It’s a puzzle with a lot of pieces that can be challenging to put together into a crystal clear picture: To rent, buy or rent and then convert that rental into a purchase?
Savvy contractors have long used rentals to augment their fleets with equipment specifically suited to their projects and working conditions. They understand that their ability to procure the right machine at the right cost is key to keeping crews working efficiently and enhancing the bottom line.
Various factors influence the decision to rent, and some of those same inputs can also make purchasing attractive.
Contractors must consider the cost to buy or rent, the anticipated utilization of the equipment and the economics of it all. One piece of equipment that provides a good example of the rent, own or rent-then-purchase conundrum is a track trencher, a specialized machine that can rent at two to 2½-times the cost of renting a similar-sized excavator, but can boost overall production as well.
According to Vermeer Surface Mining Segment Manager Chris Lynch, the industry has witnessed a strong resurgence in the track trencher rental and retail market the past eight months due to rising crude oil and natural gas demand. But, before you rush out and rent a track trencher, there are a number of considerations.
“Most dealers will require at least a month rental, maybe two, on a track trencher because of the cost to mobilize that piece of equipment,” Lynch explained. “A contractor has to have plenty of work and be set up to put pipe in the ground as fast as the ditch is opened. If you only have 1,500 feet of pipe to install, then it may be more cost-effective to use an excavator.”
Lynch notes that with a fleet of excavators, you may be used to putting in 1,300 to 1,600 feet of ditch per day, but with a trencher in those same conditions, you may get two to three times that production. You’ve got to have the work in front of you to justify the rental rate, regardless of how quickly you’re able to get the job done.
For Phoenix-based CSW Contractors, renting a track trencher made the most sense because of the short duration of their need.
“We pride ourselves on being a quality contractor and having good equipment,” said Robert Myers, CEO of CSW Contractors, whose company has rented Vermeer T655 Commander 3 machines to build and install drainage systems and utilities in solid rock. “We own the majority of our equipment, but don’t have the utilization to justify owning a trencher. At that point, our choices are to purchase an older trencher, which we really don’t want to do because it doesn’t fit our ‘culture,’ or we can rent a newer machine. Renting works for us because it helps us ensure that we have the right machine for the application.”
But especially in areas like Texas, where natural gas pipeline work has burgeoned in recent years, the demand for full-time track trenchers has skyrocketed.
“That’s going gangbusters now and most of our customers that do pipeline work there see everyone else using track trenchers, so they’ll start out by renting to see how it works,” Lynch said. “They’re getting a price per foot to put pipe in the ground, and they see they can get four to five times more production from the trencher than an excavator. And, if they get into rocky conditions, they may get up to 10 times more production with a trencher instead of using one excavator with a hammer and another excavator with a bucket.”
For Bottom Line Services, a Texas underground company that focuses on building infrastructure for natural gas and hydrocarbon liquids, the rental of a Vermeer T655 Commander 3 with a bucket wheel attachment turned into a purchase.
“We had been looking for a bucket wheel for some time when we were awarded a gathering blanket contract that consisted of laying 60 miles of six-inch and eight-inch natural gas gathering lines of various lengths,” said John Blevins, vice president and general manager of Bottom Line Services, headquartered in George West, TX. “The project area, spread over a 50-mile radius, had the right types of soils to make the bucket wheel a fit for the application.”
“We rented a bucket wheel for the first two months to see how it would perform in those soil conditions,” Blevins explained. “Based on our evaluation, we decided to purchase the trencher and we’ve been working it ever since. It works excellent and has helped us increase our production an average of about 40 percent.”
In addition to utilization, production and the cost-to-benefit ratio, there’s also an “X Factor” to consider when renting or buying, and that is the relationship a contractor has with the dealer.
“Probably the most important thing in a rental agreement is that you have a good relationship with the dealer,” said Lynch. “With a track trencher rental, everything is up front and the machine requires dedicated maintenance compared to an excavator.”
Most rental agreements include a threshold for the maximum number of hours that can be placed on the machine. Should you exceed threshold, the dealer will charge an overage fee. The rental fee is paid in advance, plus the contractor is responsible for fuel and machine maintenance. However, the contractor can also negotiate a supplemental agreement with the dealer to provide the maintenance services for a fee. This is especially important when working in rock, as a trencher will require routine inspections of the boom, digging chain and teeth.
There is one potential downside to renting a track trencher — availability. Track trenchers are not as abundant as excavators and may not be available to rent when you need one. This requires planning on the contractor’s part, and in some cases a contractor may need to wait for a rental to become available, and then complete the job on time, as the machine may be committed to another contractor following the expiration of your rental agreement.
Another factor to consider in rental to purchase is that, depending on the duration of the rental agreement, dealers in most cases will allow contractors to apply part of their rental cost toward the purchase of the machine.
“In almost every case,” says Lynch. “when a contactor rents a track trencher and decides he wants to purchase it after a few months, the dealer will provide an incentive by applying part of the rental cost to the purchase.”
Track trencher rentals are on the upswing as more contractors are learning how these units can outperform an excavator in some instances. But, every situation is different, so take the time to evaluate the right decision for your project and business.
FOR MORE INFO:
Vermeer Corp., (888) 837-6337, www.vermeer.com