Although Australia has not suffered the full brunt of the global financial crisis, Australian business has remained cautious about future prospects.
There has been a lukewarm response by manufacturers to the tax incentives of Federal and State Governments to stimulate spending and investment. For example, on anecdotal evidence, the 30 per cent capital allowance on plant, machinery and equipment (PME) purchases does not appear to have been a winner with industry. Suppliers to the quarrying industry report that the rebate did not significantly contribute to earthmoving equipment sales, primarily because quarry operators could not secure finance for such purchases. It is also likely that quarries have scaled back operations in accordance with demand; that, in turn, would preclude the incentive to purchase new equipment.
So what can quarry businesses do if they need new earthmoving equipment, but do not have the financial clout to raise the capital for a purchase? PME hire may provide an answer.
LATEST TECHNOLOGYWITHOUT ?CAPITAL OUTLAY?
The leasing of PME is a relatively new concept in Australia, but is popular overseas. ?The equipment rental model is moving in all the over world,? said Steve Berwick, the general manager of Delta Rent. ?It?s very popular in the US and Europe, so it was inevitable that it would come to Australia.?
Mr Berwick was instrumental in establishing Delta Rent, the heavy equipment hire arm of demolition and construction specialist Delta Group, in 2006. At the time, he identified a niche for the quarrying, mining and construction industries – the opportunity for clients to lease larger machines in their operations without making a long-term investment for a short-term project. ?There was no one really specializing the area we were aiming at, in the 40 tonne to 100 tonne excavator class or the five or six metre wheel loader class, all very expensive machines. There are a lot of people out there with 20 tonne excavators who do not have too many options if they need a machine that is around 65 tonnes.?
Mr Berwick added that quarry operators who lease PME have access to the ?latest technology without the capital outlay. They don?t invest millions of dollars in equipment that they?re not going to fully utilise. We can supply the equipment for three, six or eight months, and we take it away when they are finished.
?If a quarry operation can?t justify having a piece of equipment that won?t be busy for up to four years, then they really can?t afford to buy it. So if their project is going to take six, eight or 18 months, they are better off employing companies like ours who will pay to supply the equipment or, if necessary, the equipment and the expertise.
?I think we?re going to find that, especially as this financial crunch continues, all the major companies will have tightened up on capital expenditure. When they want to become involved in new projects they are going to turn to people like us for the equipment. And why wouldn?t they? It?s off their balance sheet, it?s not a liability to them.?
Mr Berwick agreed that PME hire is beneficial for smaller quarries, but stated that the larger operations are happy to hire equipment where necessary. He said that Delta Rent predominantly works with the major quarrying companies such as Boral (including its Wollert and Bacchus Marsh quarries), Cemex and Hanson, contractors Leighton, Thiess and John Holland, and in the mining scene, majors such as BHP and Rio Tinto through third party arrangements.
?The nature of our work and the equipment we use tends to mean that we get involved in all the longer term projects, because of the logistics of shipping stuff around,? he explained. ?We have equipment in a lot of projects from the Hume highway upgrade to the Pacific highway upgrade to the Gateway duplication in Brisbane. We?ve been there for the Gateway duplication for the last two and a half years and we?ll be there for another two years. We also have equipment working on the Fortescue rail link to Port Hedland in Western Australia.?
He added, however, that if Delta Rent was sought for work on a greenfield quarry with an operation of only three people, it would certainly back that project. The one aspect of leasing Delta Rent does not normally provide is ?wet? hire for such a project – that is, expert people to also operate the equipment on loan.
?We can recommend consultants to instruct on the workings of a specific machine,? Mr Berwick explained, ?but we don?t employ such people specifically. We will talk to a quarry and talk to operators and say to them that ?if you need people to drive this, then we can recommend these people too?, but our preference is to supply the equipment to a contractor and let him or her manage the people side of that.?
A ?YOUNG?, RELEVANT FLEET
Mr Berwick said that Delta Rent had ?a state of the art fleet of late model, well-maintained, high availability vehicles?. The current fleet includes Hitachi excavators, Hitachi and Volvo dump trucks, Komatsu and Caterpillar wheel loaders, and Caterpillar dozers and compactors.
He said that it was not a surprise that some quarries had preferences when it came to leasing machines. ?It regularly happens with the dozers, clients always want the Caterpillar dozers. There are two schools of thought with the wheel loaders – especially with quarry operators. They either want a Caterpillar or a Komatsu, and then they will ask for the specific model loader, a WA500 or a 992K. Our wheel loader fleet is predominantly Komatsu, but we have some Caterpillar loaders because there are some sites that prefer Caterpillar. Nevertheless, Komatsu and Caterpillar are very important parts of our fleet because we understand what the market demands.?
Mr Berwick added that Delta Rent aimed to keep its earthmoving fleet ?young? and relevant to its customers. This minimises downtime for quarry operators in the event of breakdown and also promises none of the depreciation expected of a machine that has been purchased. ?The life of our parts is usually five years or 10,000 hours,? he explained. ?That way, we continually offer reliable, available and efficient product with the latest technology. All of our equipment is tracked on satellite, so we know where it is, what it?s doing, when it?s due for service, if there is a mechanical issue or if there is an operational problem, for example, the trucks are being overloaded.?
Delta Rent has steadily expanded over the last three years, as clients in the quarrying, mining and construction industries have started to appreciate the advantages of heavy equipment hire over capital investment. Steve Berwick believes that as the long term infrastructure projects announced in the May Budget begin to take shape there will be demand for PME. ?I think we can actually see it starting to pick up,? he predicted. ?The new Frankston bypass is about to start, we have 50km of the east-west rail tunnel in Melbourne that?s going to start and Hanson are set to open a new quarry in Werribee. Really all we need is for the government to actually start doing something about construction, rather than just talking about it. Once it happens, once quarries start to work and the demand for crushed stone starts to increase, everything else will start.?