‘Engines running hot’: is Brazil’s rental sector in growth mode?

Loxam has had full ownership of Degraus since 2018. (Photo: Loxam)

High inflation, economic downturns, lack of investment in infrastructure and shifts in government leadership have all had a significant impact on the rental and broader construction industries in Brazil.

However, amid these challenges, opportunities have emerged, as indicated by a report from the Associação Brasileira dos Locadores de Equipamentos e Bens Móveis (ALEC) in January.

The Locação Market Thermometer survey results show a mixed picture when comparing January 2024 to the same period in 2023.

For example, 41.7% of companies surveyed reported that January 2024 was better compared to the same period in 2023.

This upward trend suggests positive growth in the rental sector over the past year, possibly driven by factors such as economic recovery and continued demand for rental services.

On the other side, approximately 30.2% of companies experienced underperformance in January 2024 compared to the same month in 2023.

The data reveals a similar trend between January 2024 and December 2023. While 37.2% of respondents noted an improvement, a significant 41% reported lower performance.

The survey also examined customer base growth and pricing adjustments in January 2024, with almost two-thirds of respondents (65.5%) reporting an increase in customers during the month and 32.4% of companies adjusting their pricing tables, suggesting relative stability in rates amid market dynamics.

In terms of future prospects, the study revealed that 69.8% of companies have plans to purchase equipment in the next three months.

Growth opportunities

One company that is predicting growth is Loxam, with its CEO Guilherme Boog revealing earlier this year that its combined businesses (Motormac Rental,  A Geradora and Degraus Andaimes)

Guilherme Boog, CEO, Loxam Brazil.

could reach a net revenue equivalent to R$500 million (approximately US$102 million) in 2023 and increase by another 15% in the current year.

Speaking to IRN, Boog says the return of large infrastructure projects is boosting growth amid a rental industry that is going through a consolidation process; “We are still in a period of recovery from the big crises we have lived from 2014 to 2018. In the middle of the recovery, we faced another crisis, the Covid crisis, that affected all the world and obviously the construction market in Brazil was also influenced.

“Therefore, having a perspective of infrastructure investments after so many years is a great news for the whole construction market in Brazil.

“As many construction companies were affected during the crisis, the ramp-up of the new investments will be surely done with rented machines, and all the companies are getting prepared for this favorable moment.”

Meanwhile, another of the big three in Brazil, Mills said in its report for the 2023 financial year that investment in heavy equipment has helped it achieve record revenues, reaching R$1.4 billion (€210 million) with growth of 25%.

Mills said the investment brought “greater diversification, cash flow predictability and a new avenue of growth.”

Sergio Kariya, Mills CEO, said, “Our engines are running hot for 2024 and we believe that this year will be another year of profitable growth, reinforcing our strategic positioning and competitive advantages.

“Our business units are structured to support Mills’ progress and maximize value for all our stakeholders, bringing significant returns and solid foundations for the expansion of our business.”

Shift in suppliers

During the pandemic, there were of course difficulties in getting hold of new fleet, and that was certainly the case in Brazil, where MEWPs in particular were hard to come by for rental companies.

This created an opportunity for new manufacturers to enter the market, as Boog explains; “Across Brazil, we had shortages of MEWPs, and that is where Chinese OEMs came in and plugged the gap.

“We did and continue to use Chinese suppliers for our MEWP fleets.”

Locar has invested in units from the likes of Genie. (Photo: Locar)

That sentiment is shared by Marco Ceriello, the commercial director of one of Brazil’s largest MEWP rental companies, Locar.

The company has one of the largest fleets in Brazil, having invested R$600 million (US$120.4 million) in fleet in the last three years.

He says the average age of MEWP fleets in the country in Brazil is decreasing due to the arrival of Chinese suppliers. “A lot of people are now able to invest.”

In the case of Locar, the company’s average fleet age is less than five years, as the fleet has doubled in the last two years, following investment in new equipment from Zoomlion and Genie.

“I believe the Chinese manufacturers will dominate the Brazilian market,” adds Ceriello. “They now have quality, they have a very competitive pricing and they offer credit.”

In terms of rental rates, Ceriello says there were around four years where the market consistently decreased, but he says rates are rising; “Over the last three years, the Brazilian market could start to be compared to the US, with a 2.8% – 3.3% rental rate, up to a maximum of 4%, compared to the 5% in the US.”

On utilization, Ceriello adds, “We don’t have a measure of the whole market, but when we talk with competitors, everybody says it is at about 60%.

“Last year was higher at 70%. This is due to the increasing competition. In one area, we had five to six competitors in the past, now we have 15 with around 50 platforms each.”

The view from equipment sales

Following on from the high of more than 45,000 units sold in Brazil in 2022, the market saw a 25% decrease last year (to 33,742), in what global market research and forecasting specialist Off-

Highway Research describes as an “over-correction, but was understandable in the light of high inflation and interest rates, which brought a general slowdown in economic growth.”

Its latest forecast for this year is more positive with a 14% increase, and is being driven by an improvement of the economic landscape, the report states.

However, beyond 2024, the future looks less clear, with the years between 2025 and 2028 continuing to decrease.

The report also highlights a shift in the strength of Brazil compared to other countries in South America. It found that in 2023 Brazil represented 64.5% of the total sales of construction equipment in the region.

That number is expected to decline somewhat in the coming years to 60.3%, brought on by a combination of the strengthening of the smaller markets in the region, increasing interest rates and more moderate economic growth lowering demand for construction equipment.

Develon opens new parts center in ‘growing’ Brazilian market The new facility in Jundiaí is the first in South America for the OEM and the eleventh worldwide as Develon looks to continue its Global PDC Footprint expansion strategy. Young-cheul Cho, CEO of HD Hyundai Infracore (HDI), the parent company of Develon, said there were “growing opportunities” in Brazil. Speaking at the opening of the new PDC he said, “We value Brazil to the utmost and its importance is growing more and more, along with its great potential in terms of both its people and its natural resources. “Having seen the growing opportunities in this country, we are here today to fulfil our promise made two years ago to our staff and customers to open the new PDC in the country.” The new facility will enable parts to be available quicker for customers throughout the country, via the company’s network of dealers. Occupying an area of ​​1988m², the new PDC has involved an initial investment of over US$2 million, not including the value of the stock, with the goal of establishing an inventory of 12,000 items in 2024 to reduce delivery times by 70%.