What we are doing in the mobile crane rental industry in Denmark does not always make sense. Acting as stupidly or at least irrationally as we have been can only be a Danish phenomenon. I would find it hard to believe that anyone else does what we are doing. I really hope and trust that you are a lot smarter but if you recognise some of the strange things we have been doing and to some extent still are doing, then it is time to change because investors, present and future do not deserve the treatment we have been giving them.
Crane companies have not been making acceptable returns, either in good times or in bad times, and that is not a way to treat investors, the people who lend us their money. We must be able to provide investors with solid returns in good times and bad. If we cannot, we can forget about big cranes with all their gimmicks, their bells and whistles, because no investor will put money into our industry if we cannot guarantee an acceptable return.
Let us take a look at what I see happening every day in Denmark, then you will understand why I am frustrated. What we want to sell and what our customers want to buy are too often not matching. In some companies the mismatch is bigger than in others and that mismatch is paid for by the shareholders. Most probably some engineer, and I am an engineer myself, will claim that we need all the equipment that we have because our competitors have it, and when they run out of arguments they will say: ‘It is nice to have because we might need it one day’.
To add insult to injury our customers are not even paying for what they are buying, and until we solve the mismatch between what we are offering to our customers and what they are paying for our services, our shareholders cannot be satisfied.
Cut the fat
There is a lot of fat in some organisations and it is the job of managers to identify it and cut it. A lot of the fat is there for historical reasons. People hate change, they are afraid of the new and unknown.
The first time BMS started identifying and cutting fat was when we implemented our Quality Assurance System according to ISO 9002. That process is a good, business process re-engineering exercise which takes you through all processes in your company, eliminating duplication and unnecessary work. Parallel to the ISO 9002 work followed the implementation of a new accounting system. Today we have about 600 units of equipment; cranes, access platforms, forklifts etc. and around 180 blue collar employees. Both people and equipment are followed hour by hour and if utilisation falls below certain levels we act swiftly.
Another decision we made was to file what is known as an environmental balance sheet according to the guidelines in ISO 14001. This is filed to the public authorities, the same authorities to which we file our financial balance sheet. An environmental balance sheet spells out the impact that your operation has on the environment through such issues as fuel consumption, emission from engines, consumption of electricity and water. It shows how much waste you are producing as a result of your operation, and it also explains how to minimise waste.
Our environmental activities have been a huge cost saver for us. We have a full time environmental engineer employed and he has so far saved us a lot of money and his salary is paid back at least five times over every year through the savings he makes.
Asset utilisation
Take a hard look at the utilisation and the profitability of each piece of equipment you own and you will be surprised. Don’t hesitate to sell off equipment where you are not making money, where utilisation is too low. Market requirements change over the years, often within a very short time period. I am talking not only about the number of units needed in your fleet to satisfy customer demand but also the kind of equipment you have. That changes too, often rapidly. Do not keep old equipment, equipment needed yesterday or last year, or equipment that has been made obsolete through new technical developments from our suppliers. Do not keep equipment needed for certain kinds of jobs that no longer come up.
When you buy cranes is it always necessary to buy every crane with all the equipment available from the manufacturer or could you buy one unit fully equipped and then share some of auxiliary equipment like boom and jib sections, or entire jibs, among the other cranes in your fleet? Our experience is that an item like a luffing fly jib is needed two or three times every year and it makes a lot of sense sharing such a piece of equipment among a number of cranes. The only thing you need is a good logistics system and good production planning. If you cannot financially justify a piece of equipment, then don’t buy it, or if you already have it, get rid of it. Your customers are not going to subsidise your under-utilised equipment.
Do you really need ATs?
Another issue is the basic type of machine being purchased. When I look at the hydraulic cranes sold in Denmark today 99% are all terrain cranes. Is it the same in your country? Do you always have to send out an all terrain crane to a jobsite? The answer, at least for us, is no. We have a couple of Kato cranes with a standard four-axle Mitsubishi carrier of which only two axles are driven and it comes without all wheel steering. Such a crane costs at least 15% less than a similar size AT crane, however, the customer pays the same hourly rental fee whether it is an AT or the Kato. Ask the people who specify the cranes in your company why it always has to be the more expensive AT-type. They will tell you that it is ‘nice to have it’, even if it is a crane that will spend most of its life working in big cities. My recommendation is to take a hard look at your fleet and ask yourself if you always need the most expensive crane on the market. It is almost the same as when a yuppie in London, Amsterdam or Copenhagen buys a 4×4 sports utility vehicle for private use. The 4×4 will never leave the paved roads of the big city but it is nice to have, just in case he or she one day might have to drive it in the jungle. The only jungle they will ever meet is the asphalt jungle of the city, where a simpler, less expensive car can do the same job. This also applies to many crane jobs in the cities.
Make the customer pay
Looking at the price level in our crane rental industry I am not surprised that so many companies are not making any money because the price level for the crane is either dangerously close to, or even below, break even. Not only have we put ourselves in a situation where we make the crane itself available to the customer at a price close to break even, but adding insult to injury, at many jobs you need a lot more than the crane itself to do the job. You need all kinds of lifting tackle, slings, various jibs including very expensive luffing fly jibs and superlift systems. You often have to make one or more jobsite inspections, often expensive trips, maybe you need to make drawings on your AutoCad system and in many cases our customers expect us to throw in all these added services free of charge. Some customers won’t even pay for transportation. Don’t tell me it is included in your crane rental price. When I look at rental prices not only in Denmark but in northern Europe, the price hardly covers the standard crane.
We also need to be better at getting paid for added services. Have you ever asked your customers to pay for lifting tackle or are you throwing it in free of charge at a time when you make the crane available at a price close to break even? When you ask the sales people why they are not charging the customers for these consumables, you get the answer: ‘We do not want to upset the customer.’
Is there a difference in your rental prices when the crane comes as a standard hydraulic crane or when the same hydraulic crane has to be equipped with either a long fixed fly jib or a long luffing jib? Where you only have one price for all three situations, you are either making a lot of money or you are in the same situation as most Danish crane rental companies: the customers are only paying for some of the services they are buying. We throw in all the auxiliary equipment at no cost despite the fact that such equipment easily adds 15% or 20% to the price of the crane.
When you go to the supermarket you have to pay for everything that you put in the basket. How is it that a small underpaid person at a supermarket check-out can ask you to pay for everything, when our own sales people, often highly educated, do not have the arguments ready when your customers tell them that they don’t expect to have to pay any added charges for a crane with a lot of auxiliary equipment that has added 15-20% to your equipment investment? That is how it is in our crane rental industry. Do you recognise it from your country or maybe even from your own company?
Sell extras
Finally we must also be better at selling additional services to our customers. Flipping and selling burgers for fast-food chains is probably among the poorest paid jobs in the western world and it is often done by high school or college kids who want to make some pocket money. They are usually very young and unlike our sales people, their future does not depend on how they are performing. They are always very well trained. The first thing they say to you every time you have ordered a burger is: ‘Excuse me M´am, or excuse me Sir, do you want big fries or a big coke?’ These young kids never forget to ask you this question. They always try to sell you a little more than what you have ordered. Have you ever been upset with any of these kids, trying to sell you a little more? I don’t think so.
So why is it so difficult for us to try to sell a little more, or at least ask the customer to pay for all equipment and services needed to do the job that the customer has asked us to do?
