Construction equipment market to grow - CEA report

The UK’s 3418 Construction Equipment Association attracted a large audience for its annual general meeting. Part of the European construction equipment manufacturer’s body, 3399 CECE, the CEA had a series of high profile invited speakers at the event, which was moderate by BBC reporter Nick Higham. These included 255 JCB chairman Sir Anthony Bamford, 299 Perkins Engines president Gwenne Henricks, 3419 British Bankers Association chief executive Angela Knight and David Phillips, managing director of equipment market analyst Off Highway Research. Outgoing CEA president Peter Howe, managing director of 2300 Komatsu UK, and incoming president Nick Ground, managing director of 3046 GKD Technik, also spoke along with CEA technical consultant Malcolm Kent. Asked about JCB’s continuing manufacturing operations in the UK, Bamford said, “I believe you can manufacture cost-effectively. We continue to re-invest in our UK manufacturing.” While the firm does have a major presence in several other countries, Bamford pointed out that in India and Brazil for example these were established to allow the firm to build its market share locally due to high import tariffs. However Bamford commented that manufacturing’s importance to the UK economy has fallen in recent years. “Manufacturing has gone from 20% of our GDP to 10% in a very short time.” And he said that there has to be a greater encouragement in research and development in the UK as well as investment in engineering training and education. Kent commented on the need for better harmonisation across Europe with regard to road regulations and fuel requirements for construction machines. He said that discussion on harmonising road regulations date back as far as 1988 and it was expected that these would be dealt with by 1993 however even now in 2011 little progress has been made. Entrenched attitudes in various countries have resulted in this stalemate according to Kent, which results in significant extra costs for manufacturers who have to ensure that their machines comply with local legislation.

Bamford said that JCB, like other major equipment manufacturers, has to spend large sums on making sure products comply across Europe. Kent said that firms even have to ensure different stocks of fuel as chemical compositions vary in different countries. The issue of fuel is a thorny one too given the need for clean diesel for use in the latest generation Tier 4 Interim/Stage IIIB compliant machines. Although 3287 EU nations have taken action to ensure the necessary low sulphur fuel is available, there are still questions over storage and the risks of contamination. With regard to the construction equipment market, Phillips said, “It’s been an interesting year and I think we’re going to have a few more interesting years.” Speaking about Chinese manufacturers, Phillips said that he has been impressed with the improving quality of the products from the major firms. He believes these will be close to the performance of the leading Japanese, Korean, European and US brands in terms of quality and performance in the next few years. However Phillips pointed out that Chinese firms will find it difficult to build market share in developed markets such as Europe and North America without strong dealer networks.

The solution in some cases may be to buy existing European firms, such as 269 LiuGong’s recent purchase of Polish dozer manufacturer 3420 Dressta. He continued, “China was almost unaffected by recession.” The country is undergoing an, “…enormous construction boom,” while he added that another construction boom is being seen in India, “It came quickly out of recession after a blip.” The ambitious highway building programme in India will drive the country’s construction industry. “It will be big and fast and it must be completed by excavators and wheeled loaders.” Some manufacturers, such as 257 John Deere and 1170 Sany, are now entering the Indian construction equipment market while others such as JCB and 178 Caterpillar have had a substantial presence in the country for many years. For the developed nations, Phillips said that markets will improve but not on the scale seen before and that Asia will remain the dominant growth area. “In the next three years we will see a recovery in Europe and North America but the landscape has changed.” When it struck, the recession impacted hard on construction machinery sales worldwide. This dropped almost catastrophically from a high of $100 billion in 2007 to just $55 billion in 2009. “I don’t believe we have ever seen such a spectacular turn off. It was a tremendous wake up call for every manufacturer. It was the lack of financing that stopped everything in its tracks and even customers who wanted to buy machines couldn’t get finance.” In Europe, conditions are improving again, particularly in Germany, the UK, France and Italy but Phillips said that this last is a cause for concern. “Italy is a great worry. I think the man at the top is a bit odd and it doesn’t give you much confidence in his economic decisions.” Overall across Europe he commented. “We’re still seeing a patchy recovery and there’s still a lot of debt out there. I’m glad to see that the rental market is recovering and the sector is beginning to buy again. Their fleets are very old now and they’d sold a lot of surplus machines.” With regard to the USA he said that conditions are also improving but he commented, “What has gone into road building has been particularly poor.” Looking worldwide Phillips said, “Everybody saw a recovery last year but it is not what it used to be. We will see by 2014 that the recovery has exceeded the high of 2007.”

However Phillips pointed out that this will not be from the traditional markets of North America and Europe and will instead result from demand in China and India. He said that China accounts for 50% of sales and manufacturing of construction equipment worldwide. He cautioned that the Chinese market will level off and growth will reach a plateau, although this will be at a very high level. “China’s growth is extraordinary. We were expecting a 10% growth and we saw a 40% growth. China will be a strong market in the future.” Phillips said that the 2719 Chinese Government is aware of the risks of the market overheating and, because the authorities have such a degree of control, will endeavour to slow the expansion rate. “I think we’ll see a reduction of 8-10%” Meanwhile the type of machines used in China is also changing. The market used to be dominated by locally made wheeled loaders of comparatively low quality but the Chinese made machines are improving, while demand for excavators is now growing much faster.