Shock of expectations

National industry of machine and equipment rental tries hard to go ahead in an environment with retraction of demand, idleness of fleetsand record offailure to pay in the country

Machine and equipment rentalis going through a crossroad in Brazil. After a significant increase in the construction market between 2009 and 2013, this industry is currently facing challenges that are changing its structure and even the business modelof several companies.

This is the x-ray defined by the 4th National Congress of Rental Appreciation carried out byAnaloc- AssociaçãoBrasileira dos Sindicatos e AssociaçõesRepresentantes dos Locadores de Equipamentos, Máquinas e Ferramentas (national association of unions and associations of rental companies) during theConstruction Summit 2016, event sponsored bySobratemain June 15 and 16 at the São Paulo Expo Exhibition & Convention Center, in the city of São Paulo.

Based on the analyses presented in the meeting, the redesign of the industry is considered inevitable. “After this phase of oscillation, the market will get a significant change. The competence will be the same but larger groups will have a lower level of participation.This will allow the other companies to grow”, said Afonso Mamede, president ofSobratema, in the opening of the Congress.But this is not all. Such market change will also cause direct impacts in the age of fleets, for example, a point related with this lower level of market demand. “Actually, fleets will become older but one of the highest difficulties is the “value destruction” that is occurring with the mandatory reduction of labor that we are going through”, pointed Eurimilson Daniel, director ofEscad Rental and vice-president ofSobratema.

In this environment of background changes, rental industry is trying hard to cross the situation, what seems to need a long time. “We are currently facing the highest crisis of the republican era in the country. If things go well, we will reach our previous levels only in 2022”, said Reynaldo Fraiha, president ofAnaloc. “That is why the economy has to find its way to ensure good conditions of work and returnof investments.”

To make this recovering come true, the businessman lists factors such as economic stabilization and legal safety, which will allow the companies to recover the confidence in the market. “But to make this happen it is necessary to carry out a work into the political class and to restore trust in the industry toput the wheel to run again”, says him. “In this sense, we have to position ourselves and press the government, in a missionof bringing information to make overcoming feasible. After all, we must have a clear positioning of what is necessary for growing. This is the only way to go out of the neutrality and improve the points that are demanding changes for the future of the country.”

RESEARCH

The dimensions of the challenge may be shown by the recent experience of equipment rental carried out in Minas Gerais, a state which broadly represents 10 percent of the national reality in geographic, economic or market terms.

A survey carried out with by the Ibmec Institute with 301 rental companiesshows that in the last year the equipment rental market in Minas Gerais had a billing of3.2 billion reais, what means an increase of 18.5percent in relation to the previous year, when the billing was of 2.7 billionreais.In spite of the positive billing, thepresident of theSindileq/MG - Sindicato das EmpresasLocadoras de Equipamentos, Máquinas, Ferramentas e ServiçosAfins do Estado de Minas Gerais (union of rental companies of the state),José Antônio Souza de Miranda Carvalho, pointed that—considering the figures that came out from the survey—the expectation of the industry is highly pessimistic, with 84 percent of the respondents informing that their companies will maintain or reduce billing in 2016, while 79 percent say that they will make no investments this year. It is important to point out that 70 percent of the interviewed companies have clients in the construction industry.This makes clear the reasons for such fear, considering the paralysis that is occurring in this activity.

Another revealing data shows that 42 percent of the 1390 rental companies of Minas Gerais have up to five employees. In the previous survey, there were 37 percent of the companies with up to five employees. The quantity of companies with more than 100 employees was reduced from 9 to 6 percentin the new sampling.In other words, the companies of this industry are low-sized and are growing in number. And they are not adventurers, since 43 percent of them are working in the industry for more than 15 years.

By the way, 81 percent of them chose the Simples tax system, which gathers companies with billing up to 3.6 million reais per year.Enlarging the data of research to the national context, such data will showthe average profile of this market—which was hiring 270,000 workers in May of this year—in the country.

Talking about employees, 51 percent of the companies informed that dismissed personnel in the first quarter, 24 percent said that they will continue to dismiss along this year and 56 percent believe that their teams will remain at the same level. “This chain reaction in the social cost configures a portrait of the situation”, saidCarvalho.

Considering the fleet age, the survey shows that 44 percent of the machines are 3 to 6 years old with an aging trend since—as it is clearly shown above in the data about the investments—there are no projects of renewal in the horizon. This is where the highest challenges start.