The rental revenue forecast strengthens; Rental Penetration Index steady in 2016

The American Rental Association’s (ARA) five-year forecast for equipment rental industry revenues was released by the ARA in January 2017. The forecast shows a moderate strengthening compared to the November forecast. ARA now projects U.S. equipment rental revenue will reach $48.9 billion in 2017, but then grow at an average annual rate of 4.3 percent over the forecast to top $56 billion in 2020.
“We continue to see strength in key economic data that drive our rental revenue estimates,” said John McClelland, ARA vice president for government affairs and chief economist. “The economy continues to gain strength and the promise of tax reform, reductions in regulations, a more accommodative energy policy and additional infrastructure will only add to that strength. The big question continues to be how fast these changes will occur and go into effect,” McClelland said.

Construction and industrial equipment rental revenue is forecast to grow by 3.7 percent in 2017, 4.2 percent in 2018, 5 percent in 2019 and 4.2 percent in 2020. McClelland said revenues for the general tool segment are expected to grow even faster during the out years of the forecast due to the continued improvement in the U.S. housing market, with increases of 2.9 percent in 2017, 5.1 percent in 2018, 5.3 percent in 2019 and 6.6 percent in 2020.

Quarterly updates in 2016 previously showed positive expectations, but included a very gradual slowing in the expected growth of rental revenues over the year, according to figures compiled by IHS Markit™, the economic forecasting firm that compiles data for the ARA Rental Market Monitor™. The first new quarterly forecast for the ARA Rental Market Monitor in 2017, however, reverses the trend with an expected gradual increase compared to last quarter’s forecast. “The economy definitely hit a soft patch toward the middle of 2016 that somewhat lowered our expectations for growth in the economy as a whole as well as rental revenues,” said Scott Hazelton, managing director of IHS Markit™. “We are now seeing a reversal in that growth trend suggesting a return to positive changes in our outlook for rental,” added Hazelton.

IHS Markit™ also estimated the Rental Penetration Index for 2016. The index fell by ten basis points from 52.9 percent to 52.8 percent in 2016. “The continued redeployment of equipment from oil and gas projects in early 2016 coupled with the expansion in 2016 construction spending and employment meant that contractors were expanding their fleets at a slighter higher rate than rental companies were expanding their fleets. The ten basis point change in the Rental Penetration Index really indicates that rental companies in the construction and industrial equipment space are holding their own against increasing equipment acquisitions by contractor fleets even in the face of some headwinds in early 2016,” said Hazelton. “Our forecast of a 3.9 percent increase in construction and industrial equipment investment in 2017 compared to 2016 is much stronger than the 2.1 percent investment growth from 2015 to 2016 and suggests that the growth in rental fleets will continue to increase,” added Hazelton.

The latest ARA Rental Market Monitor forecast for Canada projects $5.148 billion in equipment rental revenue in 2017, which reflects a gradual slowing in growth rates to 3.3 percent compared to the November forecast.

The 2018 forecast of 3.8 percent growth and 2019 of 3.9 percent also reflect a gradual slowing compared to the November forecast. However, the current forecast for 2020 is for a more robust 5.3 percent growth in equipment rental revenue in Canada to reach $5.849 billion, which is greater than the November forecast.

About ARA: (www.ARArental.org) The American Rental Association, Moline, Ill., is an international trade association for owners of equipment rental businesses and the manufacturers and suppliers of construction/industrial, general tool and party/event rental equipment. ARA members, which include more than 10,000 rental businesses and more than 1,000 manufacturers and suppliers, are located in every U.S. state, every Canadian province and more than 30 countries worldwide. Founded in 1955, ARA is the source for information, advocacy, risk management, business development tools, education and training, networking and marketplace opportunities for the equipment rental industry throughout the world.

Tom Ewing’s Environmental Update

* Oregon is a state to watch because it is an indicator of how or what individual states might do as federal energy and environmental policies likely change, particularly regarding CO2/greenhouse gases and climate change. In February, OR’s state environmental agency completed its outline of how CO2 cap and trade could start in Oregon. And indeed, cap and trade bills have since been introduced in both the OR House and Senate; committee hearings start this week. In addition, legislators will consider a tax on fuels and energy, with the tax dependent on the “carbon intensity” of the fuel.

* Dams, reservoirs and human-made water systems have been at the top of the scary news list over the last few weeks. Oroville in California is most well-known but related questions of water and water policy are pressing through many regions of the country. The Senate Committee on Environment & Public Works holds a hearing this Wednesday on “Flood Control Infrastructure: Safety Questions Raised by Current Events.”

* The Energy Information Administration (EIA) had to push back regarding politicized charges from two national web publications. EIA writes no-way regarding reports by ProPublica (Child’s Play: Team Trump Rewrites a Department of Energy Website for Kids, February 17, 2017) and republished by The Atlantic (A Government Website for Kids Scrubbed Its Climate Warnings). The web sites allege that EIA changed information as a result of political pressure from the new administration. EIA denies this and it is seeking retractions. “Contrary to the headlines and content of the articles, EIA has never been contacted by anyone in the new administration regarding the content of any part of EIA’s website,” said EIA Deputy Administrator Howard Gruenspecht, who also currently serves as the Acting Administrator. Read the full press release here.

Tom Ewing

ABC Says, Trump’s Executive Action Will Spur Job Growth

 Associated Builders and Contractors (ABC) Vice President of Regulatory, Labor and State Affairs Ben Brubeck today released the following statement in response to President Trump’s executive order on regulatory reform.

“Associated Builders and Contractors looks forward to working with the Trump administration to fix our broken regulatory system–an administration that values input from the job creators impacted by the unintended consequences of over-regulation. ABC understands the value of a transparent and effective regulatory system, unfortunately, for far too long our economy has been hampered by unnecessarily cumbersome and costly regulations often driven by a political agenda and not backed by sound evidence.

“By taking action to provide needed relief from the costly and onerous regulations created by the Obama administration, President Trump’s executive actions will free up job creators to invest more time and money in their businesses, which will help create jobs and grow the economy. Increased economic growth often translates directly to increased construction activity and more well-paying construction jobs in communities across the country.”
Associated Builders and Contractors (ABC) is a national construction industry trade association established in 1950 that represents nearly 21,000 members. Founded on the merit shop philosophy, ABC and its 70 chapters help members develop people, win work and deliver that work safely, ethically and profitably for the betterment of the communities in which ABC and its members work. Visit us at abc.org.

Wells Fargo Reports: New Home Sales Rise Modestly in January

New home sales rose 3.7 percent in January after a 7.0 percent drop in December. Sales for November and October were revised down, possibly reflecting increased cancellations following the jump in mortgage rates.

A Slightly Weaker Trend for New Home Sales

  • While new home sales rose in line with expectations, sales were revised down by 27,000 units for the prior three months. The lower sales figures suggest the post-election bump in mortgage rates took a larger bite out of sales, which are purchase contracts, and may have triggered an increase in cancellations.
  • With the downward revisions, new home sales now total 561,000 units for 2016, 12 percent higher than the prior year.

Wet Weather May Be Holding Down Sales in the West

  • Sales rose in every region except the West during January. The unusually wet winter may have held back sales in January but sales are still trending higher on 3-month moving average basis.
  • The drop in sales in the higher-priced West, combined with gains in the South and Midwest, helped moderate the rise in average and median new home prices. The average price has fallen 1.3 percent since last January while the median is up 7.5 percent.

TRIP Reports: Driving on Kentucky’s Roads Costs Kentucky Motorists a Total of $4 Billion Annually…

KENTUCKY TRANSPORTATION BY THE NUMBERS:

Meeting the State’s Need for Safe, Smooth and Efficient Mobility

Ten Key Transportation Numbers in Kentucky

 

$4 billion

Driving on roads that are in poor or mediocre condition, congested or lack adequate safety features costs Kentucky motorists a total of $4 billion annually in the form of additional vehicle operating costs (VOC), congestion-related delays and traffic crashes.
 

$805 – Bowling Green

$1,285 – Lexington

$1,899 – Louisville

$1,694 – N. Kentucky

$1,065- Owensboro

TRIP has calculated the cost to the average motorist in Kentucky’s largest urban areas in the form of additional VOC, congestion-related delays and traffic crashes. Driving on roads that are in poor or mediocre condition, congested or lack adequate safety features costs the average Bowling Green driver $805 annually: $1,285 in the Lexington area; $1,899 in the Louisville area; $1,694 in the Northern Kentucky area and $1,065 in the Owensboro area.
3,538

708

A total of 3,538 people were killed in Kentucky traffic crashes from 2011 to 2015, an average of 708 fatalities annually. After decreasing steadily from 2010 to 2013, the number of fatalities rose each year from 2013 to 2015.
 

1.56

4th

Kentucky’s roads and highways have a fatality rate of 1.56 fatalities per 100 million vehicle miles of travel, the fourth highest in the U.S. and significantly higher than the national average of 1.13.
7 % – Bowling Green

23 % – Lexington

48 % – Louisville

45 % – N. Kentucky

32 % – Owensboro

Seven percent of major state and locally maintained roads and highways in the Bowling Green urban area have pavements in poor or mediocre condition and 23, 48, 45 and 32 percent, respectively in the Lexington, Louisville, Northern Kentucky and Owensboro urban areas.
16% Statewide, 16 percent of Kentucky’s major urban roads are in poor condition.
$502 Billion Annually, $502 billion in goods are shipped to and from sites in Kentucky, mostly by truck.
 

1/12

Approximately one-in-twelve (8 percent) of Kentucky’s locally or state-maintained bridges are rated structurally deficient because they have significant deterioration.
14 hours-Bowling Green

27 hours-Lexington

43 hours-Louisville

41 hours-N. Kentucky

13 hours – Owensboro

Congestion is robbing Kentucky drivers of time and money. The average driver in Bowling Green loses 14 hours annually to congestion, while drivers in Lexington lose 27 hours each year. Louisville drivers spend an average of 43 hours each year stuck in traffic, while Northern Kentucky drivers lose 41 hours annually. Owensboro drivers lose an average of 13 hours annually.
 

$1.00 = $5.20

The Federal Highway Administration estimates that each dollar spent on road, highway and bridge improvements results in an average benefit of $5.20 in the form of reduced vehicle maintenance costs, reduced delays, reduced fuel consumption, improved safety and reduced emissions.

Executive Summary

Nine years after the nation suffered a significant economic downturn, Kentucky’s economy continues to rebound. The rate of economic growth in Kentucky, which will be greatly impacted by the reliability and condition of the state’s transportation system, continues to have a significant impact on quality of life in the Bluegrass State.

An efficient, safe and well-maintained transportation system provides economic and social benefits by affording individuals access to employment, housing, healthcare, education, goods and services, recreation, entertainment, family, and social activities. It also provides businesses with access to suppliers, markets and employees, all critical to a business’ level of productivity and ability to expand. Reduced accessibility and mobility – as a result of traffic congestion, a lack of adequate capacity, or deteriorated roads, highways, bridges and transit facilities – diminishes a region’s quality of life by reducing economic productivity and limiting opportunities for economic, health or social transactions and activities.

With an economy based largely on agriculture, manufacturing, tourism and natural resource extraction, the quality of Kentucky’s transportation system plays a vital role in the state’s economic growth and quality of life.

In this report, TRIP looks at the top transportation numbers in Kentucky as the state addresses its need to modernize and maintain its system of roads, highways, bridges and transit.

In December 2015 the president signed into law a long-term federal surface transportation program that includes modest funding increases and allows state and local governments to plan and finance projects with greater certainty through 2020. The Fixing America’s Surface Transportation Act (FAST Act) provides approximately $305 billion for surface transportation with highway and transit funding slated to increase by approximately 15 and 18 percent, respectively, over the five-year duration of the program. While the modest funding increase and certainty provided by the FAST Act are a step in the right direction, the funding falls far short of the level needed to improve conditions and meet the nation’s mobility needs and fails to deliver a sustainable, long-term source of revenue for the federal Highway Trust Fund.

 

COST OF KENTUCKY ROADS THAT ARE DETERIORATED, CONGESTED AND LACK SOME SAFETY FEATURES

Driving on Kentucky’s transportation system costs motorists a total of $4 billion every year in the form of additional vehicle operating costs (VOC), congestion-related delays and traffic crashes.

  • Driving on rough roads costs Kentucky motorists a total of $1 billion annually in extra vehicle operating costs. Costs include accelerated vehicle depreciation, additional repair costs, and increased fuel consumption and tire wear.
  • Based on a national estimate that roadway design is likely a contributing factor in approximately one-third of serious and fatal traffic crashes, TRIP estimates that the economic costs of serious and fatal traffic crashes in Kentucky in which roadway design was likely a contributing factor is $1.4 billion each year in the form of lost household and workplace productivity, insurance and other financial costs.
  • Traffic congestion costs Kentucky residents a total of $1.6 billion each year in the form of lost time and wasted fuel.
  • The chart below details the average cost per driver in the state’s largest urban areas as well as statewide.

POPULATION AND ECONOMIC GROWTH IN KENTUCKY

The rate of population and economic growth in Kentucky have resulted in increased demands on the state’s major roads and highways, leading to increased wear and tear on the transportation system.

  • Kentucky’s population reached approximately 4.4 million residents in 2015, a nine percent increase since 2000.
  • Kentucky had 3 million licensed drivers in 2015.
  • Vehicle miles traveled (VMT) in Kentucky increased from 46.8 billion VMT in 2000 to 48.3 billion VMT in 2015.

KENTUCKY ROAD CONDITIONS

A lack of adequate state and local funding has resulted in 16 percent of major state and locally maintained urban roads and highways in Kentucky having pavement surfaces in poor condition, providing a rough ride and costing motorists in the form of additional vehicle operating costs.

  • The pavement data in this report, which is for all arterial and collector roads and highways, is provided by the Federal Highway Administration (FHWA), based on data submitted annually by the Kentucky Transportation Cabinet (KYTC) on the condition of major state and locally maintained roads and highways.
  • Pavement data for Interstate highways and other principal arterials is collected for all system mileage, whereas pavement data for minor arterial and all collector roads and highways is based on sampling portions of roadways as prescribed by FHWA to insure that the data collected is adequate to provide an accurate assessment of pavement conditions on these roads and highways.
  • Sixteen percent of Kentucky’s major urban locally and state-maintained roads are in poor condition, while 44 percent are in mediocre or fair condition. The remaining 40 percent are in good condition.
  • The chart below details the share of major roads in poor, mediocre, fair and good condition in the state’s largest urban areas.

  • Roads rated in mediocre to poor condition may show signs of deterioration, including rutting, cracks and potholes.       In some cases, these roads can be resurfaced, but often are too deteriorated and must be reconstructed.
  • Driving on rough roads costs Kentucky motorists a total of $1 billion annually in extra vehicle operating costs. Costs include accelerated vehicle depreciation, additional repair costs, and increased fuel consumption and tire wear.

KENTUCKY BRIDGE CONDITIONS

Approximately one-out-of-twelve locally and state-maintained bridges in Kentucky show significant deterioration. This includes all bridges that are 20 feet or more in length.

  • Eight percent of Kentucky’s bridges are structurally deficient. A bridge is structurally deficient if there is significant deterioration of the bridge deck, supports or other major components. Structurally deficient bridges are often posted for lower weight or closed to traffic, restricting or redirecting large vehicles, including commercial trucks and emergency services vehicles. 
  • The chart below indicates the share of bridges which are structurally deficient statewide and in Kentucky’s largest urban areas.

HIGHWAY SAFETY AND FATALITY RATES IN KENTUCKY

The traffic fatality rate on Kentucky’s roads is the fourth highest in the nation. Improving safety features on Kentucky’s roads and highways would likely result in a decrease in the state’s traffic fatalities and serious crashes. Nationally, it is estimated that roadway features are likely a contributing factor in approximately one-third of all fatal and serious traffic crashes.

  • A total of 3,538 people were killed in Kentucky traffic crashes from 2011 to 2015, an average of 708 fatalities per year. After decreasing steadily from 2010 to 2013, the number of fatalities rose each year from 2013 to 2015.
  • Kentucky’s overall traffic fatality rate of 1.56 fatalities per 100 million vehicle miles of travel in 2015 was the fourth highest in the U.S. and significantly higher than the national average of 1.13.
  • In the Bowling Green urban area, an average of 16 people were killed in traffic crashes over the last three years, while an average of 58 people were killed in traffic crashes in the Lexington urban area during that time. An average of 84 people were killed in crashes in the Louisville area over the last three years, while in Northern Kentucky, there was an average of 27 annual traffic fatalities over the last three years, while an average of 14 people were killed in traffic crashes in the Owensboro urban area during that time.
  • Traffic crashes in Kentucky imposed a total of $4.2 billion in economic costs in 2014. Based on a national estimate that roadway design is likely a contributing factor in approximately one-third of serious and fatal traffic crashes, TRIP estimates that the economic costs of serious and fatal traffic crashes in Kentucky in which roadway design was likely a contributing factor is $1.4 billion each year in the form of lost household and workplace productivity, insurance and other financial costs.
  • Roadway features that impact safety include the number of lanes, lane widths, lighting, lane markings, rumble strips, shoulders, guard rails, other shielding devices, median barriers and intersection design. The cost of serious crashes includes lost productivity, lost earnings, medical costs and emergency services.
  • Several factors are associated with vehicle crashes that result in fatalities, including driver behavior, vehicle characteristics and roadway features. TRIP estimates that roadway features are likely a contributing factor in approximately one-third of fatal traffic crashes.
  • Where appropriate, highway improvements can reduce traffic fatalities and crashes while improving traffic flow to help relieve congestion. Such improvements include removing or shielding obstacles; adding or improving medians; improved lighting; adding rumble strips, wider lanes, wider and paved shoulders; upgrading roads from two lanes to four lanes; and better road markings and traffic signals.
  • Investments in rural traffic safety have been found to result in significant reductions in serious traffic crashes. A 2012 report by the Texas Transportation Institute (TTI) found that improvements completed recently by the Texas Department of Transportation that widened lanes, improved shoulders and made other safety improvements on 1,159 miles of rural state roadways resulted in 133 fewer fatalities on these roads in the first three years after the improvements were completed (as compared to the three years prior).   TTI estimates that the improvements on these roads are likely to save 880 lives over 20 years.

KENTUCKY TRAFFIC CONGESTION

Increasing levels of traffic congestion cause significant delays in Kentucky, particularly in its larger urban areas, choking commuting and commerce. Traffic congestion robs commuters of time and money and imposes increased costs on businesses, shippers and manufacturers, which are often passed along to the consumer.

  • The chart below details what congestion costs the average driver in the state’s largest urban areas in the form of lost time and wasted fuel and the number of hours lost annually to congestion.

 

  • Increasing levels of congestion add significant costs to consumers, transportation companies, manufacturers, distributors and wholesalers and can reduce the attractiveness of a location to a company when considering expansion or where to locate a new facility. Congestion costs can also increase overall operating costs for trucking and shipping companies, leading to revenue losses, lower pay for drivers and employees, and higher consumer costs.

TRANSPORTATION FUNDING IN KENTUCKY

Investment in Kentucky’s roads, highways and bridges is funded by local, state and federal governments. The five-year federal surface transportation program includes modest funding increases and provides states with greater funding certainty, but falls far short of providing the level of funding needed to meet the nation’s highway and transit needs. The bill does not include a long-term and sustainable revenue source.

  • The ability of state and local governments to make needed improvements to Kentucky’s transportation system to improve conditions, enhance economic development opportunities and to improve safety is constrained by the level of available federal, state and local transportation funding.
  • According to the 2015 AASHTO Transportation Bottom Line Report, a significant boost in investment in the nation’s roads, highways, bridges and public transit systems is needed to improve their condition and to meet the nation’s transportation needs.
  • AASHTO’s report found that based on an annual one percent increase in VMT annual investment in the nation’s roads, highways and bridges needs to increase 36 percent, from $88 billion to $120 billion, to improve conditions and meet the nation’s mobility needs, based on an annual one percent rate of vehicle travel growth. Investment in the nation’s public transit system needs to increase from $17 billion to $43 billion.
  • The Bottom Line Report found that if the national rate of vehicle travel increased by 1.4 percent per year, the needed annual investment in the nation’s roads, highways and bridges would need to increase by 64 percent to $144 billion. If vehicle travel grows by 1.6 percent annually the needed annual investment in the nation’s roads, highways and bridges would need to increase by 77 percent to $156 billion.

TRANSPORTATION AND ECONOMIC GROWTH IN KENTUCKY

The efficiency of Kentucky’s transportation system, particularly its highways, is critical to the health of the state’s economy. Businesses rely on an efficient and dependable transportation system to move products and services. A key component in business efficiency and success is the level and ease of access to customers, markets, materials and workers.

  • Annually, $502 billion in goods are shipped to and from sites in Kentucky, mostly by truck.
  • Seventy-six percent of the goods shipped annually to and from sites in Kentucky are carried by trucks and another 13 percent are carried by courier services or multiple mode deliveries, which include trucking.
  • Increasingly, companies are looking at the quality of a region’s transportation system when deciding where to re-locate or expand. Regions with congested or poorly maintained roads may see businesses relocate to areas with a smoother, more efficient and more modern transportation system.
  • Highway accessibility was ranked the number two site selection factor behind only the availability of skilled labor in a 2015 survey of corporate executives by Area Development Magazine.
  • The Federal Highway Administration estimates that each dollar spent on road, highway and bridge improvements results in an average benefit of $5.20 in the form of reduced vehicle maintenance costs, reduced delays, reduced fuel consumption, improved safety, reduced road and bridge maintenance costs and reduced emissions as a result of improved traffic flow.

Sources of information for this report include the Federal Highway Administration (FHWA), the American Association of State Highway and Transportation Officials (AASHTO), the Bureau of Transportation Statistics (BTS), the U.S. Census Bureau, the Texas Transportation Institute (TTI) and the National Highway Traffic Safety Administration (NHTSA).