August 1, 2012
As operators defer capital expenditures, iron continues to age, but our exclusive survey shows that operators are beginning to expand capital expenditures.
Repair, rebuild, or replace? It’s the conundrum facing many operators throughout the aggregate industry. Over the last six years, the U.S. Geological Survey reports that estimated production levels of crushed stone have dropped by more than 35 percent, while sand and gravel production has decreased by slightly more than 40 percent. Lower production levels have eased hours of operation on equipment, and many operators — faced with uncertain economic prospects — have deferred capital expenditure investments. The result is an increase in the age of equipment operating throughout much of the aggregate industry.
In an exclusive survey, Aggregates Manager asked operators to tell us about their current mobile and stationary equipment, as well as their capital expenditure plans for the next 12 months (see Chart 1 for equipment replacement values of respondents’ existing fleets). A total of 110 operators completed our questionnaire. It should be noted that responses were given prior to the passage of the surface transportation reauthorization legislation, Moving Ahead for Progress in the 21st Century (MAP-21).
The big picture
According to survey respondents, more than one in four (25.4 percent) plan to increase their budget for capital expenditures over the next year. Of those, 64.3 percent anticipate an increase of 1 to 20 percent, with another 28.6 expecting a 21- to 40-percent jump in budgets. Conversely, 13.6 percent of respondents project a decrease in capital expenditure budgets, with most forecasting a 1- to 20-percent drop.
1 in 2 primary crushers has been in operation for more than 7,500 hours.
Almost 35 percent of haul trucks have logged more than 7,500 hours.
Nearly 1 in 3 excavators has more than 10,000 hours of service.
2012 Aggregates Manager Equipment Survey
Not surprisingly, equipment maintenance is the budget category projected to be most likely to experience an increase in spending. A total of 36.6 percent of respondents expect to spend more over the next year to maintain their equipment, while just 2.2 percent predict their maintenance spending will decrease.
Anecdotally as well as statistically, maintenance, maintenance, maintenance is the mantra of survey respondents. One describes his greatest challenge as “major maintenance that has been deferred due to economic conditions resulting in high capital maintenance requirements.” To address the issue, his operation is applying maintenance items to plant costs and prioritizing repairs. Other common strategies described by respondents include rebuilding equipment at mid-life, rotating older equipment out of production, and spending more time on preventive maintenance. Another respondent notes he is “keeping careful observation of high maintenance items and researching methods, practice, and materials that will extend work life and operating cost of those items.”
In addition to maintenance investments, other equipment categories likely to see an increase in spending include crushers (34.6 percent), wheel loaders (30.5 percent), automation/technology (32.1 percent), and conveyors (32.1 percent). Categories in which respondents say they are likely to decrease capital expenditures include dredges (23.3 percent), Class 8 haul trucks (16.7 percent), and dozers (15.7 percent).
Chart 1. Replacement value of current equipment.
Less than $1 million — 13/5%
$1,000,001 to $5 million — 29.2%
$5,000,001 to $10 million — 13.5%
$10 million to $25 million — 12.5%
More than $25 million — 31.3%
Nearly one in three respondents have equipment fleets valued at more than $25 million.
It is also important to differentiate between day-to-day spending on consumable items such as tires, belts, and wear materials versus long-term capital expenditures. When asked what percentage of capital expenditure dollars will be spent on long-term equipment purchases, 60 percent of respondents said 1 to 20 percent, 25.5 percent said 21 to 40 percent, 5.5 percent said 41 to 60 percent, 7.3 percent said 61 to 80 percent, and 1.8 percent say 81 to 100 percent. Over the next 12 months, nearly 23 percent of these respondents say they expect to shift more of their equipment budgets toward long-term equipment investments.
New vs. used
Although operators are considering ways to upgrade their iron, the solution isn’t necessarily as simple as purchasing new equipment. Historically, financing of used equipment units has outpaced that of new units, and this is especially true in recent years. Increasing the complexity of the procurement process are options such as equipment rentals or leases.
When asked about new equipment purchases planned for the next 12 months, respondents say they are most likely to purchase screen media (42.7 percent), automation/technology (34.5 percent), wheel loaders (29.1 percent), screen boxes (22.7 percent), and conveyors (22.7 percent). The top two categories are intuitive new equipment purchases; screen media are consumable items, while automation is a rapidly evolving equipment category which many operators are using to help lower their personnel costs. With features such as higher fuel efficiency, greater capacities, and improved technology, new equipment purchases appear to have remained the preferred purchase option for those with the financial resources to do so. Some admit, however, to being intimidated by the technology in the latest generation of machinery.
Buying plans for used equipment during the next year vary slightly. Respondents in this category say they are most likely to purchase conveyors (14.5 percent), crushers (13.6 percent), off-highway trucks (11.8 percent), wheel loaders (11.8 percent), and portable plants (10.9 percent). Of these five types of equipment, only portable plants are more likely to be purchased used (10.9 percent), rather than new (9.1 percent).
When it comes to equipment rental or lease, respondents are most likely to exercise these options for off-highway haul trucks (8.2 percent), excavators (7.3 percent), and portable plants (6.4 percent). Responses may indicate the use of rentals and leases for short-term contract jobs, such as road work. In each equipment category, respondents are much more likely to purchase new or used equipment than rent or lease it, although some say they are selling off high-hour machines and supplementing with leases in the short term. Others lease equipment and purchase low-hour units at the end of the lease as a strategy to help defray the cost of new equipment.
We also asked operators about the impact of engine emissions and how Tier 4 Interim and Tier 4 Final rules will influence their equipment buying decisions. Nearly one in five respondents say they plan to purchase earlier versions of equipment before new requirements take effect, while 10 percent say they plan to wait to see how it performs in the field before investing in new engine technologies. The vast majority (68.2 percent), however, say necessity, not engine technology, will drive their equipment procurement.
Reliability is the single most important consideration for operators when buying equipment, respondents say. Nearly 93 percent rate it as either “important” or “extremely important” when deciding what equipment they will buy. Coming in at a close second, safety is the next most influential factor for purchase. A combined 89.1 percent of respondents rate it as an “important” or “extremely important” part of the buying decision.
Other factors considered “extremely important” include parts availability (67.3 percent), dealer service (63.6 percent), and production capacity (57.3 percent).
Factors considered “not important at all” are a bit of a surprise. Operator comfort (7.3 percent), fuel efficiency (6.4 percent), equipment manufacturer (5.5 percent), warranty (5.5 percent), and dealer service (5.5 percent) are all listed among the factors having the least influence over purchasing decisions.
Table 1. Operator spending intentions for the next year.
Spending Spending Spending Stayed
Increased Decreased About the Same
Automation/Technology 32.1% 4.8% 63.1%
Breakers 12.3% 12.3% 75.4%
Class 8 Haul Trucks 7.4% 16.7% 75.9%
Conveyors 32.1% 9.5% 58.3%
Crushers 34.6% 14.1% 51.3%
Dozers 15.7% 15.7% 68.6%
Dredges 13.3% 23.3% 63.3%
Drills 21.4% 9.5% 69.0%
Equipment maintenance 36.6% 2.2% 61.3%
Excavators 16.7% 12.8% 70.5%
Off-highway haul trucks 25.7% 7.1% 67.1%
Portable plants 19.4% 12.5% 68.1%
Scales 23.7% 13.2% 63.2%
Screens (boxes) 22.9% 7.2% 67.1%
Screens (media) 26.6% 3.8% 69.6%
Ticketing equipment 24.6% 10.1% 65.2%
Trailers 7.7% 10.8% 81.5%
Truck maintenance 17.1% 6.1% 76.8%
Washing/classifying equipment 20.8% 4.2% 75.0%
Wheel loaders 30.5 % 7.3% 62.2%
The feedback on fuel efficiency, in particular, is in contrast to anecdotal responses in the survey. When asked about their biggest equipment challenge, numerous respondents cite fuel efficiency. To cope, solutions mentioned by respondents include reviewing production capacity and right sizing the machine to the application, researching fuel options, eliminating idling time, and buying more fuel-efficient units.
Based on responses to this survey, it’s clear that many operators are scrutinizing all equipment-related spending and looking at ways to squeeze as much value as possible from their iron. For many, that means extending the number of hours on equipment and boosting in-house and dealer maintenance regimens. As the age of equipment in the aggregate industry continues to grow, operators are keeping a close eye on cost and analyzing when it’s a better bet to replace rather than repair or rebuild.