Heavy Construction Equipment Rental and Leasing

SIC 7353

Companies in this industry

Industry report:

This classification covers establishments primarily engaged in renting or leasing (except finance leasing) heavy construction equipment, with or without operators. Establishments primarily engaged in financial leasing are classified in SIC 6159: Miscellaneous Business Credit Institutions.

Industry Snapshot

Figures from Dun & Bradstreet's Industry Reports showed that 5,987 establishments were involved in heavy construction equipment rental and leasing industry in 2010. This number represented an increase from U.S. Census Bureau figures of 5,790 in 1995, although consolidation slowed the growth of number of establishments. Revenues for the industry rose to $12.8 billion in 2009, up from approximately $11.2 billion earlier in the decade. About 63,529 people were employed by the industry in 2009, with about 60 percent of these working for firms that employed fewer than 50 people.

Organization and Structure

This industry is concerned only with equipment rental and leasing arrangements that qualify as "operating" leases. Operating leases are generally short-term arrangements that allow contractors to acquire equipment for a fraction of the asset's useful life. "Financing" leases, on the other hand, are longer term arrangements that allow contractors to acquire equipment over a period of steady payments.

Construction contracting companies (lessees) lease or rent heavy equipment from leasing companies (lessors) under the assumption that higher productivity and profits are derived from equipment use, rather than from ownership of the equipment. In other words, companies that lease and rent equipment believe that they can generate greater returns by investing capital in business ventures other than equipment ownership. In contrast, firms that rent or lease equipment to contractors do so under the assumption that they can garner greater returns by investing their resources in, and managing, equipment -- not building with the machinery.

One advantage accorded the lessee is flexible terms. Arrangements can be adjusted to the user's unique market conditions, cash flow expectations, equipment needs, and tax situation. Leasing or renting also allows the lessee to defer the risk of losses caused by obsolescence inherent in the purchase of heavy equipment. Furthermore, leasing frees the lessee's capital for investment in other ventures that would normally be consumed by the hefty down payment and debt burden usually required by purchase agreements.

Lessors benefit from the leasing arrangement because they typically have greater expertise in the equipment market than their clients and can more efficiently manage investments in expensive equipment. In most cases, lessors can offer equipment to the lessee for a price that is highly competitive to what the lessee would have to pay if it financed a purchase. Advantages that lessors cultivate include greater bargaining power when purchasing equipment, an increased ability to liquidate used equipment, lower financing costs, and lower equipment maintenance fees. Lessors can also benefit more than many lessees from various tax laws that apply to leasing, such as depreciation allowances.

Equipment and Projects.
The principal types of equipment leased and rented by firms included bulldozers, cranes, and earth moving equipment. Earth-moving equipment includes a wide range of machinery such as tractors, trenchers, scrapers, graders, and crawlers. Miscellaneous pieces of construction machinery such as tunneling equipment, well drills, loaders, cutters, compactors, excavators, oversized trucks, and portable mixers rounded out the industry's offerings. While some companies owned and leased many types of equipment for various heavy construction activities, other firms specialized in renting equipment for a specific line of work.

The largest manufacturer of the leasing industry's equipment in 2010 was Caterpillar Inc., which was also the largest supplier in the world. Other large manufacturers included Komatsu, CNH Global, Terex Corp., and John Deere. These companies, along with hundreds of others in the United States, accounted for most equipment sales to leasing companies, as well as 70 percent of all worldwide equipment sales.

The two basic divisions of the market for which leasing companies provided equipment were public and private. Private heavy construction activities included commercial and industrial projects that were completed with the intent of generating a profit for the owner of the project. Examples of private heavy construction projects include office buildings, manufacturing facilities, hotels and other commercial buildings, golf courses, oil wells, private electric utilities, hospitals, and private prolonged care institutions.

Public heavy construction activities for which equipment was rented or leased were completed with public dollars, and not necessarily with the intent of generating a profit. Examples of such projects include schools, highways, water works, public utility plants, dams, railroads, canals, prisons, hazardous waste site clean-ups, and landfills.

Background and Development

The heavy equipment rental and leasing business in America emerged as a recognizable industry during the U.S. construction boom of the 1960s. Although little of the construction equipment used during this time was rented or leased, some contractors began to realize advantages related to borrowing specialty equipment for short-term uses. Construction markets in the United States remained relatively strong in the 1970s and early 1980s, despite cyclical downturns, and leasing activity increased as a result of regulatory changes that made leasing more appealing to some companies. For instance, investment tax credits conveyed benefits to lessors of equipment that invested in new machinery. Furthermore, depreciation allowances were modified at various times and became particularly beneficial for most heavy equipment lessors during the early and mid-1980s. These allowances permitted lessors to deduct from their tax burden larger amounts of expenses associated with equipment depreciation. Depending on the type of equipment being depreciated, some lessors were able to increase their profits by completely depreciating pieces of machinery long before their economic, or useful, life was complete.

In addition to favorable federal policies, the renting and leasing industry was helped by the construction boom of the mid 1980s. During this time, the total value of new construction soared from $332 billion during 1983 to nearly $420 billion by 1987. But while the amount of heavy equipment rented increased during this period, most companies continued to prefer to purchase their machinery; lessors thus enjoyed only a minor share of the entire equipment market. In fact, throughout the 1980s, contractors owned more than 90 percent of the equipment used for heavy construction.

The industry began to experience difficulties in the late 1980s. In 1987, the commercial construction market began plummeting into a virtual, and prolonged, depression. New commercial construction, not including maintenance and rehabilitation, fell from about $87 billion in 1985 to $67.5 billion in 1988 and $53.8 billion by 1992.

In addition to the recessed market, regulatory changes had an impact on industry profits. The Tax Reform Act of 1986 eliminated investment tax credits the industry had previously enjoyed and reduced the benefits available through deduction of depreciation expenses. It also reduced corporate tax rates and strengthened the minimum corporate tax. All of these factors combined to reduce tax advantages that assisted firms in the industry.

Heavy construction equipment lessors benefited from a recovery in construction markets that began in 1992, when the value of new construction jumped 4 percent over 1991 to about $373 billion. In addition, the election of President Clinton in 1992 increased the likelihood that the public sector market for equipment would grow, since Clinton had proposed increased federal spending on infrastructure of $80 billion over four years. The Clinton administration also advocated adoption of new investment tax credits that helped lessors. Furthermore, $155 billion was earmarked for construction spending under the Intermodal Surface Transportation Efficiency Act (ISTEA) during the 1990s, which served to increase demand for the rental of heavy equipment.

Regulatory constraints affecting heavy equipment lessors showed signs of increasing in the 1990s. Some state and local governing bodies that were seeking ways to increase revenues were considering tax rule changes that would increase taxes on leasing and rental transactions. For instance, Florida tried but failed to institute a proposal that would have allowed the state to collect sales tax up front on leases, rather than on a periodic basis as rental payments came in. Multistate Tax Commission (MTC) proposals, which attempted to shift the source of leasing income in multistate transactions, were also an important issue facing the industry in the mid-1990s. In 1996, an industry survey conducted by the CIT Group reported that firms in this industry cited governmental regulation as the single most serious problem facing the industry.

The heavy construction industry remained in a slump in the early 1990s, but showed signs of an upturn by the mid-1990s. Throughout 1996, industry sales and activity experienced a slow growth at 3 percent overall. As a result, leasing and rental of heavy construction equipment registered a slight, corresponding increase. By the end of the 1990s, the demand for equipment rentals continued to be very strong. Industry analysts estimated that overall revenues had grown by about 20 percent per annum over the past 10 years.

While the industry generally improved in the mid-1990s, firms continued to face stiff competition as a result of lackluster demand compared to the mid-1980s. Firms like Hertz, Prime, and Home Depot aggressively entered this industry. A capital crunch made it difficult for lessors in the industry to secure financing to buy new equipment or expand into different market segments. Furthermore, lessors were not able to rely on expanding international markets to boost sales as other segments of the construction and equipment industries. In fact, only a negligible amount of international trade occurred in the industry in the early 1990s. This was a result of the obvious impracticality of transporting heavy machinery long distances for short-term applications. In fact, most firms in the industry were characteristically localized. At the time (1996), Fred Anderson of the American Rental Association posited that "while major players like Prime and Hertz have equipment rental divisions, the predominant number of players are still locally based independents."

Other factors that determined the health of the industry in the 1990s included: interest rates, which reached lows in the mid-1990s and were remained relatively friendly to borrowers into the new millennium; high commercial vacancy rates, which kept the lid on new office and retail development; and demographic factors that impacted school and hospital construction spending.

In a study conducted by the CIT Group in 1996, 62 percent of contractors who intended to lease equipment in 1997 cited "limited need" as a major reason for leasing equipment. For the fourth straight year, "cost" continued to decline as a reason for leasing equipment. However, "unexpected need" gained popularity as a frequently cited reason for leasing equipment in 1997. By the turn of the twenty-first century, there was also a growing realization by contractors that it was more economical to rent than buy, unless the equipment could be utilized more than 75 percent of the year. By leasing, they were also able to access more and different types of equipment while taking advantage of the best technology available.

According to Robert J. Merritt, President and CEO of the CIT Group, "In 1996, the construction industry expanded by nearly 3 percent in inflation-adjusted dollars." Another bright spot in this industry was the 6 percent growth rate for commercial construction activities during that same year. By the end of the 1990s, the $619 billion construction industry was growing at an annual rate of about 4 percent.

In 1999, a Buyers' Intentions study conducted by the Associated Construction Publications asked contractors if they rented or leased equipment. The responses showed that on a national level, 46 percent rented or leased equipment; only 6 percent said they exclusively leased. It was evident that the rental market was growing at a brisk rate, while leasing seemed to be on the decline. Contractors indicated that they were only interested in buying equipment that they would use on a regular basis, such as trucks and backhoe loaders then filling-in with rental units when they had jobs that required more equipment. Crawler dozers and cranes topped the list of popular equipment rentals.

The decline in the overall economy during the early 2000s led to a slumping industrial and construction industries, which, in turn, negatively affected the equipment rental industry. However, as the economy recovered beginning in 2003, the equipment rental industry experienced renewed demand and increased profits as multifamily housing, commercial, highway, and industrial building sectors all became very active. Despite renewed growth in construction, the overall makeup of the industry did not change significantly; even though the number of machines in rental fleets increased by nearly 20 percent, demand fell by 3 percent as rented machine inventories simply kept pace with the total machine population. According to the Construction Equipment Universe Studies, in 1991, 26 percent of total demand for large construction equipment (including skid loaders, asphalt pavers, cranes, etc.) was filled by renting. In 2003, 23 percent of demand was filled by renting. In comparison, heavy machinery rentals filled approximately 50 percent of demand in Europe and nearly 80 percent in the United Kingdom.

In the mid-2000s, highway and heavy contractors accounted for 36 percent of equipment rental demand; building contractors, 34 percent; diversified building contractors, 15 percent; and all others, 15 percent. During the first half of the 2000s, backhoe loaders and skid steer loaders were the most popular rental equipment by number of units. In 2003, the number of backhoe loaders in the rental fleet totaled 97,092 and skid steer loaders totaled 92,253, accounting for a combined 64 percent of all equipment rented. Hydraulic excavators and wheel loaders each accounted for 8 percent of rental demand.

As the pace of multiple-family housing, commercial, and industrial construction quickened in 2004 and 2005, demand for crane equipment rentals surged, leading to supply shortages and increased rental prices. During 2005 alone the rental price of a crane increased by as much as 25 percent. According to Crain's Chicago Business in November 2005 a medium-sized, 22-ton capacity tower crane rented for $22,000 per month, up from just $12,500 per month in 2003.

During the first half of the 2000s the highly fragmented equipment rental industry was characterized by heavy pricing wars, but in the mid-2000s industry consolidation picked up and prices increased. After benefiting from the surge in construction during the mid-2000s, the industry started to slow, along with the rest of the economy, and by late in the decade was in a serious slump.

Current Conditions

The heavy construction equipment rental and leasing industry ended the first decade of the twenty-first century on a low note. According to the Rental Equipment Register, "The dramatic downturn in commercial construction was the common denominator faced by the RER 100 [top 100 equipment rental companies] in 2009." Bill Thompson of Thompson Pump, a company that rented engine-powered portable pumps to those in the construction and other industries, commented that "Other than our very first year in business 40 years ago, 2009 was, by far, the most difficult. The projects were scarce; the competition was fierce; revenue declined but costs remained consistent, or even increased in some areas." According to the Rental Equipment Register, overall revenues for equipment rental in 2009 were down 25 percent from the previous year.

By late 2010, however, many in the equipment rental industry were looking for a recovery. For example, industry leader United Rentals reported a 6 percent increase in revenues in the third quarter of 2010 compared to the same time period a year earlier. According to a report by IBISWorld, beginning in 2011, the heavy construction equipment rental industry would benefit from an upswing in the transportation and construction industries, with federal funds toward bridge and highway projects contributing to an increase in equipment leasing and rental.

Industry Leaders

In 2009 United Rentals Inc., based in Greenwich, Connecticut, was the largest construction equipment renter in North America, with approximately 550 locations and 1 million customers. With 8,000 employees, the company posted 2009 revenues of $2.3 billion. RSC Equipment Rental of Scottsdale, Arizona, was the second largest heavy equipment renter. The company, which maintained approximately 450 North American locations, posted revenues of $1.2 billion in 2009 and employed 4,153. Sunbelt Rentals Inc. of Fort Mill, South Carolina, ranked third in the industry, with about 400 locations in 35 states, in addition to locations within Lowes retail stores. In 2006 Sunbelt purchased former rival NationsRents Co. for more than $1 billion, and by 2009 had annual revenues of $1.1 billion and 6,500 employees. Another leading heavy construction equipment rental company in the United States in 2010 was Hertz Equipment Rental Corp. of Park Ridge, New Jersey, with 255 locations and revenues of $1.1 billion.

In the early 2010s, Morrow Equipment Co. LLC of Salem, Oregon, had the largest fleet of tower cranes in North America. The company owned and operated offices in 23 locations in the United States, Canada, Australia, and New Zealand. Another leader, Chicago-based NES Rental Holdings, Inc., operated from 80 locations in 30 states. NES, which rented more than 750 types of construction and industrial equipment, reported revenues of more than $300 million in 2009 and employed 1,100 workers.

Maxim Crane Works LP, based in Bridgeville, Pennsylvania, was the nation's only crane rental firm with coast-to-coast operations, operating from 35 U.S. locations. Maxim Crane expanded rapidly during the early 2000s, but its debt load subsequently forced the company to file Chapter 11 bankruptcy. The company was subsequently purchased by Platinum Equity Partners in 2008.


According to Dun & Bradstreet, the heavy construction equipment rental industry employed 63,529 people in 2010. Based on U.S. Census Bureau figures, positions in the heavy construction equipment renting and leasing industry entailed a variety of jobs, the greatest number of which were clerical, representing about 18 percent of the work force in the late 2000s. Equipment operators and mechanics accounted for about 14 percent and 8 percent of all employees, respectively. Management and executive jobs accounted for 12 percent of industry employment. Other positions included work supervisors, bookkeepers and accountants, and salespeople.

Research and Technology

As the construction industry became increasingly competitive, contractors were seeking advanced technology that would give them an edge in completing jobs faster and easier. Continuous technological advances in construction equipment were shortening the practical life span of some types of machinery, quickly rendering earlier models of equipment obsolete. As a result, in order to avoid ownership risks associated with obsolescence, the incentive to rent heavy machinery increased. In the 2000s, some of the larger companies also implemented e-commerce tools to reduce costs and improve customer service. Catalogs and inventory were available via the company's website, customers had online access for electronic payments, and many companies paid their suppliers electronically.

In the late 2000s and early 2010s, equipment rental companies utilized the latest in technology to stay ahead of competitors and increase productivity. For example, in 2009 Sunbelt Rentals launched an iPhone application called Mobile SalesPro, which allowed sales representatives and field personnel to access real-time data such as inventory and customer information. According to vice president of IT John Stadick, "The ability to respond instantly, even when standing in the dirt on a job site, truly leverages the technology and creates a huge competitive advantage."

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