreign and local - and increased construction activity, underpinned by post-earthquake recovery efforts in Christchurch, are likely to have been among the key drivers," Mr Clark says in a recently released industry insight into the sector.
The sector covers the renting and leasing of different types of machinery and equipment, including heavy earthmoving equipment, and also ranges from household goods, to passenger cars and other transport equipment. The report does not cover renting/leasing of residential and non-residential property.
Mr Clark said decisions on whether to rent, lease or buy are informed by a number of factors which determine the relative benefits of each option.
"Renting and leasing offers some significant advantages ... it's a cost-effective and flexible option, especially near-term," he said.
There were no large capital outlays, few responsibilities for repairs and maintenance and no need to make allowances for depreciation, plus rental and leasing expenses were also tax deductible.
"Equipment and machinery is provided when and where needed and usually can be handed back when an upgrade becomes available," he said.
Leasing offers protection against technological obsolescence and, for equipment with the latest technology, there is the possibility of efficiency gains.
"Not surprisingly, the rental market has grown strongly," he said.
"[However] being able to meet this demand is a real challenge for the industry," Mr Clark said.
While larger ones will go as far as using analytics and big data to anticipate demand, for the vast majority, especially the multitude of small firms which participate in the industry, equipment supplies are based on past experience.
Mr Clark highlighted that while supplying equipment was half the story, repairing and maintaining it to ensure optimal performance was just as important.
He said having access to reliable equipment which can be utilised for long periods was a "critical success factor".
Equipment can be either held in stock or obtained from equipment manufacturers/distributors, other rental and leasing firms or participants in peer-to-peer sharing networks.
"Although not usually an issue, accessing equipment can quickly become so, especially if a required make or model of equipment has been discontinued or is in short supply.
"When this happens, rental and leasing firms are often left scrambling for suitable replacements," Mr Clark said.
There were numerous factors to consider for businesses in the sector, including asset management, procurement, maintenance, storage, distribution and tracking of rented/leased machinery and equipment.
"Having internal capacity also means having a strong service ethic," Mr Clark said
The ability to adapt to changing market circumstances was also important, he said.
"This means removing low utilisation and perhaps older stock which is costly to hold and purchasing stock that is likely to be used more should demand conditions allow."
The electronic household goods market segment was a case in point, where technological change was rapidly making existing equipment obsolete, Mr Clark said.
Another factor was having well developed relationships along the value chain, not only with customers but with equipment manufacturers and distributors.
Mr Clark said those relationships were particularly important for the many small firms which did not have the scale to deliver "one stop" solutions or had limited purchasing power.
However, the competitive forces affecting the rental and leasing industry were becoming more intense.
Mr Clark said competition among rental and leasing firms was largely based on price and service, the latter being a function of strong relationship management skills, the ability to problem solve and product knowledge.
"Rental and leasing firms compete not just with firms that provide those procurement options, but also with each other and new entrants, although having the necessary financial resources is a key barrier to entry in most market segments," he said.
The key to prosperity lay in businesses having access to the right quantity and quality of equipment, at the right time.
That was needed to address the requirements of an increasingly sophisticated customer base which has, because of technology advances, a broadening range of procurement options available to them, Mr Clark said.
