Question of survival

Facing a drop of 30 percent in the income, the area is fighting to surpass excess of supply, heavy drop in prices and rising costs of replacement, transport and maintenance

The area of equipment rental is in a crossroad. With the delay in retaking the works needed to improve the country’s infrastructure, the expectation for this year is to have a situation not too much different or even worse than what occurred in the past year. And expectations related to better times in 2016 are not too firm.

Just to remember, at the end of the works carried out for the World Cup, a period of deceleration started in the area, which has 90 percent of its operation concentrated in civil and industrial works. In December, things became worse when the government announced changes in the Program for Investment Support (PSI), reducing more the already short resources available, increasing interest rates and reducing the percent of total cost that could be financed. In fact, according to the president of the Brazilian Association of Unions and Associations Related to the Rental of Machines, Equipment and Tools (Analoc), Reynaldo Fraiha, till the first half of May, 2014 the market of equipment rental was quite heated, mainly due to the works related to the Cup. “With the conclusion of stadium works and the stoppage of almost all works of urban mobility, the area started to decelerate”, explains him. “Without the works for the Cup, investments were reduced, resulting in a strong deceleration in 2015, with a business drop that, in an optimistic approach, reached 30 percent”

Equipment rental companies confirm the evaluation. “The area in general suffered a heavy impact when the works programmed—mainly in infrastructure—were not carried out”, says Eurimilson João Daniel, president of Escad Rental, that offers rental services of the whole Yellow Line, including the areas of demolition, transport and operational support. “In addition, Brazil does not allocate more than 2 percent of its GDP in infrastructure, when the necessary investments are at least of 5 percent.”

The executive mentions also the “Petrobras effect due to Lava Jato operation”, that worsened much the scenario and caused a strong impact in rental companies of all areas and in many regions of Brazil. “The retaking of the works is much more than a necessity. It represents the survival of many companies”, emphasizes him.

VECTORS

Daniel, who is also vice-president of Sobratema, sees also other problems that hit hardly the area of rental. “After four years with subsidized credit we had an excess of supply with a significant drop in the profitability. The year of 2014 was one of the worst in this evaluation”, complains him, saying also that costs continue to rise in an industry that is not maintaining its level of activity. “In this sense, the main impacts are in labor and working capital. In addition, wage increases not supported in this moment may represent more unemployment and increase in interest rates, generating more difficulties.”

According to Lucy Lahóz, marketing coordinator of Lafaete Group, that works in the area of sales and rental of housing modules and of equipment such as machines of the Yellow Line, trucks, lighting towers, generators and tents, the World Cup in Brazil really generated low and medium-term contracts that ensured a positive result for the company. But things changed since then. “In the last quarter of the year we already could foresee a significant deceleration in our business”, says him.

Currently, as emphasizes Lahóz, problems due to the deceleration of country’s economy were already noticed in the rental area. These problems include drop in rental prices, high cost of transport and related services (such as insurance, toll, fuel and others) and rising of spare part values. “In addition, we have to face the increase in speculative proposals, the increase in payment failure, the high cost of labor and the lack of legal security”, adds him. “That is why we are looking for new markets, to recover some opportunities that are frozen.” Since this is a strategic decision, the executive did not inform which are these markets.