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Factors driving hire rates

17 June 2022

Factors driving hire rates

Starting on a personal note, my daughter just passed her driving test, which is great news: no more lifts, L-plates or lessons. And that last point is significant because in recent months the instructor’s rates have gone up significantly.

The cost of running and servicing their vehicle has risen and with fuel prices spiralling over the past year – even more so since the Ukraine conflict began – the impact financially on their business is eye-watering.

Some time ago, the driving instructor increased their rate per lesson and, while disappointing, we accepted it. Why wouldn’t we? It’s perfectly understandable because everyone is in the same position, and it’s a required service.

And that made me think: why should hire rates be any different?

Only the other day an independent hirer on social media bemoaned the fact that a supplier had quoted them a price of nearly 50 per cent higher than 18 months ago for a popular fleet item. Rather like the driving instructor, the manufacturer had cited rising raw material costs, supply shortages and higher overheads - which makes sense in the current climate.

In order to reflect the extra fleet costs, the hirer will surely need to have a conversation with customesr about rates, as will many others.

It’s a point that was made by two of the hire industry’s largest players recently as they announced their annual results, which in both cases reflected strong trading performances.

As reported last week, Vp posted a 14% revenue increase and profits before tax up by 67 per cent; and this week Sunbelt Rentals’ parent Ashtead Group achieved a record performance, with rental revenues advancing by 22 per cent and pre-tax profit up by 26 per cent. 

As usual, each company held a meeting for equity analysts to discuss their results and at both the issue of hire rates was raised by participants.

Neil Stothard, chief executive officer of Vp, whose business includes Brandon Hire Station, commented during the company’s presentation: “I think the current market situation in terms of hire rates is very different to what I’ve seen in many years.”

He detected a greater level of acceptance that hire rate rises are inevitable and said that Vp has been able to achieve increases across its business units.

This issue also exercised the minds of the analysts attending Ashtead’s briefing this week. Brendan Horgan, the group’s chief executive officer, said: “As has been the case now for several quarters, the supply and demand equation remains incredibly favourable. This dynamic has led to record levels of utilisation throughout the business.

“Further, our industry, like any other, is experiencing inflation [on items] ranging from equipment to goods, to services, to wages. As I have said consistently throughout the year, when you combine these supply and demand circumstances, inflation realities and [if] your business has a relentless focus on providing service to your customers, you should be able to increase rates. We continue to do just that.”

Brendan Horgan reiterated the prevailing market dynamics that everyone, including customers faced: supply chain constraints, inflation and skilled labour shortages which would make many choose to hire equipment rather than own it, representing “tailwinds to rental penetration.”

Obviously, whether you are a driving instructor or a hire manager, discussing rates is no easy matter, but it is a nettle that has to be grasped. Perhaps it revolves around your customer relationship and how much they value the service you provide.


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