Strength & Resilience: Equipment Management in a Year Like No Other

Reprinted with permission from the Equipment Leasing & Finance Association.

IF THE PANDEMIC WAS A BRONCO THAT THREW MOST OF THE MARKETS AND MANAGERS TRYING TO RIDE IT IN EARLY 2020, it was a tired horse later, accepting nibbles of recovery and creativity as the year wore on. But make no mistake: 2020 was, in the words of one equipment manager, “a most unusual year” as restaurants did business out of the back door, delivery services partnered with competitors to move critical supplies and warehouses couldn’t add automated equipment fast enough to cope with the explosion in e-commerce. Observed another asset manager, “Times are changing, jobs are changing and the way we work today is not the way we worked a year ago—and it probably won’t be how we work a year from now.”“COVID-19 was the wildcard for 2020, and we expect it to be the same in 2021,” summarizes Nick Coscia, Equipment Manager for Asset Management, Americas at DLL in Wayne, Pennsylvania. “But we expect the availability of vaccines to usher in some stability, and we’re taking an active approach to help customers manage the life cycle of their equipment.”

New Roads, Familiar Destinations
If 2020 turned equipment management inside out, it also forced widespread adaption and innovation, just to continue doing business. “Everything is different, but the same,” says Jane Rethmeier, CEO of Harbor Capital Leasing, Inc., an Independent specializing in financing material-handling equipment. “COVID-19 caused shut-downs for many of our lessees last spring, resulting in some stagnation for us. But customers were adapting to conditions by summer, when they realized they had too much equipment or equipment that wasn’t in the right place. So many lessees moved equipment to locations where they had more demand. Once everyone got into the groove and found a new, temporary normal, we got really busy—and it’s been this way since August.”

Tom Monroe, Senior Vice President of Asset Management at ATEL Capital Group, a San Francisco-based Independent that finances heavy equipment, has also seen much more new business since summer. “I think a lot of companies were waiting for the election,” he says. “And because manufacturers had made adjustments for COVID-19, it took several months longer for them to deliver new equipment. But the delays gave customers more time to decide how to replace their fleets, and this resulted in longer renewals.”
Phil Houser, Director of Asset Management at CIT in Livingston, New Jersey, says that in commercial construction the pandemic led to supply delays, altered strategies and investor pull-back on project decisions because of uncertainty. “Industry intelligence on the heavy-equipment market talks about new construction orders being down from a year ago and manufacturers shifting to produce medical supplies,” he says. “But as this happened, the used-equipment and rental-equipment markets benefited. Prices for used equipment, based on condition for lower hours of service, were at a premium.”

New Roads, Familiar Destinations
If 2020 turned equipment management inside out, it also forced widespread adaption and innovation, just to continue doing business. “Everything is different, but the same,” says Jane Rethmeier, CEO of Harbor Capital Leasing, Inc., an Independent specializing in financing material-handling equipment. “COVID-19 caused shut-downs for many of our lessees last spring, resulting in some stagnation for us. But customers were adapting to conditions by summer, when they realized they had too much equipment or equipment that wasn’t in the right place. So many lessees moved equipment to locations where they had more demand. Once everyone got into the groove and found a new, temporary normal, we got really busy—and it’s been this way since August.”

Tom Monroe, Senior Vice President of Asset Management at ATEL Capital Group, a San Francisco-based Independent that finances heavy equipment, has also seen much more new business since summer. “I think a lot of companies were waiting for the election,” he says. “And because manufacturers had made adjustments for COVID-19, it took several months longer for them to deliver new equipment. But the delays gave customers more time to decide how to replace their fleets, and this resulted in longer renewals.”
Phil Houser, Director of Asset Management at CIT in Livingston, New Jersey, says that in commercial construction the pandemic led to supply delays, altered strategies and investor pull-back on project decisions because of uncertainty. “Industry intelligence on the heavy-equipment market talks about new construction orders being down from a year ago and manufacturers shifting to produce medical supplies,” he says. “But as this happened, the used-equipment and rental-equipment markets benefited. Prices for used equipment, based on condition for lower hours of service, were at a premium.”

Fresh Situations and Positive Trends
One trend Rethmeier has noticed in customer behavior could last well beyond the pandemic. “We’re seeing customers paying more attention to the equipment they have on lease, spending more time analyzing whether it makes sense to keep it, or turn it back in and get new,” she says. “We’re also receiving more requests for multiple types of proposals, on both the origination side and the end-of-lease side,” she says. “Before 2020, a customer might have said they wanted to look at a five-year term. Now they want to consider three-, four- and five-year terms—and they want renewal proposals for their existing fleet.”

She attributes the trend to continued economic uncertainty, but also to sensors embedded in many types of newer equipment that record hours of service and maintenance events. “Customers know more now about the equipment they have, and they ask us for additional reporting,” she says. “We’re happy to do it,” she adds, “because the information helps them make their best decision. I expect customers’ increased analysis of existing equipment will become the norm.” 

Kelly Lane, Vice President of Asset Management for Brookfield, Connecticut-based Signature Financial, LLC, now uses Zoom calls and virtual meetings to stay in touch with customers. He has also seen the increased use of technology in virtual equipment inspections. “Using technology to do our jobs more efficiently and maintain momentum has been extremely helpful,” says Lane. “I’m really looking forward to getting back to normal, when we can visit our customers in person and physically see the equipment.” 

Monroe has also experienced new procedures around inspections. “Some lessees had implemented stricter rules for on-site inspections because of COVID-19, but surprisingly, we didn’t run into issues there,” he says. “Asset managers got creative, some companies did virtual inspections, and everyone worked together to get things done.”

At DLL, robotics process automation now performs many manual tasks in equipment management, and projects using AI (Artificial Intelligence) are underway to predict customer behaviors that drive residuals. Says Coscia, “Incorporating the data and behavior into meaningful residuals will keep us relevant in the marketplace.”

Warming Markets, Mixed Equipment Values
Equipment managers speaking for this story stopped short of saying any market would be “hot” in 2021. But they noted upward trends among several equipment types that reflect larger trends in the industry. An example: Houser says CIT’s survey of middle-market and small businesses shows emphasis on technology and remote working. “Working from home, we can see how much we’re supporting online commerce, and this environment is expected to be even more favorable for equipment finance in 2021,” he says. “Add the continued low-interest environment, and these trends can drive equipment financing in specific verticals like technology, material-handling and last-mile transportation.” 

Houser also expects growth in guided vehicles used in warehouses, drones used for asset-tracking and 3-D printing technology. “Three-dimensional printing has been around for a while, but disruptions in the supply chain highlighted the ability to print parts for your fleet when you couldn’t get them any other way,” he says. Houser also sees green-energy initiatives expanding and looks for financing to gain momentum in these areas during the new administration. 

Monroe, meanwhile, reports an uptick in covered hoppers. “Overall, the railcar market is measured by traffic, and the number of carloads dropped in mid-2020 by an additional 10 to 15% compared to earlier in the year, which is a lot,” he says. “But since then there’s been a big push and export market for soybeans and corn, and fortunately, U.S. farmers had strong crops in both. So that has pushed for an increased demand in hopper cars, and the fourth quarter has been a big turnaround.”

In construction, Coscia says equipment markets fluctuated by segment in 2020 and will probably continue to do so in 2021. “We noticed weakness in articulated trucks and excavators earlier in 2020, but we’ve seen recent stability in aerials,” he says. “We’re also seeing more interest in automation, specifically in the warehouse equipment space, and activity in machine tools, which has generally maintained values except for small pockets of weakness in sectors such as automotive.”

Not unlike Harbor Capital, DLL is experiencing increased renewal appetite from lessees skeptical about buying new equipment while still using their existing units. Says Coscia, “In some cases, we are more willing to take additional risk on the extension than risk potential losses, should a customer decide to return rather than renew.” 

At the same time, DLL is expanding its Fleet Solutions program to suit customers’ changing transportation needs. “Our fleet equipment experts customize financing solutions that help improve a customer’s business performance and lower their total cost of operation,” Coscia explains. 

Meanwhile, Rethmeier sees “a lot of new forklifts going into distribution centers,” and more soft costs in telemetry and monitoring for those forklifts. “Monitoring records when the forklift bumps into something, how many trips it makes and how long it takes to do things,” she says. “And wire guidance tells the forklift where to go—so now there are programmers in the warehouse, telling automated equipment what to do and where to go.”

So far, Harbor Capital hasn’t experienced much fluctuation in used-equipment values. “But if distribution centers continue to evolve and grow, I’d expect used values in material-handling equipment could go up as customers wait for lead times on new equipment,” says Rethmeier.

ATEL Capital watched values for over-the-road tractors plummet in early 2020, “but they were already dropping in 2019,” says Monroe, who adds, “We haven’t seen stabilization there yet.” 

Not surprisingly, values for personal computers remained steady as employees retreated to home work spaces and distributed architecture enabled multiple computers to share proprietary software and data-processing. “This really was a bright spot in 2020, and we look for increased demand in 2021,” says Houser. “Advances in the microchip, driving ever higher speeds, will support the remote workplaces of the future.” 

Lane says he witnessed a drop in equipment values across many categories in 2020 but is already seeing many of them improve. “If the vaccines against COVID-19 are safe and effective and we have no more shut-downs, I expect widespread growth in trucking, construction, medical, computers and material-handling,” he says. “All of these industries are cyclical, and I expect to see growth as customer confidence returns and they look to replace or add to their equipment fleets.” Lane notes that values for buses, limousines and aircraft are still soft, due to steep declines in travel. “Unfortunately, we don’t expect values for any equipment used in the tourism industry to improve in the near future,” he says.

Optimism for Constructive Change
Despite 2020’s bumps and bruises, equipment managers interviewed for this story expressed pride in their industry and a calculated optimism for 2021. “Overall, I think the equipment finance industry demonstrated signs of strength and resilience in 2020, even though companies differed in their experience by industry,” concludes Houser. “I think our industry will continue to adapt to present challenges and create more solutions that will drive investment and increased activity in 2021.”

Monroe takes an even larger view. “Generally, I think the pandemic has created a new light for equipment managers,” he says. “Some companies now realize how very important they are to managing the portfolio.” Rethmeier agrees, saying, “Business generally has been fairly good for leasing companies in 2020, and as a group, we are very effective at changing directions quickly and adapting to customer needs. If asset managers continue to play their part within their organizations to provide value, I think there are many opportunities out there to grab onto.” And each one starts with getting on the horse.