An Analysis of a Construction Equipment Rental Company

Tool Rental

I work for a construction tool rental company based out of Seattle, Washington.  My time in the Portland, Oregon branch, although brief compared to the average employee, has led me to make a few small observations about the day to day logistics and operation of not only this particular branch, but to the rental industry in general.

The majority of the equipment handled by the rental company is what one would typically find on any construction or demolition site.  All manner of large reach fork lifts, aerial work platforms, backhoes, skid steers, excavator, scissor lift are quite common down to smaller tools like saws, vibrators, compactors, chipping guns, rotary hammers, heaters, fans and the like.  Most of these tools are of high quality, commercial grade with reliability of operation expected by professional contractors.

Rental agreements usually charge a usage fee based on the number of days or weeks rented, hours of machine operation, consumables like, saw blades, chisels and fuel, as well as delivery and pickup fees.  Also, any unreasonable damage or wear to a piece of equipment will incur additional charges.  These rental contracts likely represent the majority business of this rental company although some revenue is gained through the sale of both used and new equipment as well.

The rental time period can be as little as a few hours to several months in the case of industrial forklifts and aerial work platforms.  As equipment is returned to the shop facility, any necessary maintenance is performed and the item is once again ready for rent.  In the case of small tools such as electric breakers (jack hammers), one may go through a dozen iterations of this process in a business week.  The Portland store represents a very busy hub amongst a network of other branches throughout the north west and requires the accumulated efforts of warehouse personnel, mechanics, office clerks, truck drivers, accountants, sales people, human resources and all manner of managers or administrators.  It is the source of value (money) and the distribution within the enterprise that is of interest to me.

I would offer that the first, and likely smallest contributing source of revenue, is from sales of new equipment.  When the opportunity arises for the purchase of discounted, wholesale construction tools; office administrators, using company assets, purchase a number of them and then “mark them up” or otherwise sell them for a amount over and above the original purchase price.  This has been referred to as “mercantile capitalism” by some.  The item is simply transferred from the wholesaler to the rental store and then onto the customer without any additional “use value” added to it by the rental company.  The monetary difference between the sale price and the wholesale price is commonly labeled as “profit”, but will here be referred to as “the surplus value”.  The term “profit” here is a misnomer, for before any true profits can be realized, several operational costs must be met that facilitate the transaction.  The salary of the employee that ordered the tool must be paid as well as that of the warehouse person who unloaded the truck, the trucking company itself, the salesperson who ultimately dealt with the customer, all of the administrative people that make the company function, the utility bills paid, healthcare costs, maintenance, corporate and property taxes, insurance, workers compensation, lawsuits, lawyers, advertising, and all of the other costs of doing business.  The surplus is used to meet these costs and anything left over may be considered profit.  High volume sales here is the key and allows for more competitive prices in the market.

Equipment rental far exceeds sales in terms of revenue to the company.  The expense of the machines, anticipated operating lifetime and likely maintenance costs help to determine the rate at which they will be rented.  More time out for rent will help defer the original cost of the machine.  From what I gather, within this particular company, a calculation such as this is rarely performed and the rates are based on those of competing companies and then adjusted so as to stay competitive.  Essentially, these rates reflect what the market will bare and are not necessarily consistent from customer to customer as will be explained later.

As described for sales of new equipment, surplus value is of great importance in equipment rentals.  Surplus value is what is gained through the economic process of the rental company based on an initial investment, otherwise known as “capital”.  Capital can be thought of as self expanding money or wealth put to work.  The surplus value is used to ensure the continuation of the process that brings about capital accumulation by appropriating it to individuals within and outside the company, before any profits are realized.  Here, the capital buys a fleet of new equipment for rent, property and a structure for the base of operations, trucks for delivery, uniforms, tools, computers, etc..  Renting equipment to contractors and homeowners, as was mentioned, requires several iterations of rent, return, maintenance, rent again and so on. Surplus value may not be realized for months or years given a particular capital investment, until the original equipment has been  paid for.  If the machine in question is still in fine working order after enough rent has been collected to cover the initial cost, then all rent collected on it after that might be considered surplus, for which of course a portion might be labeled profit after all of the conditions have been met to continue the process.  Eventually the equipment’s maintenance costs become too high, it’s appearance deteriorates and it’s service in the rental industry comes into question.  At this point it is put up for sale as a used item.  The exchange value could be partially or entirely surplus value.  That profit could then be used as a further capital investment and the operation starts once again.  Pretty good deal, huh?

There is another interpretation of the source of surplus; one which I favor and I think describes a larger system at work.  The above described system of surplus acquisition is fallacious because it does not adequately describe the source of surplus.  Every wage or salary paid to rental company employees as well as all operational costs are done with pure surplus value, but the question is, where is the surplus generated?  A clue; the rent received from customers is derived from a primary industry above all else:

Construction

Construction represents a form of industrial capitalism where an initial capital investment is used to purchase equipment, tools and raw resources that tradespersons and laborers use to fashion buildings, roads, bridges, tunnels, homes, telecommunications, rail systems, water distribution, and other infrastructure necessary to capitalist societies.  The primary source of surplus value for the capitalist investors (those providing the capital) of these construction companies, is from the workers who craft the raw resources into useful infrastructure for our social and economic needs.  These workers; carpenters, painters, welders, masons, electricians and so forth are paid an hourly rate for their time and skill usually sufficient to allow them to exchange it in the market of goods and services to meet the conditions necessary (food, clothing, healthcare, recreation, family expenses, transportation, etc.) for them to continue selling their time and skill on a weekly basis.  The hourly wage paid to the craftsperson is not likely equal to the value added to the project being constructed when it is finished and sold in the market, but is principally less.  The reason the craftsman gets fleeced, is because unless the raw materials supplied (wood, concrete, glass, paint) are sourced very competitively (they can be marked up substantially), a source of surplus value has to be found in order to meet all of the conditions needed to run a business and accumulate more capital.  If the final product of a construction company, an office building for example, were sold at material cost and all of the construction workers were paid wages equal the the value they added to the raw materials, then the investor would not only fail to accumulate any additional capital, but would lose money because of all of the costs not directly associated with the materials and the tradespersons.  For example, taxes, insurance, workers compensation, fuel and energy, permits, engineering, surveying, interest payments to financial institutions, lawsuits,managers or foremen, accountants, lawyers, political campaign contributions and all other costs that don’t directly add value to the materials to produce the final output, are all conditions that must be met by surplus value acquired from tradespeople over and above the value added that goes to pay their wages.  Only after ALL of these conditions are met, can capital accumulation occur.

It should be obvious that if the source of surplus is derived from the tradesperson (or assembly line worker in a factory, chef in a restaurant), then it is in the capitalists’ best interests to minimize the worker’s wages while maximizing their productivity with time saving machinery and other technologies.  Of course, it is in the worker’s best interest to maximize their wages by improving their skills and thus the value they can add to materials.  A worker might demand a larger share of the surplus or threaten to go elsewhere for work.  If there is another tradesperson who will do the same work for the same or less, then these threats have little to no effect.  If however, enough workers organize to demand higher wages, better working conditions and so forth, then the capitalist may have little recourse and must grant them a larger portion of the surplus.  Capitalist firms, after all, are highly organized and may pull from a great deal of resources to ensure a high rate of return, while individuals have very little bargaining power unless pooled together as a collective body to demand a greater share of the surplus.  These wages are largely market driven and are affected by worker skillset, economic demand, unemployment, union membership, among other things.

There is a valid reason for describing these relationships.  Tools, technology, labor and time saving devices all vastly improve the productive capabilities of a worker while wages may increase only marginally.  Pre-fabrication and modular construction increase the efficiency of assembly while eliminating the need for highly skilled workers, replacing them with more specialized, low skill, easy to train workers, willing to work for less; especially at times of high unemployment.  An allotment of the surplus gained from the workers is used by the capitalist (or more likely, a manager or foreman) to purchase labor and time saving tools such as excavators to replace pick and shovel, man lifts instead of ladders, plate compactors instead of hand tamper, air nailer as opposed to a hammer, and so on.  In a large construction company, theses tools are commonly purchased with capital investments and the cost may be quickly recouped with acquisition of surplus.  In the case of smaller companies, the capital may not be available, the benefits of the tool take too long to realize a return on investment, or the size of the project and/or rarity of use does not necessitate the outright purchase of a piece of equipment.  In many of these cases, rental becomes the best economic choice.

So as it happens, the rental company is a receiver of the surplus appropriated by the managers and or capitalists of the construction company.  That surplus goes towards paying all of the people in the rental company to maintain and transport the equipment to wherever the industrial capitalist needs it to facilitate capital accumulation by intensifying the production of surplus value.  As I said before, some clients receive discounted rates, which is largely because of the amount and length of rental contracts these customers commit to.  Consistent and long term business require less transportation costs, advertising, clerical work and idle time where the equipment is not accruing surplus to recoup the capital investment needed for the original purchase by the rental company.

Even in the case of rental contracts with maintenance, cleaning, demolition or the home owner; the money is likely sourced from surplus acquisition.  Businesses that don’t directly add value to a product, are nonetheless necessary to the process of industrial and mercantile capital accumulation.  They facilitate the conditions needed for the process.  The homeowner is likely either a productive worker themselves or a class of worker that facilitates needed conditions for the process.  In either case, surplus is in play.

Curiously, all of the participators in this rental process share, in some way, the purchase costs and maintenance and upkeep of the equipment in question, and although society may save the costs of producing so many copies of the same tool sitting idle; the ultimate beneficiaries are the capital investors of the rental company and the industrial capitalist directly acquiring and appropriating surplus value.  This, of course, includes the manufacturer of the tool or commercial machinery in question, as that is done through a process of industrial factory work and capital accumulation.  Anyone in the process paid with a portion of the surplus, security guards, surveyors, delivery drivers, equipment mechanics; whether in the construction company, the rental company, the equipment manufacturing company, related necessary industries or otherwise, are members of what Karl Marx and Frederick Engels called the “subsumed class”.  These are the people that, although don’t directly produce surplus, do in fact perform an essential role in this process of capital accumulation.  It comes as no surprise then, that long term business and personal relationships form between the managers and workers of the rental company and their counterparts in various construction firms.  The rental company relies on surplus generated in the firms, and the construction company benefits from the prorated equipment costs that come from shared use (even if through a market system), increasing surplus production and capital return.

The surplus generated by the construction firms is appropriated and distributed by a handful of managers whose job it is to minimize costs while maximizing production and therefore surplus.  The market is, after all, highly competitive and decisions to suppress wages, increase work load, hire undocumented workers, employ new technologies to replace labor cost creating “technological unemployment” and so on, should be viewed as fundamentally systemic; which breeds the innate human need to survive (even if a successful millionaire), and not evidence for the greedy, destructive nature of man.  These managers’ goals can often be at odds with workers’, and a great deal of contention may form over wages, vacation days, working hours and conditions.  The interests of the capitalist may be at odds with those of the community because the project could be unwanted, pollution is generated, land and other resources are converted into commodities, or the health and well being of the community is put at risk.  In many cases, the person or persons appropriating the surplus may not have to live with these decisions because of geographic disconnection or social and economic status.  In other words, the social and environmental consequences become “externalized”.  Likewise, the decisions made by the management and/or capitalist within the rental company are likely to fall in line with those of a large construction firm because their businesses are so closely intertwined.

Finally, I think that the existence of both the construction firms, related industries and the rental company itself serve a purposeful role in society, but their inner workings conflict with any rational interpretation of a democratic commonwealth.  “Commonwealth” is very much apropos here when common sense would seem to suggest that the collective wealth created by a society should be directed by the members that created it, and not a handful of  “business savvy entrepreneurs” whose goal is the unbridled growth of capital, or so called political “representatives”.  What the modern world lives with in struggle, and dies for by the millions; the facade of freedom and choice through Capitalism and the “Free Market”, which is little more than an elaborate tale we tell ourselves to justify an institution of  tyranny.  It is our responsibility to write a new narrative.

-M.C. Pletcher

A note:  This analysis is done loosely in the Marxian tradition yet terms like Bourgeoisie, Proletariat and Class Struggle were excluded because they bring about a negative reaction by many  in the capitalist “free world”, and I wouldn’t want to scare off any readers from the rich body of work by Marx, Engels and many others.  This line of thinking may well be more crucial today than ever and I believe the widespread application of it could potentially nullify many of the most pressing problems of the modern world.

“Insanity: doing the same thing over and over again and expecting different results.”

-Albert Einstein

Advertisements
Tagged with: , , , , , , , , ,
Posted in Marxism, Uncategorized
3 comments on “An Analysis of a Construction Equipment Rental Company
  1. weight loss says:

    Great articles you post here, i have shared
    this post on my twitter

  2. Jalu Sakti says:

    I like that you talked about how the rental prices are established from the cost of the equipment, the expected number of working years, and taxes on the items. I’ve always wondered how the rental prices at companies like yours are worked out, especially for bigger construction equipment. Did your business rent out yard trucks? That’s something I need to rent in a couple of months.

  3. Scott Adams says:

    I’m glad that you talked about the rental time period. I have been considering renting contractor equipment for a project I’m doing with my brothers. I wasn’t sure how long I would need to rent the equipment. It would be nice to find a place that can rent for several months for what we’re doing. Thanks for the information.

Questions or Comments?

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 287 other followers

%d bloggers like this: