Industrial Equipment: Rental option trumps buying during pandemic

Since the start of lockdown in March this year, the EIE Group has noted a significant shift in customers choosing to rent material handling equipment rather than purchasing it outright. It’s a trend that is expected to continue as uncertainty around the Covid-19 pandemic persists.

Operations director at EIE Group, Chantell Malherbe, says prior to lockdown, the company’s business tracked at about 50% outright purchase versus 50% rental, a trend that has now swung to 70% rental versus 30% outright purchase.

“This trend can largely be attributed to customers containing their capital expenditure in the face of a constantly shifting Covid-19 landscape. With infections on the rise in Europe again, businesses are being cautious and not making any assumptions about the pandemic.”

She says the trend is expected to continue for the foreseeable future. “South African businesses know they cannot rule out another Covid-19 storm and possible lockdown, especially given what is currently happening in Europe. They are holding onto their cash for a rainy day and will continue to do so until the weather clears.”

Weighing up the benefits of rental versus outright purchase, Malherbe says one is not necessarily better than the other. “It all depends on the position the company is in when it makes the decision. Most companies would prefer to retain cash for reinvestment in their core business and enjoy the flexibility that renting provides.

“For businesses with low-utilisation operations, an outright purchase might be more beneficial, because they can sweat the asset for longer, whereas on a rental option, equipment is generally financed for a maximum of 72 months dependant on the application and utilisation,” she adds.

A definite benefit of the rental model is that at the end of the contract term, the user can return the asset and get a new one or extend the contract for a further period depending on the usage hours of the forklift.

Malherbe says while rental is trumping outright purchasing at the moment, there is still appetite for the latter. “Customers are asking us to quote on both options. What is also interesting is that banks are open to financing material handling equipment at this time.

“Often, the supplier of the unit also does the financing, but now we are seeing more customers purchasing machines with bank funding. From our own business’s point of view, it is better to have a 50/50 outright purchase versus rental scenario as we also need the liquidity,” she adds.

Choosing to rent rather than buy ensures that your costs are generally fixed for the period of the contract. With the rental option customers have to sign up for a full maintenance contract, whereas with outright purchases maintenance contracts are an option.

Malherbe cautions that businesses should be circumspect about the suppliers they choose to get their equipment from. “Partnering with suppliers with a good track record means getting quality equipment, backed up with easy accessibility to parts and maintenance, and thereby minimising the possibility of major downtime and associated business disruption. Most customers do not factor in the cost of the machine standing idle while waiting to be repaired.

“In EIE Group’s case, we hold an extensive range of parts and those that we don’t have are air freighted in. Whether they rent or buy, we are big enough to supply our customers with back-up machines if the parts have to come from our OEMs in Japan or elsewhere.”

In addition, EIE Group offers annual in-house load testing for lifting equipment (a regulatory requirement) and operator training.

It also offers I-Site, a fleet management system developed by Toyota, which monitors driver behaviour and provides incidence and productivity reporting, allowing customers to determine their optimal fleet mix, measure driver behaviour and equipment utilisation.

“A fleet management system produces a huge amount of data and is only valuable if the business uses the data to operate more efficiently. Now, more than ever, larger companies are moving towards a fleet management system to monitor their equipment. It gives them visibility as to what is going on with their fleets, something that is difficult to manage from an office, especially with a larger fleet,” notes Malherbe.

She says there are many factors to consider when investing in industrial equipment, however, choosing to rent or buy is largely dependent on the nature of the business and the financial position a company finds itself in when making the decision.