Truck rental market on growth path

The truck rental sector bounded through the global financial crisis and its aftermath, according to IBISWorld

November 1, 2013

The truck rental sector bounded through the global financial crisis and its aftermath, according to an IBISWorld report.

The business analysis firm's Semi-Trailer and Truck Rental report
expects the sector to grow 2.3 per cent over the five years through 2013-14 to reach $87.1 million.

And IBISWorld sees this growth as understated, as it comes off a high base year in 2008-09, when the industry benefited from an increase in merchandise imports and exports.

The road freight industry, a key source of sector demand, declined over the year.

"Although declines in road freight are usually bad for revenue, when combined with a simultaneous growth in merchandise trade, it was in fact beneficial for the [rental] industry," IBISWorld industry analyst Kosta Lev says.

IBISWorld points out that road freight companies delay new-vehicle purchases in tough economic conditions, instead favouring rentals to boost their short-term fleet for temporary increases in capacity demand.

Revenue fell in the following year, as merchandise trade dropped and road freight required less capacity.

Growth has steadied since, with global economic conditions improving and demand from road freight stabilising. IBISWorld expects revenue to grow by 2.4 per cent in 2013-14.

Industry profitability has declined over the past five years and is expected to continue to do so over the five years through 2018-19. This has mainly been due to increasing wage costs as companies hire more on-site staff for maintenance of their vehicle fleets, it believes.

"Over the next five years, increasing competition will continue to put downward pressure on profitability as companies narrow margins to promote demand," Lev says.

Even so, profitability remains considerably high for the industry as it supplies high-value, niche products, displays a low level of market concentration, with Rentco as the only major player.

For the future, IBISWorld predicts:

Demand from road freight companies will continue to be the main driving force of revenue.

Merchandise exports are expected to benefit from a falling Australian dollar and imports may be inversely affected.

Concerns over the next five years will include competition from new truck sales, as well as rail freight transport, which reduces the need for more trucks on the road.

A stabilising global economy is expected to drive activity in consumer markets and lead to an overall positive outlook.

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