Rent or buy: that is the new Material Handling Equipment question​

LEASING, rather than buying capital assets that depreciate is increasingly making more and more business sense. And nowhere is the trend of renting equipment becoming more noticeable as a smart move in an uncertain economy than in the material handling equipment market.

More \companies are shifting away from buying Material Handling Equipment outright to signing rental agreements. While there was a time when purchasing for cash was king, renting is now the more popular choice with about 65% of deals favouring rental and the balance opting for outright purchase.

Bianca Smit, national operations manager at CFAO Equipment SA, says some companies that were historically cash customers have swung to renting material handling equipment as they want to “pay for use, not for ownership”.

“These companies don’t want their material handling equipment to become a liability. To avoid having to decide how to dispose of equipment after its useful life, they rather rent,” says Smit.

Smit says a small business that moves goods occasionally will do better to buy a machine for cash, as the useful life of the asset will far exceed the general five-year cycle due to low utilisation. 

But a company that wants to retain its cash for its core business would do well to rent material handling equipment especially if the warehouse or factory demands goods to be moved around all the time.

The capital required to buy equipment makes rental an easier choice as there are far lower upfront costs. A purchase converts your fluid cash into a fixed asset. This can weaken your company’s financial position and banks or investors can view this negatively. 

On the other hand, the flexibility that rental offers, where you are not saddled with a depreciating asset forever, is more suited to South Africa’s economic volatility. In addition, as a company’s needs change and expand, the option of moving from a diesel-powered forklift to electric is easily available.

One of the benefits of renting is that the uptime of a customer’s fleet remains uninterrupted if there is a major breakdown, as a replacement machine will be made available from the short term rental fleet.

Smit says that depending on the relationship between the company and the customer, rental equipment may be swapped under certain circumstances, such as when customers require a strategic shift from internal combustion to electric operated equipment. However, a cash buyer will be saddled with the equipment even if it is not fit for purpose.

“As a business that is cognisant of change in the market, the group offers short-and long-term rental agreements across our diverse range of material handling equipment. These vary from hourly or one-day short-term rentals up to 72-month long term rental agreements to tailor a handling solution to suit the customer,” says Smit.

For seasonal demands, CFAO Equipment SA offers a seasonal and short-term lease option. 

“When there is high demand for equipment, such as during the December and Easter festive periods, you simply rent, without the bother of having equipment purchased for cash lying idle when there is low demand,” says Smit.