Any good at poker?
16 August 2021
What will the level of demand for hire equipment be 12 months from now?
It’s difficult to make forecasts at the best of times but as one hirer told me recently, it’s currently even more challenging.
“We’ve got nearly 100% utilisation on items like mini excavators and dumpers. We could do with more to meet demand. If we had another ten of each – assuming we could actually order them, which is virtually impossible at the moment – we’d have them out on hire in an instant.
“But I’m cautious. While business is currently at unprecedented levels, it must return to something like normality eventually. I don’t want to spend the best part of half a million pounds on kit that could well lie idle in the future if demand falls.
“Most importantly, the price of equipment, spares and consumables is going up due to materials shortages and supply chain issues – but hire rates certainly aren’t.
“So we are going to keep sweating our existing assets and wait to see how the economic picture looks in a few months’ time after the furlough scheme ends (on 30 September) and the winter approaches.
“I don’t want to sound pessimistic,” he said. “But if we end up in a situation with too much kit in the market, we could see even more pressure on hire rates.
“It’s like being in a poker game. You can see your own hand but you don’t know what other players hold, or what card you’ll be dealt next.
“Some suppliers have raised their prices three times already this year owing to the cost of steel and freight, and you just can’t forecast that. Normally you plan your capex and investment based on your utilisation levels and average likely price increases.
“When the cost of steel and shipping goes back to normal, will prices really come back down to where they were before? And to be fair, manufacturers are probably in the same position with their suppliers, too.
“As I say, it’s like playing poker and guessing what’s going to happen. We’re all having to manage our businesses in completely different ways now."
So whatever hand you’re dealt, play it carefully.
Photo: Denner Nunes/Pexels
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