An increase in Business but a shortage of hire trucks?
The truck rental market is a straightforward business enviroment and the same can be said for the majority of the people who work in it. The typical salesman is pretty down to earth and doesn’t harbour any illusions about the life changing effect that new rental truck is going to have on you or your business.
The last two years have been tough with a couple of major players bowing out, some in an orderly manner, and others with a trail of financial destruction in their wake. We are all pretty much well aware of how precarious the public finances are and the probability of us getting pretty cosy with the nice chap from the IMF, however, the strange thing is that the smoke is beginning to clear in our industry.
In the last 4 months we have notice a marked upturn in enquiries in certain categories of rental trucks. In particular the tipper classes and open trucks seem to be back in demand. This sounds great right? , well it would be if there was a supply of trucks to meet this demand. Currently these types of vehicle are in short supply. This leaves the truck rental company two choices. Decline the business or purchase a new vehicle for the customer.
Ah, but now we get back to the issue of credit. Many healthy companies have found themselves sitting on their hands because they see no profit opportunity in what they would normally do. When I said the Market had improved, I did not say rates had also improved. So with an average decline in rates of 40% over the preceding 36 months, the option of purchasing new is simply not there. This is because the rental rates cannot offset the depreciation of the hire truck, which results in the rental company making a loss at the end of the hire period. Well-funded Truck Rental companies are currently playing a waiting game. The yields on rental vehicles must rise to a level that encourages new entrants ( ie – Vehicles ) into the market.
This imbalance in the market will not right itself in the short term. Currently in Ireland many industries are suffering artificial distortions that are outside of their control. The real test will be in the medium term profitability of companies operating in uncharted territory with vehicles that little bit older than they would like.
