Since releasing record-breaking fourth quarter 2008 (unauditted) results for its Essex Crane subsidiary, Essex Rental Corp has offered details of its crane utilisation, average monthly crane rental rates and rental-related revenue. Tracking the figures released for each quarter, and their comparison figures from a year before, demonstrates the pressures facing the lifting industry, and the effect this has had on one company.
The picture painted is not a pretty one, at least over the last year, although the story starts well. Utilisation rates held steady from Q4 2007 through to Q4 2008, at between 72.4% and 75.2%. The company has stated that it has been pursuing a strategy of shedding older, lower capacity, machines for newer, higher capacity machines. This strategy appears to have paid off, as average monthly crane rental rates, calculated on a days basis, rose consistently over the same period, from $17,740 in the fourth quarter of 2007, to $22,805 in the fourth quarter of 2008.
Over the same period, as rental rates rose and utilisation held steady, the company’s rental-related revenue showed growth. In Q4 2007 and Q1 2008, it held at around $17.5m, and then rose to around $20m in the period between Q2 2008 and the end of the year.
Over the 2008 full year, Essex increased its annual rental-related revenue by 26.6% to $61.8m from $48.8m in 2007. The company sold 23 cranes in 2008, and bought 18, increasing its average crane lifting capacity to 238USt, from 229USt at the end of 2007. At the time, the company noted that ‘the margin on sale of this older, lighter lift equipment over the orderly liquidation value of the assets has exceeded Essex Crane’s historic experience’.
The full year 2008 figures do, perhaps, hint at what was to come. While utilisation and rental rates remained steady in the last half, rental-related revenue fell slightly between Q3 and Q4, from $20.2m to $19.4m. And then, in Q1 2009, the collapse came. At the end of 2008, Essex’s utilisation rate stood at 73%. In Q1 2009, it fell more than 15 percentage points, to 57.2%. It fell by almost the same rate in Q2, to 43.9%. In the last two quarters, the decline has slowed, but is still marked; utilisation hit 38.6% in Q3 2009, and 34.8% in Q4 2009.
The company’s rental-related revenue has followed almost exactly the same trajectory. Between Q4 2008 and Q1 2009, rental-related revenue fell more than $4m from $19.4m to $15m. Rental-related revenues continued to fall through the year, but, like utilisation, at a slower rate. In Q2 2009 they were $11.9m, then $9.7m in Q3, and $8.7m in Q4.
The figures tell a different story when it comes to the rental rates Essex is achieving. Two years ago, in Q4 2007, the company was achieving an average monthly crane rental rate of $17,740. In the most recent results, it reported an average rate of $19,181, $1,441 higher. The company built average rates throughout the good times, reaching a peak of $22,805 in Q4 2008: at just over $5,000 a month higher than at the end of 2007, that translates to a monthly increase in rental rates of $422.
In the bad times, average monthly crane rental rates have declined, but more slowly. From that $22,805 peak at the end of 2008, the rate fell to $22,794 in Q1 2009, then $21,633, $20,716 and $19,181. Over the period between Q4 2008 and Q4 2009, average monthly crane-related revenue fell by $3,624, or $302 a month. That Essex can demonstrably maintain its rental rates despite achieving utilisation rates less than half of those two years ago may bode well for the business in a recovering economy.
“We expect that our fleet utilisation will improve throughout 2010,“ said Schad, speaking on the Q4 and 2009 full year results. “Although we have begun 2010 with low levels of utilisation, our expectation for improvement should result in 2010 average utilisation near or above the average utilisation experienced in 2009.
“We have begun to experience an increase in crane utilisation. Specifically, we are encouraged that new order commitments (in both quantity of cranes and total dollar amount of bookings) through the first two months of 2010 have been greater than new order commitments received during the entire quarter ended March 31, 2009. The quality of the new business opportunities that we are quoting and the likelihood that these opportunities will materialise are in part the basis for our optimism that our utilisation rates will improve throughout 2010. Based on previous market cycles, we would expect that we will only experience a rebound in average rental rates when an increase in demand pushes utilisation to higher levels.”
