Revision of values

Accumulated effects caused by two years of unstable economy make difficult the survival of equipment rental companies, but some of them are teaching how this is possible to be done

On the contrary of what many people think, the end of 2016 was not the most critical moment of the crisis, “but a consequence of the former two years. Things will really worsen just in this first half of 2017”. This alarming analysis—or sentence—comes from Eurimilson Daniel, vice-president of Sobratema and general secretary of Analoc (Brazilian Association of Unions and Representative Associations of Machine, Equipment and Tool Rental Companies).

For the executive, who is also director of the rental company Escad, the accelerated progression to the current situation of difficulties comes at least from half 2014, when the first signals of deceleration in the construction industry—mainly the heavy area—started to emerge from the economic horizon. “We followed a line that was more financial than operational”, says Daniel. “We are aside from survival, maintaining just what is essential for allowing companies to continue to work.”

According to him, the last two years were marked by forced adjustments. “Our turnover and occupancy rate were reduced in 2015 and continue to be reduced in 2016. We were working with an average occupancy near 50 percent with negative trend. In the last year, this figure dropped to a value between 30 and 35 percent”, details him. “This corresponds to a huge rate of fleet inactivity, something between 65 to 70 percent.”

In such context, reductions in the labor team and in the quantity of branches were necessary adjustments that had to be carried out along the period. In the case of Escad, these adjustments were the most severe that occurred during its 40 years of life. Nevertheless, Daniel maintains an imperturbable positivity. “We have to stop this bleeding, to stop deconstructing values. And although many companies left the business, I believe that the most healthy, well-managed companies will continue to work”, says him. “In fact, this market is showing a huge capacity of resistance. If the interest rate is reduced and at least a part of government projects is retaken, we will have a very positive and quick answer of the industry. We are excited with that.”

DIVERSIFICATION

The issues of Mills—one of the main rental companies of the country—are going in the same way. According to Sérgio Kariya, CEO of the company, current figures are similar to those of Daniel: “Our utilization rate in 2014 was near 73 percent”, says him. “Currently, it is below 50 percent. In other words, only half of the fleet is working”.

Pioneer in the business of aerial platforms in the country, Mills has its strength in this specific area, where it dug many opportunities. In terms of application, the diversification became a real lifeline to face construction losses. Therefore, one of the company strategies to overpass the crisis is to look for business in the so-called extra-construction areas, including those that are not in a workplace. “There is a huge variety of operations attended by aerial platforms that were not deep exploited by us”, comments Kariya, pointing that Mills is placing equipment even in coconut plantations. “With the crisis in the construction industry, we want to increase the share of these activities that—although being more profitable—currently correspond to approximately 40 percent of our rental business.”

In these times of crisis, equipment renewal is one more concern, partly overcome by these services. The reduction is a natural result of idleness but—more than that—is a result of the difficulties associated with the maintenance of so many machines. For this reason, Mills adopted the concept of defleet, that involves the machine sale to the international market, in a way to ensure the balance of its structure in relation to the demand. “We always used this international way of commerce as a tool to keep our fleet updated”, emphasizes the CEO. “But with the crisis that is occurring in the Brazilian market and with the huge oversupply available we are using this solution to unburden our fleet surplus, keeping a low average life and matching the fleet with the current market.”

At each negotiation, Mills adopts the most attractive method for the corresponding market. “In Ex Works, FOB or any other regime, this depends on the opportunity”, says him. “We just sell them with positive margin, what is indispensable, mainly in the current economic situation.”

The depreciation of the real in front of the dollar is another factor that is contributing to balance the situation. We lose in the value of the equipment due to the wide supply offered but we gain on the other end due to the competitiveness caused by the currency. The most important—according to Kariya—is to take continuous care of maintenance. It is better to waive volume to prevent quality loss”, tells him.