More and more, the portable storage industry is encroaching on territory that portable building companies staked out for themselves in years past. The move makes sense for portable storage companies; by converting their containers into offices and other spaces where people can work, they arrive first on the job site of any major project and can increase their exposure. Those advantages outweigh the main drawback of earning a lower return on investment for converted units.
But don’t count portable building companies out of the fight. They already have their own strategy to expand their businesses into areas traditionally dominated by portable storage companies. They see an office unit as an “easy sale” to an existing customer, an opportunity to add an auxiliary product by providing a container for temporary storage. The large modular building companies even are developing menus of products for their customers, providing a one-stop shopping opportunity for everything that is used in and around a portable building.
What effect will these maneuvers have on the members of NPSA? It’s not a big deal to convert a container into an office to add value. The payoff is higher rent and more business opportunities created by offering a broader range of products. Therefore, this seems like a good opportunity for the portable storage operator to expand.
But if the portable storage companies increase their product lines and compete aggressively with the portable building operators, don’t expect the portable building industry to look the other way.
Caution: Regulatory Roadblocks Ahead
One way the portable building industry can level the field is if the government starts to more rigorously enforce regulatory requirements. For now, the typical portable storage company owner who fails to comply with the rules gets away with it because his product is used temporarily and very rarely catches the attention of the state or local authorities. Meanwhile, the portable building industry is fairly well-regulated, with licensing requirements and established rules in place nationwide.
The portable building companies seem to comply diligently with the various state and city regulations. Their industry organization, the Modular Building Institute, provides detailed regulatory information for its members in each state of the country. By emphasizing regulatory requirements publicly and bringing them out in the open more frequently, the portable building industry could raise the awareness of both customers and the authorities, creating a higher barrier to entry into their turf. Complying with existing regulations could be too costly for the portable storage operator, thereby keep him out of the portable building industry.
The portable building industry’s argument goes like this: the portable storage companies have no similar retaliatory tactics to use in their efforts to keep the portable building companies from entering their turf. Meanwhile, the portable storage companies have their own challenges with regulatory issues (or lack thereof) across the country. Therefore, one could assume that the portable building companies are better suited to deal with regulatory situations for storage containers. Who knows? This issue has been dealt with more or less successfully on local levels across the country for the last five to ten years, and it is likely that the situation will remain unclear for still some time.
History 101: How We Got Here
If one looks at the two industries, it appears that their backgrounds and cultures could make them more or less apt to deal with regulations. The portable storage industry is more fragmented, consisting of many small local operators and a few large companies controlling around 25 percent of the market. On the contrary, the portable building industry is less fragmented, with a few large companies controlling more than 50 percent of the market.
The portable building industry also seems more mature and more structured. That can be explained by looking at the history of the two industries. First of all, the origin of both products is entirely different.
In simple terms, one could describe the portable building as a demand driven product. The rapid population growth of the 1950s and 1960s created a need for temporary buildings to house school children, workers, soldiers and other individuals. During these decades, entrepreneurs started to build buildings that were easy to move around. Existing building regulations could easily be applied to the new, portable structures. Obviously, new regulations were adjusted to comply with the conditions of these new movable products.
The portable storage container took another route to its market. Shipping lines and container leasing companies had to solve the problem of having an asset—cargo containers—that were not used to their full potential because of the equipment imbalance issue as well as the lower standards required in the portable storage industry. Hence they asked themselves, “We have this strong, stable and mobile product. What do we do with it? Who needs safe, secure and mobile storage?” And so the portable storage industry came about as way of dealing with a residual product. The portable storage industry started to evolve when there were large quantities of containers coming off hire in North America in the late 1980s and early 1990s. Existing regulations for shipping containers were not applicable to this new portable storage industry. Apart from local city ordinances here and there that deal with the nuisances and lack of property tax revenue, there are no norms or standard.
One can see why industries with such different origins have different strengths. The portable building industry is driven by demand and has a comparable product, the permanent structure. The portable storage container just starts to show up in many places around the country and evolves into an industry. Most likely you have been faced with the situation and know that a creative person can think of an endless number of storage applications for a retired cargo container. Needless to say, it is not difficult to understand why there are no rules or regulations for portable storage containers.
The Money Equation
From a financing prospective, it is a challenge with an unclear regulatory situation and therefore financing of containers converted into office space and combination office storage units require additional scrutiny. A good financier should look at the worst-case scenario with any opportunity. “What happens if my customer doesn’t pay and I get the container back?” With a standard 20-foot or 40-foot storage container, there is usually a way to find buyers. The difficulties increase with the size of the fleet that is returned, the location(s) of the units and the utilization level. Needless to say, the container condition and general market conditions have a significant impact as well. However, with an office unit that is not certified for its purpose in a market that requires certification, the challenges are tremendous and the options to dispose of the items limited. Who wants to buy an office container if they can’t technically use it for its intended purpose? The options for the financier is to either move the unit to an area where the requirements are different or convert it back to a storage container at an added cost to an already distressed asset.
The Solution: Specialize
So what is the conclusion of these observations? Looking into the future, I think we’ll see the portable building companies increasing their entry into the portable storage market faster than the portable storage companies enter the portable building markets. Regulations will become more of an issue. This change will have some impact for most NPSA members, with the exception of those who very aggressively try to expand in the direction of a specialized fleet and those who stay away from including converted units in their rental fleet.
We’ll see more specialized products that will be used for unique applications ranging from mobile skateboard ramps to mobile multi-story buildings. One can take for granted that the more complex the product, the larger the need for compliance with regulations and ordinances. In addition, the more complex products will require sophisticated financing at higher rates, but with greater returns for the operator.
It is most likely to the benefit of the NPSA member to educate himself sooner rather than later on the local rules, regulations and consequences thereof for his entire fleet and especially for more sophisticated products. Finally, turn the challenges of regulations and financing into a business opportunity. They are, after all, hurdles that require effort to overcome. Those who don’t will be left behind and those who do will have stronger and more profitable businesses.