Indonesia Construction Equipment Rental Market - Strategic Assessment & Forecast 2024-2029

INDUSTRY OUTLOOK

The Indonesia construction equipment rental market size was valued at USD 474.1 in 2023 and is expected to reach USD 794.8 million by 2029, growing at a CAGR of 8.99% during the forecast period. The government in Indonesia is investing in the redevelopment of infrastructure projects, including the expansion of ports, railway lines, roadways, and highways. The Indonesian government introduced National Strategic Projects in the country. The projects focus on increasing economic growth, community welfare, and regional development. There are over 200 projects in National Strategic Projects, ranging from toll road development and new airport construction to broadband enhancement coverage, worth around USD 500 billion. The National Strategic Projects program in the region is expected to propel the Indonesian construction equipment rental market during the forecast period.

In 2023, the Indonesian government planned to invest in the construction of 200 projects and ten programs under National Strategic Projects, with an investment value of USD 407 billion, targeted to be completed by the third quarter of 2024. The 200 projects comprise 56 roads, 57 dams, 11 railways, 16 railways, 15 energy, 16 ports, 12 water and sanitation, two housing estates, eight airports, nine irrigations, one education, one coastal embankment, and one technology. The government’s investment in public infrastructure projects under National Strategic Projects is expected to support the Indonesian construction equipment rental market.

KEY HIGHLIGHTS

• The rental earthmoving equipment accounted for the largest market share of the Indonesia construction equipment rental market in 2023. Rental excavators in the earthmoving segment accounted for the largest share in 2023. Rising investment in housing, port expansion, and public infrastructure projects is expected to drive the demand for rental excavators in Indonesia’s construction equipment rental market.
• The region government's ambitious USD 430 billion investment in infrastructure projects from 2021 to 2024, particularly in transportation (roads, railways, ports), is a significant driver for the Indonesia construction equipment rental market growth.
• Rising coal and nickel extraction demand is boosting the need for heavy equipment rentals.
• Renting equipment reduces upfront costs for contractors, especially for short-term projects.
• The construction sector is a key contributor to Indonesia's GDP, typically accounting for 10% of the total GDP.
• In the third quarter of 2023, Indonesia's economy experienced robust growth, but it slowed more than anticipated to its weakest in two years. The annual GDP expansion was 4.94% in Q3 2023, below the second quarter’s prediction of 5.17%.
• The enhancement of Motorway No. 5 (Ratchaburi-Nakhon Sawan-Phitsanulok), spanning 355 kilometers, involves the transformation of the space into a four-lane expressway to enhance traffic movement and alleviate congestion. This project is slated for completion by 2024.

MARKET TRENDS & DRIVERS

Renting of Electric & Hydrogen Fuel Construction Equipment

Environmental concerns in Indonesia reached new heights in 2023, fueled by the government's ambitious goal of achieving carbon neutrality by 2050. This has sparked a significant shift towards environmentally friendly solutions across various industries, including construction. Traditional, diesel-powered construction equipment has been scrutinized for contributing to air pollution and greenhouse gas emissions. As a result, the demand for electric construction machinery in Indonesia saw a notable rise in 2023. Government initiatives to reduce carbon emissions played a crucial role in this surge, incentivizing companies to explore cleaner alternatives. Further, the Indonesian construction equipment rental market is expected to grow significantly due to a rising demand for electric and hydrogen-powered options.

Surge in Renting of Large Excavators & Dump Trucks

• The Indonesian government has invested heavily in infrastructure projects, including airports, railways, highways, and bridges. This has led to a high demand for earthmoving equipment.
• There has been a rise in mining activities, particularly for coal and nickel. This has driven the demand for large excavators and dump trucks that extract and transport materials.
• The Indonesia construction equipment rental market witnessed growth in the demand for large crawler excavators and dump trucks due to a rise in nickel and coal mining activities in the country in 2023.
• The availability of large equipment is crucial for the construction and mining industries, and the surge in rentals has helped support their growth.
• The Indonesian government is focusing on increasing the use of electric and automated construction equipment, which could positively impact the environment.

Growth in the Mining Industry to Boost the Indonesia Construction Equipment Rental Market

The mining industry was one of the significant contributors to the Indonesian GDP in 2023. Industry accounted for over 5% of it in 2023. According to a report from the Badan Pusat Statistik (BPS), the mining industry witnessed a sharp growth in 2023; the industry’s mineral export value reached USD 5.93 billion, witnessing a growth of 103% as compared to 2022. Also, the iron ore industry recorded the largest growth of 25.78% in the mining and quarrying sub-sector in 2023. The other mining sub-sector grew by 4.79%, and the lignite coal sub-sector grew by 3.64%.

Rise in Infrastructure Investment Boosting the Indonesian Construction Equipment Rental Market

• The Indonesian government aims to invest USD 430 billion in infrastructure development projects from 2021 to 2024, a 20% rise in infrastructure investments from the last investment plan in 2015–2020.
• In 2023, the Indonesian government planned 49 projects, including 33 PPP and 16 non-PPP projects. The 33 PPP projects include 18 road sector projects, four telecommunication sector projects, one electricity sector project, six water supply sector projects, three transportation sector projects, and one energy conservation sector project. A total investment value of over USD 38 billion is planned for these infrastructure projects.
• A rise in infrastructure projects in the region is expected to drive the growth of the Indonesia construction equipment rental market during the forecast period.

Government Investment Under National Strategic Projects

The government plans to invest USD 430 billion in projects from 2021 to 2024, representing a 20% increase from the previous investment plan. Some key projects driving demand for rental construction equipment:

• Toll Road Development: This sector boasts several projects, including Trans-Sumatra, Trans-Java, and Trans-Papua toll roads, requiring earthmoving equipment, cranes, and trucks.
• New Airport Construction: Projects like the new Yogyakarta International Airport and the relocation of the capital city to Nusantara necessitate diverse equipment for various stages of construction.
• Railway Expansion: Plans for high-speed rail and expansion of existing networks will utilize track-laying machinery, excavators, and heavy-duty cranes.

INDUSTRY RESTRAINTS

Rising Building Material Prices Can Hamper Construction Industry

In 2023, fuel and oil prices rose in the Indonesian market. The increase in fuel prices is expected to affect other commodities, including housing and property sectors. It will also affect the prices of building materials such as iron, cement, sand, steel, and brick. Further, the cost of construction projects of buildings for roads, bridges, and ports increased by 9.6%, followed by the cost of installations of electricity, gas, water, and communication centers, which rose by 5.6%. The construction cost of residential building projects also witnessed a growth of 4.2% in 2023.

Shortage of Skilled Labor Due to High Dependency on Foreign Labor

Indonesia has been facing a shortage of skilled labor. The country needs ~113 million skilled workers by 2030 to achieve economic growth in the manufacturing, infrastructure, and agribusiness sectors. Furthermore, the country depends on foreign and cheap labor from Bangladesh, Nepal, and India. According to Caterpillar Indonesia, the improper handling of construction machinery is one of the major challenges facing the Indonesia construction equipment rental market. Also, the COVID-19 pandemic in 2020 and 2021 triggered a shortage of skilled labor in the region. The lockdown situations and insurgence of the second wave of infection further impacted the Indonesian labor market in 2022 and 2023.

Policy to Allow Foreign-Manufactured Equipment

• Government policies have sidelined local heavy equipment manufacturers in Indonesia as they allow imports of used construction equipment into the market, and such factors have impacted the growth of the Indonesian construction equipment rental market.
• There is a surge in government infrastructure projects in the country. Large infrastructure projects are carried out by foreign contractors that import their equipment, both used and new machinery.
• In addition, there are other challenges, such as the free entry of heavy equipment for projects funded by China and Japan.
• Contractors prefer to use construction equipment for infrastructure projects to reduce the overall project cost.

VENDOR LANDSCAPE

• Caterpillar, Komatsu, Hitachi Construction Machinery, Kobelco, Zoomlion, XCMG, SANY, and Volvo CE are leaders in the Indonesia construction equipment rental market. These companies have strong market share and offer diverse sets of equipment.
• HD Hyundai Construction, Liugong, Yanmar, Tadano, Manitou, and Bobcat are niche players in the Indonesian construction equipment rental market. These companies offer low product diversification and have a strong presence in the Indonesian local market.
• The Indonesia construction equipment rental market is primarily dominated by four rental companies owned by the Japanese: Aktio, Probesco Kanamoto, PT Rental Crane, and Coates Indonesia. These companies, including ICC, are actively involved in the Indonesian rental sector.