Contractors based in rapidly growing regions are seemingly for the most part abandoning heavy equipment ownership and leaning towards taking equipment such as mini excavators for hire on a short-term basis.
A little digging by our reporter revealed that these contractors prefer to use machinery taken for hire in order to not just protect working capital as macroeconomic conditions shift, it is also to reduce logistics and minimise project costs significantly which result in higher margins in the long run.
Based on local industry insights, by opting for rental over ownership, construction firms avoid depreciation, maintenance, and the dreaded “capital trap” of owning assets which generally come with a string of ‘cost baggage’ attached to them. In essence, this approach effectively turns these ‘supposed expenditures’ or rather operational costs into cash flow.
It is a given that buying equipment brand-new such as a mini excavator requires a high amount of upfront cash and even if the machine is purchased via hire-purchase, these firms are left without choice, but to deal with high-interest financing which locks up capital that these construction firms could otherwise use for operations. In contrast, by leaning towards short-term hire, construction companies are able to optimise their funds by converting capital expenditures into fixed, predictable operational costs.
As an example, the rental rates for standard 0.8-tonne to 2.5-tonne units generally range from $230 to $350 per day and this predictable pricing in essence enable project managers to be able to forecast project expenses much more accurately and have a better direction for the company’s baseline cash flow utilisation. Other benefits that these firms are able to extract from taking equipment such as mini excavators for hire include the elimination of ownership and maintenance costs.
The cost of owning machines of any kind extends far beyond the purchase price with asset depreciation being the first of many ‘upfront loss’ within the two years as resale value of the machine erodes drastically. Then there is cost linked to maintenance which these companies do not have to contend with as rental companies manage all servicing and mechanical repairs as they keep equipment in their prime state. There are also no storage costs and transportation costs as the rental companies provide drop-off and pick up services.
Other cost saving factors apart from the ones mentioned above that is driving project managers towards taking construction equipment for hire includes the elimination of the costs that come with heavy commercial asset insurance which saves these companies thousands of dollars annually.
This shift to a lean demand-based fleet utilisation also allows construction firms benefit from instant tax deductions on rental invoices which again improves the company’s cash flow health.
These construction firms also gain access to specialized attachments and have digger options to choose from and would be able to select the best option from a fleet’s inventory.
