The development of online instrument exchanges puts a new wrinkle into how to get the optimum use of test gear.
When a project comes up that involves expensive test gear like gigahertz-range signal analysis, statistics from the Equipment Leasing & Finance Foundation show this kind of instrumentation is increasingly acquired through some kind of financing scheme. And the financing scheme of choice is often temporary ownership: EL&FF figures show 39% of all financed equipment last year was obtained through leasing or renting.
The usual way of obtaining temporary use of test gear is to employ the services of rental equipment firms. But the landscape for test equipment is changing because of online exchanges. Economy-conscious instrument buyers have long been able to get well-used test gear via eBay and similar internet sites. But newer online exchanges deal not in second-hand gear, but rather in state-of-the-art equipment that can be had through the same kinds of rental or lease agreements available via traditional rental firms.
The price is right
Whether the equipment comes from a traditional rental firm or from an online marketplace, rental rates tend to be in the same ballpark. Industry insiders say the monthly rental fee is usually around 10% of the equipment’s list price. Equipment that is leased goes out for monthly fees that are generally between 3% to 5% of the price tag, over lease periods that generally range from 24 to 72 months.
That said, rental industry veterans say rental rates have eroded in recent years. The reason: “Everybody is a rental company at some level,” says one rental executive who prefers to remain anonymous. “In addition to the big rental firms, there are used-equipment resellers who will rent equipment if they can. Even instrument manufacturers offer bridge-loan instruments at no cost to some of their customers, which effectively makes the loaners rental instruments.”
The majority of equipment obtained for temporary use is rented rather than leased. The reason is straightforward: Much of this gear is procured either to cover for an instrument out for repair or to handle specific projects or contracts that have a set duration. Consequently, it is easy to build the monthly rental cost of the instrument into the bid for the job.
Temporary ownership is also sometimes a means of taking instruments for a trial run. So says TestEquity LLC, a large distributor of Keysight, Tektronix, and Rhode & Schwarz instruments. According to TestEquity southeast sales director Sam Valdivia, about 20% of TestEquity’s business is in instrument rental. Many of the rentals or leases that TestEquity handles are a means of financing an instrument acquisition rather than a way to meet temporary needs, Valdivia says.
Indeed, the rationale for leasing rather than renting equipment tends to center on financing. Leasing arraignments are often lease-to-own deals. They are effectively used as a way to keep outlays low when expensive equipment is involved.
But there are considerations besides finances that bear on whether to rent, lease or buy. For one thing, equipment that breaks down is treated differently depending on whether it is rented or out on lease. Rental companies are generally responsible for fixing their equipment if it breaks down in the field. The usual policy is to replace the broken instrument and give the customer a credit for any resulting downtime.
In contrast, the situation when leased equipment breaks down isn’t quite so straightforward. Often, leased-out equipment is under a manufacturer’s warranty. So the equipment maker may be responsible for repairs, much as if the company leasing the gear had simply bought it. And there may be extended warranties available when the lease is signed, as with any expensive capital purchase.
Interestingly, some big users of test instruments are adopting practices that blur the distinction between equipment that is owned and that which is only on-site temporarily: They are using equipment rental firms to manage instruments the company already owns. The reason is that large engineering firms sometimes find themselves with a warehouse full of test equipment they’ve acquired over the years. In an effort to get better use of such stockpiles, they sometimes find it beneficial to have an outside company manage the operation, which is where rental companies come in.
Explains one industry insider, “Particularly in aerospace, companies may buy instruments for a military project where the contract doesn’t permit the test equipment to be shared with other projects. So there is a lot of equipment that just ends up being shelved until somebody does the right paperwork.” Rental firms will keep track of such instrumentation for a monthly fee. The fee usually covers not just storage but also calibration, repair, and other maintenance issues.
All rental firms can buy the same instruments for roughly the same prices. You might wonder how these firms compete with each another. One way, according to industry insiders, is by focusing on specific industries. Concentrating their efforts on specific industries helps rental firms be top-of-mind when the need for an instrument arises.
“After a time, you establish a base of customers with whom you have an incumbent mentality,” says one industry insider. “A lot of customers are loyal because they have worked with you in the past and know there’s a high likelihood you’ll have the instrument available that they need.”
The thought, at least in the traditional rental industry, is that these sorts of close relationships between rental firms and their customers may make online instrument exchanges less compelling. “Right now instrument users are relatively close to the rental companies. They already know how to shop for instruments, and they know how to play one rental firm off against another. Big companies have buyers who call around and get the best deal. So to some degree, the online instrument exchanges are trying to the place of the buyer in the instrument acquisition process,” says an industry insider.
One thing for sure: The process of renting an instrument online is quite different from working with traditional rental firms. The equipment on offer for rental can be quite varied as well.
For example, consider the equipment available from Kwipped.com which describes itself as a B2B equipment rental marketplace where organizations rent specialized equipment from a network of pre-sourced suppliers. The Kwipped site carries not just electronic test equipment but also lab gear, light construction equipment, AV and photographic equipment, as well as surveying instruments, to name just a few categories.
People who pick instrumentation from the Kwipped site aren’t renting it from Kwipped; they are renting from a supplier that Kwipped has vetted. “We have standardized the rental contract so once an organization approves it for one supplier, the same contract can be used for other suppliers without having to get internal approval every time. It works a bit like the Amazon store,” says Kwipped CEO Robert Preville.
As Preville explains it, the process of renting through Kwipped usually starts with a renter putting in an RFQ (request for quote). Kwipped matches the test gear spelled out in the RFQ with suppliers in the same geographical area. Though this may sound cut and dried, Preville says the renting process tends to be interactive; the Kwipped site lets renters and suppliers shoot questions back and forth about specifics of applications and instruments. Suppliers often make suggestions about what instrument to use, Preville says, because users sometimes don’t have the best information about what instruments handle specific needs best.
The Kwipped site handles many of the logistical details involved in a rental and has automated the pricing process through a proprietary quoting engine, Preville says. For example, the site factors in items such as whether renters are required to have specific amounts of liability insurance, the replacement value of the equipment, as well as the means of shipping equipment back and forth.
The fact that Kwipped renters and suppliers never actually talk to each may make the process sound a bit free and easy, but make no mistake: The instruments going through the Kwipped site are handled through formal business transactions, not through informal swapping. “There is a lot of discussion in the media about the sharing economy,” says Preville. “We don’t really but into that idea because, at the end of the day, a lot of money can be lost if the equipment isn’t properly maintained and applied. We make sure the suppliers on our marketplace have domain expertise and can both set up and train users.”
The equipment loaned out by rental firms eventually becomes obsolete. Some rental test equipment has a relatively short life not just because it tends to be used more, but because of technological obsolescence. All in all, that leaves a lot of used equipment that must be disposed of. TestEquity, for example, says it starts selling off electronic instrumentation after about three years of use.
One place rental equipment tends not to wind up is in auctions on eBay. “EBay has a negative connotation in the electronic test world,” says Kwipped’s Preville. “A lot of professional users won’t buy on eBay because you don’t know who you are getting the equipment from. So companies with used equipment to sell often communicate with each other through want lists. And the leasing firms would rather sell equipment in large lots rather than deal with one instrument at a time on eBay.”
Though it tends to stay off eBay, used equipment finds a market through a variety of other avenues. And apparently a lot of it simply collects dust on shelves. “Every rental company as had serious initiatives over the last five years to figure out what to do with their used stuff,” says one industry insider. “By revenue, not a lot of equipment winds up stockpiled because the high-end stuff tends to get sold once it is finished as rental gear. Not much gets scrapped, and it doesn’t cost much to leave it on a shelf once it is depreciated.”
TestEquity LLC |
Kwipped Inc. |