Aggregates equipment acquisition is on the upswing

Therese Dunphy

June 22, 2017

Time and again, operators have indicated that 2017 is shaping up to be a strong year for the aggregates industry. Through both our monthly Aggregates Industry Outlook polls and our annual Forecast Survey, optimism has been on the rise. And, that trend continues with our exclusive research into equipment acquisition planning. More than 40 percent of respondents to our Equipment Strategies Survey say they will increase capital expenditure spending, compared to 29.1 percent who reported the same expectation through last year’s survey. And, for the first time since our survey debuted in 2012, more than one in 10 respondents expects capital expenditure spending to increase sharply.“Many companies are replacing equipment that they kept longer than normal during the economic downturn,” notes one respondent, while another says, “We are preparing to trade in old plants on new larger capacity plants.”

Bigger budgets

According to survey respondents, 10.6 percent plan to sharply increase their capital expenditures budget during the next 12 months (see Figure 2). This level of anticipated investment is more than double what was reported in 2016 (3.9 percent) and five times what was reported in 2015 (2.1 percent). In addition, more than three in 10 (30.1 percent) say they will increase budgets somewhat, while slightly over half (52.2 percent) say their budgets will remain the same. A combined 7.1 percent say they will have smaller budgets this year — approximately half the number of respondents who reported smaller budgets in 2016.

Among producers who say they will have larger budgets, nearly two-thirds (65.3 percent) say the increase will be between 1 and 20 percent. An additional one-fifth (21.7 percent) say budgets will bump by 21 to 40 percent. Just over 2 percent anticipate that budgets will increase by 41 to 60 percent, while more than 6 percent say they will rise by 61 to 80 percent. Finally, one in 25 (4.3 percent) respondents says budgets will jump by 81 to 100 percent.

Of those who anticipate a decrease in spending, half of respondents say the decrease will be 1 to 20 percent. More than a third (37.5 percent) say budgets will decrease by 61 to 80 percent, while an additional 12.5 percent expect budgets will decline by 81 to 100 percent.

Top equipment on the wishlist

Automation/technology is the category most likely to see additional investment (see Table 1). More than 45 percent of respondents say they expect to spend more on automation this year; an increase of more than 16 percent over last year’s budget expectations.

Anecdotally, operator reaction to this category remains quite mixed. For example, one respondent noted that new technology and Tier 4 engines could be both a blessing and a curse, while another reported that Tier 4 (interim and final) equipment has caused his engine maintenance costs to increase by 30 percent.

Part of the challenge seems to be personnel, both in terms of equipment operators and maintenance personnel. For example, maintenance of onboard technology struck a chord with an operator who said repairs of equipment automation — particularly monitors — is beyond his operation’s capabilities. Another reports that equipment operators are skittish about new equipment. His solution was to put “younger workers with more flexible attitudes” on new machines that featured more technology.

Others tout innovations such as autonomous drills, and equipment with automated repetitive functions as equipment trends worth watching. “Automation lessens the ‘skill’ component required in operating equipment,” one explained.

Hybrid equipment technology proved to be a game changer for another respondent. “The technology enhancements have drastically reduced our tire costs and increased fuel economy. It was a paradigm shift for our company,” he said. “So far, we are extremely pleased with (the new wheel loader’s) performance.”

Of the 20 equipment categories surveyed, respondents indicate that 18 equipment categories are likely to see higher levels of investment than during 2016. In addition to automation/technology, other categories of anticipated higher spending levels include equipment maintenance (+13.9 percent), conveyors (+12.7 percent), trailers (+12.0 percent), and off-highway haul trucks (+7.0 percent). Only two categories, ticketing equipment (-1.7 percent) and dredges (-1.0 percent), expect to experience lower levels of increased spending in 2017 than in 2016.

Looking forward, more than one in four (25.6 percent) respondents say that the percentage of their capital expenditures directed toward long-term investment will grow, while 55.8 percent say it will remain the same and 18.6 percent say it will decline.

When asked about investment in long-term equipment purchases rather than consumable ones, more than half (50.4 percent) of respondents report they will spend 1 to 20 percent of their capital expenditures budget on items such as crushers, screens, classifying tanks, and mobile equipment (see Figure 3).

New vs. used acquisitions

When purchasing equipment this year, most respondents expect to buy new iron. Once again this year, screen media is the equipment category most likely to be purchased new, with 92.5 percent of respondents with procurement plans saying they will buy new rather than used. Other categories of equipment in which operators are likely to buy new include automation/technology (89.5 percent), screens (82.2 percent), ticketing equipment (81.5 percent), and crushers (75.7 percent).

In terms of used equipment acquisitions, respondents who plan to buy say they are most likely to purchase used equipment among the following categories: dredges (54.6 percent), drills (44.4 percent), trailers (40.5 percent), Class 8 trucks (38.8 percent), and portable plants (35.6 percent). Both the dredge and drill categories yielded a higher percentage of prospective buyers who plan to buy used over new.

Equipment rental and leasing continues to make headway among operators. “Our biggest challenge is allocating capitol for growth and expansion when there is so much need for sustaining capital to replace aging equipment,” notes one respondent. To respond to that challenge, the company is using operating leases for most of its mobile equipment to reduce capital requirements.

Among survey respondents who plan to rent or lease equipment, dozers (30.1 percent) are likely candidates for short-term acquisitions. Others include breakers (17.8 percent), off-highway trucks (17.6 percent), and a tie between Class 8 trucks and drills (16.6 percent each).

Brand loyalty?

Equipment acquisitions are all about uptime for respondents to this year’s survey. Once again, they say reliability is the most important consideration when making an equipment purchase. More than three in four (76.4 percent) described it as extremely important — a 10-percent increase over last year. Other top considerations were safety (73.2 percent), parts availability (71.7 percent), and dealer service (71.6 percent). See Table 2.

Another issue that respondents noted was the ability to finance new equipment. This is a departure from the normal trend of banks offering loans when the market is strong, while captive financing steps in when the market is slow. “New equipment loans are difficult to get,” says one respondent. “Banks are more interested in covering themselves than they are in helping out businesses.”

Parts availability also drew numerous anecdotal responses, with multiple operators saying they struggle to find a balance between their own spare parts inventory and the dealer’s. While some are trying to ensure their vendors carry parts for their new equipment, many cite it as their biggest equipment challenge.

Others lamented about service. One notes dealers are slow to provide warranty service while another said that his equipment is difficult to maintain when moving from one area to another due to poor communication between dealers.

While some operators note improving dealer service, it’s clear that many are willing to switch brands to have their service needs met. Over the last three years, the percentage of respondents who describe the equipment manufacturer as extremely important in their purchasing criteria has continued to fall — down from nearly 30 percent in 2015 to 22.8 percent this year.

One respondent summed it up: “There is a lot more choice now when it comes to selecting a quality machine. Whereas in the past, there were typically one or two dominant manufacturers for a particular type of machine, it seems that, in many cases, the other manufacturers have leveled the playing field when it comes to quality. The manufacturer or brand of the equipment isn’t as important a factor now as is the dealer service and parts availability, and the costs of those parts and service.”

About the survey

A total of 113 producers responded to our Equipment Strategies Survey, which was sent out in March. Of those who responded, more than a third were owners or officers and another third were titled executives, production managers, or plant superintendents. The remainder fell into a variety of categories including quality control and technical managers, maintenance managers, and production personnel.

 

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