Everything is up when it comes to Construction Equipment today. Take a look.
Construction is up. After taking a sharp fall in late 2007, tumbling for three years and finally bottoming out in the beginning of 2011, construction spending is showing a solid upward trend. In July of 2013 the U.S. Census Bureau reported construction spending topped $900,824 million dollars – not equal to pre-recession spending levels, but solid and steady recovery that is helping rebuild the industry.
Construction employment is up. According to the U.S. Bureau of Labor Statistics, “[E]employment in construction is expected to rise 33 percent by 2020, adding about 1.8 million jobs”. Much like construction spending mentioned above, the growth won’t bring employment in the industry back to prerecession levels by 2020, but the rapid growth is helping the industry regain its footing after the sharp and damaging decline.
Construction equipment is up. Research and Markets, in their “Heavy Construction Equipment Market - Global Trends & Forecast To 2018” report that “[T]the heavy construction equipment market is estimated to witness 8.5% CAGR within the forecast period for infrastructure development purposes. The BRIC countries and emerging economies of Asia-pacific including South Korea, and Australia are leading the growth for this market.” Confidence in the upward construction spend is picking up and companies are investing in equipment to meet their upcoming contracts.
Construction Equipment Leasing is up. According to the online construction publication ForConstructionPros.com, the equipment leasing industry continues in an upward trend. They report that “[T] the Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity from 25 companies representing a cross section of the $725 billion equipment finance sector, showed the overall new business volume for June was $8.6 billion, up 8 percent compared to volume in June 2012. Month-over-month, new business volume was up 15 percent from May. Year to date, cumulative new business volume increased 10 percent compared to 2012”. Funding for equipment is loosening up, making more options available for contractors to expand fleets.
Construction equipment rentals are up. Construction News Tracker reports that “[T]the latest forecast from the American Rental Association Market Monitor shows the equipment rental business continues to outpace the U.S. GDP by four times. Construction rental and consumer spending are driving the market with construction equipment rental forecast to grow over 8 percent this year and more in 2014.” Wells Fargo Equipment Finance, in their 2013 Construction Industry Forecast says that more than half (50.5%) of equipment distributors expect to increase the size of their rental fleet in 2013.
Increasingly contractors are including rental options to supplement their in-house fleets. They are tapping into a new service paradigm, paying for the equipment only when they need it, and allowing the rental house to take on the responsibility to maintain, service and repair the machines. In essence, they are paying for performance (hours used) and not the equipment itself.
Construction Equipment Rental Rates are up. The increase in rental demand is allowing construction equipment companies to increase rental rates. Rental Equipment Register reported that equipment rental rates increased 7 percent in December 2012 compared to December 2011. Rental Equipment Register also reports that in March of 2013, rental rates rose 6.2 percent compared to the same month last year for the rental companies participating in Rouse’s Rental Metrics Benchmark Service.
Construction Equipment Fleet Age is up. Engineering News Record reports that “[M]meanwhile, as rental rates have increased, the age of rental machines has, too. Rental fleets weathered the worst parts of the 2009-10 downturn by letting their machines get older, and fleets reached their high point at about 54 months”. The Rental Report, a monthly state-of-the-rental-industry newsletter by Rouse Services, tracks the age of the construction equipment fleet. In their most recent August 2013 Rental Report the average rental fleet age has come down to about 45 months – considerably less than at the peak of the economic downturn, yet still far above the average of around 36 months that was common a decade earlier.
Even contractors who own their own equipment are extending the life of their company fleets to accommodate tight equipment budgets. Associated General Contractors’ Constructor Magazine cites EquipmentWatch data that shows the average age of resold equipment is between four and eight years, with most equipment sold after five to seven years of use, outlasting the rental fleets considerably.
Construction Equipment Service and Parts Opportunity are up. What does it all mean in terms of equipment parts and service? Opportunity. With construction and construction equipment trends pointing toward growth, equipment OEMs, distributors and rental companies should be gearing up to support a growing global equipment fleet with warranty work, parts sales and performance contracts. Older equipment still in service will need ongoing maintenance, repair and service support, and will be looking for extended warranty contracts or cost plus service agreements. Good fleet managers know that there is money to be made in the operational details of equipment ‘uptime’.
Savvy equipment OEMs and service providers are aligning their service organizations for growth, formulating a consolidated service approach to streamline and optimize aftermarket service and parts operations. This service lifecycle management approach outperforms service teams managed functionally that address individual service processes separately. It brings all functions together – considering all aspects of aftermarket service, service parts, warranty and maintenance to realize true cross-functional benefits. A single system for service optimizes product and service performance, organizing service strategy and delivery around maximizing product performance to yield the greatest customer value and service performance.