July/August 2010
Though scrapyards are more likely to buy equipment than to rent it, renting can meet yards' short-term, immediate, or uncertain processing needs.
By Theodore Fischer
Whether it's a car, a house, or a piece of scrap processing equipment, people who rent rather than buy do so for the same reasons: They can't afford to buy, at least right now. They need it for only a short time. They like it or need it, but they're not ready to make a permanent commitment. Or they're testing various options.
Equipment rental is much more common in the demolition industry, rental companies say, because demolition work tends to involve short-term, project-based contracts in far-flung locations. Scrapyards, in contrast, usually "purchase as a long-term investment," says Dave Donneral, demolition equipment manager at CLM Equipment Co. (Houston). "On average, we rent to demolition companies, and we sell more to scrapyards." That said, in this still-shaky market, scrap companies have ample reasons to rent. The most popular rental machines are excavators or material handlers equipped with shear attachments, with hydraulic breakers, magnets, and grapple attachments also popular. Other rental options include front-end loaders, backhoes, and skid-steers.
Those who provide rental equipment, and those who rent it, say that even though the commitment is shorter, it's important to scrutinize the contract and understand the deal before you sign on the dotted line.
When to Rent
Scrap companies might urgently need to rent if they have a yard full of material and their own equipment breaks down. Other scrapyards rent when they temporarily accumulate more material than their own machines can handle efficiently. "They want to stockpile iron and then rent a unit from a dealer like us to handle it so they don't have the total capital expenditure at that time," says Gary Gleckler, president of Company Wrench (Carroll, Ohio).
But some scrapyards regard renting as the scrap industry equivalent of a test drive. "A scrapyard looking to buy its first scrap shear [attachment] wants to make sure it's going to work in their application—a kind of try-before-you-buy," says Mike Bernard of Kuhn Equipment (Summerville, S.C.). Offering a rental option "actually helps us sell quite a lot of equipment," he says, because customers "realize it's more efficient than whatever they were doing before." A material handler or similar piece of equipment can cost hundreds of thousands of dollars, so assessing its performance for a few months can help a company make its selection with greater confidence.
These companies say scrapyards most often rent, however, when they've landed a job they need a specific machine to handle—and they have to take care of it fast. "They have an order, they have a large amount of material coming through that they need to process in a certain amount of time, but it's not enough to justify making a long-term commitment to purchase another machine," Donneral says.
Though many equipment-rental companies will quote prices by the day, week, or month, most rentals last for a month or longer, they say. "We try to avoid renting for shorter periods," Bernard says. "With this specialized piece of equipment, it doesn't come up very often where someone has only a day's worth of work."
| Operator Included
For some scrap-handling functions, there's an alternative to either buying or renting equipment: pay somebody to do the processing for you. Baling scrap is one function that yards can outsource. Environmental Recycling (Lexington, Ky.), for example, will dispatch portable balers anywhere in the country to bale a wide variety of materials, including white goods, wire, tin, copper, aluminum, automobiles, construction debris, and steel beams. "It doesn't matter where it is," says Shawn Morris, the company's president. "If somebody has enough metal, we will go and provide the piece of equipment, the operator, all maintenance, all fuel." Catering mainly to scrapyards that can't support their own full-time baler, Environmental Recycling will quote a price either for baling alone or for both baling and hauling. "After we research the markets … we say, 'We can buy it from you for this amount, or we can bale it and process it for you for this amount,'" Morris says. One reason to use a processing service instead of just renting the equipment is that you get experienced operators, too, says Jeremy Lincoln of National Recycling Services, a baling service based in Erie, Pa. "I routinely see my operators get more production in the same 8-hour day on the same equipment than people who are new to the equipment or only run it [on occasion] or have only a couple of years experience with it," he says. Environmental Recycling quotes prices per ton for baling services based on the amount of material, length of the job, and type of material. They prefer to make estimates based on on-site visits, but, if necessary, they can offer estimates based on photographs. National Recycling Services will negotiate per-ton or per-hour rates, depending on the job. "The selling point for going by the hour is that customers pay only when we're baling for them—the customer doesn't have to worry about overtime or downtime or per diem or any of that stuff," Lincoln says. When it comes to torchcutting, the cost of the processing equipment is rarely the issue—it's bringing in people who know how to use it safely and efficiently. Canyon Commercial Construction (Huffman, Texas) will send its torch operators anywhere in the country with their torches, hoses, and PPE; customers supply the fuel gases (liquid oxygen or propane). CCC charges by the ton, with a minimum of 100 tons for out-of-town [Aaron: Do you mean outside of the Houston area?] or out-of-state jobs. Demand for CCC's services fluctuates with the price of scrap, says Aaron Alexander, a co-owner of the family-run business. "Generally, we see a lot of phone calls coming in when there's an increase in the market, and people want to process material that month and get it sold that month." Potential customers must be prepared to give CCC's torch operators sufficient space in which to work, Alexander says. "They also need to make sure they have a crane or magnet operable, because we rely on them to lay the material out for us so we can cut the material and then clean the area when we're done." |
Rent-to-Own
Most rental companies offer rent-to-own options on their machines, an arrangement that some scrapyards consider the best reason of all to rent. "Some dealers will let you rent [equipment] for 6 months, and when you buy they'll apply a large percentage of the rent—or all of it—to the purchase price," says Joe Schneider, owner of Holmes Road Recycling (Houston), who has rented—and later bought—two material handlers. "These are half-million-dollar machines, so if you're renting it for six months at $20,000 a month, you can reduce the price of the machine by $120,000 and finance just $380,000. That's a huge advantage because you got to write off 100 percent of the rental for six months."
Rent-to-own options also give scrapyards the opportunity to perform some corporate soul-searching. "They can rent it for a couple of months and at the end decide, 'Yes, this is the machine I want,' or 'No, it isn't'; 'Yes, this is the business I want to be in,' or 'No, it isn't,'" Donneral says. "It keeps them from making a large investment, and then two months later finding they don't have enough work, or they purchased the wrong machine for their application."
Some rental companies make rent-to-own a standard part of all their rental deals. CLM Equipment does that, Donneral says, because "our customers never know" what their needs might be down the road. "If they have a 6-month project coming up," it may not justify the cost of purchasing a brand-new machine, he explains. "But if, after five months, they get another job" that requires the same equipment as the previous job, they might decide that justifies the cost of a purchase. Some other rental companies charge more for a rent-to-own contract than for a straight rental, so be sure to read the fine print.
The Devil is in the Details
As anyone who has entered a rental relationship can attest, conflict can come from a lack of clarity on what's the renter's responsibility and what's the rental provider's responsibility. Take Kuhn Equipment's rental policy: "Renters are not responsible for standard wear and tear—it's included in the cost of the rental—but excessive wear and tear would be on the renter," Bernard says. Not surprisingly, the two parties often disagree on the definition of standard and excessive.
For example, when Company Wrench rents out scrap shears, the company charges the renter the cost of bringing that worn shear back to its original state. "When we rent someone a shear, we send it out with 100-percent factory specifications," Gleckler says. "When it comes back, we will charge the customer for what use he's used on the cutting edges and for building it back up to the same 100 percent, so the next guy gets one that's 100 percent." Other rental companies might incorporate the cost of building up shear blades into the rental price and impose no chargeback.
In Schneider's experience with rentals, "if you scratch the paint, if it's above what [the rental company] determines is 'fair wear and tear,' you have to pay to paint the machine again," he says. But scratched paint is hardly unusual on tools used in the scrap industry, he asserts. "That's our industry—we're cutting metal." That is a drawback of renting, he notes: "The chargeback after renting could be huge."
Over and above wear and tear, Company Wrench holds renters responsible for any damage to the equipment during the rental period, Gleckler says. "If they swing the unit into a steel girder and smash a catwalk or a panel, they pay for the damages." Oregon Tractor (Portland, Ore.) has a similar policy. "Normally, we spell it out that [renters] have to maintain the machine, and if it comes back with a dent in the side or a hose ripped off, they're responsible," says Jim Dukart, the company's sales manager. He uses the analogy of a major medical plan: "If there's something wrong with the engine or pumps or hydraulic system, naturally, we take care of it. But if [renters] do some damage to the machine, they're required to have it fixed; or when it comes back, we'll have to fix it and they'll be charged."
Renters also are responsible for obtaining the relevant insurance coverage. They typically must provide a certificate of insurance that designates the rental company as "loss payee" and "additional insured" for the replacement value of the machine. Though some equipment rental firms offer customers optional loss damage waivers, renters must maintain liability coverage and property damage insurance throughout the rental period.
Safety and Training
It's also the renter's responsibility to ensure that workers know how to operate the equipment safely and properly. Rental companies say they generally do not ascertain the competence of the scrapyard personnel who will operate the rental equipment, but they do provide some guidance.
Before renters leave Kuhn Equipment, Bernard says, his staff goes over a checklist of items covering the efficient and safe operation of the machines they're renting. Company Wrench tethers an operator's manual, which contains a unit on safety, to every unit it leases out. "A lot of it is common sense," Gleckler says. "If they just read and listen, they'll have no problems."
Oregon Tractor offers renters basic training on request. "We'll explain the instruments and some of the buttons on the machine, what they do, and some of the safety instructions," Dukart says. "We encourage [renters] to read the manual thoroughly. Some of them do, and some of them don't." It's in the renters' best interest to know what they're doing, he points out. "They can destroy a piece of equipment if they're not real familiar with it. If they're not using it right, they can do a lot of damage."
Though the rental companies have little control over who runs their machines, it behooves scrapyards to make sure their operators know the ropes. "You don't put inexperienced people on rental equipment because you're going to get charged … if you damage the equipment," Schneider says. "I put my best operators on rental equipment."
Finding the Right Match
If you have a choice of rental equipment providers in your area, renters and equipment providers recommend selecting one based on two principal criteria: equipment quality and ability to perform service. Look for a dealer that leases the brands of equipment you trust—and that your workers know how to operate. And make sure the dealer provides service when you might need it (ideally, 24 hours a day, seven days a week), carries an ample supply of replacement parts in stock, and is willing to come out and perform repairs as quickly as possible. Dealers similarly want customers they can trust, preferably ones who have been in the business for a while and know how to take care of the equipment. They want to establish long-term relationships with rental customers, and they might choose not to rent equipment to those who lack local references.
As much as renters might complain about being charged for wear on the equipment, dealers take issue with renters who are careless with the equipment they rent. Bernard says he wishes more renters would undertake basic maintenance: "By that, I mean greasing," he says. Dukart has had problems with customers who did not use the equipment as it was designed to be used. "They might have a different idea [than we do] how you use the equipment and how much work it will do," he says.
Dealers also wish rental customers would trust them to select the right piece of equipment for their needs. "Instead of coming in with a set of preconceived notions of what they need, they should allow the dealer to help them decide which machine best fits their application," Donneral says. "They know the material; we know the equipment and its capabilities." Customer mistakes go in two directions, he points out: Some demand a machine that is much larger—and more expensive—than the right one for their job, while others try to minimize their expenses by renting smaller, underpowered models.
That said, most scrapyards seem to have a pretty good idea of what they want and how they want to use it. "They're very astute," Gleckler says. "Most of them have a goal in mind, a product they want to process, so we're not inventing the wheel. We're just providing a product to supplement peaks in their cycles. That's pretty much what they want it for—to handle the peaks." •
Theodore Fischer is a writer based in Silver Spring, Md.
Though scrapyards are more likely to buy equipment than to rent it, renting can meet yards' short-term, immediate, or uncertain processing needs.