Fred Gross has experienced the industry’s highs and lows across multiple decades, and he’s seen the extremes from different vantage points.
With a career that’s steered him through manufacturers like KPI-JCI & Astec Mobile Screens, Metso and Weir Minerals, Gross has been around when demand for equipment surges to tremendous heights.
Of course, Gross has also been through some of the industry’s darkest days – the last recession, for example – when brand-new crushing and screening plants, fresh off assembly lines, sat idle for months, if not years, before finding homes somewhere.
Fortunately, 2018 has been one of the industry’s best years in recent memory, and demand for new equipment is at an extremely high level.
“I’ve been in the business 35-plus years,” says Gross, now director of sales and development at IRock. “Probably 20 years ago is when our country started to go over to the portable side. I have seen it stronger, but boy, I’ll tell you demand hasn’t been like this in five to eight years.”
Gross attributes the hunger for equipment to a number of factors. The nation is recycling more aggregate than it ever has, he says, but equipment demand goes far beyond acceptance of recycling.
“There’s increased demand because customers had not purchased equipment for a while,” Gross says. “Portability is necessary because a lot of the major producers have made acquisitions, and they can’t get static applications at all of their pits. The introduction of the foreign tracked machine kicked this all off.”
The market environment
In some cases, demand for portable processing equipment at the moment exceeds the supply available. This is not the case everywhere, but the circumstances are such today that producers and contractors cannot expect to place an order for a major piece of equipment and have it delivered within a traditionally “normal” timeframe.
In fact, some manufacturers experienced such highs for equipment demand during the first half of 2018 that they told customers months ago to plan early for 2019. Some manufacturers require extended lead times to ensure equipment can effectively be delivered. In some cases, manufacturers are at the mercy of their own vendors to provide the necessary components to complete machine builds.
“Demand has been much higher than many expected this year,” says Jody Beasley, vice president of sales and marketing at Screen Machine Industries.
“With that, too, a lot of our suppliers and vendors were caught up in the same logjam. They weren’t ramped up with the expectation that their volume level would be what it is.
“Demand is high, whether it’s pumps or pulleys and idlers – whatever it may be,” he adds.
Van der Graaf, a Canadian-based company that manufactures drum motors, has not necessarily felt these effects. But Matt Lepp, the company’s heavy industry drive specialist, is familiar with this manufacturing challenge of the moment.
“We manufacture a large percentage of our final product, so we’re not really relying on a lot of vendors for specific components,” he says. “But one OEM I visited basically said their lead times are going up because of demand. I’m sure supply plays a factor. Still, when everyone goes back to their customers, customers are actually OK with it. Everyone seems to be a bit stretched.”
Maybe the buying environment isn’t the ideal one for producers and contractors, but the supply challenges some manufacturers face honestly represent a good industry problem. High demand for equipment, after all, is an indicator of the market’s health.
The market environment is forcing some manufacturers to adapt, though.
“Forecast, stock and ask dealers to stock more,” says Mark Krause, managing director of North America at McLanahan Corp., when asked how manufacturers can effectively compete in this high-demand environment. “We’re going to take a few more risks because there are certain pieces of equipment we know are going to sell.”
A company like McLanahan has not stocked equipment in the past, Krause says. Now, McLanahan is asking its dealers to stock equipment.
“My gut feel says most of the industry right now is pretty well sold out for 2018,” Krause says.
Why is this the case? Beasley offers his two cents.
“There are more end users and producers entering the market,” he says. “There are a lot of new guys getting into crushing and screening, which is good for the manufacturers and dealers that handle those lines.”
As Gross alluded earlier, the last recession forced producers to put off capital expenditures. In some cases, producers extended the life of equipment that arguably should have been shelved years earlier.
So the buying environment that emerged last year and extended into 2018 is, in many ways, long overdue.
“There’s some pent-up demand from when guys came through the economic downturn,” Beasley says. “They were running equipment just to hang on or get buy. Now, a lot of that equipment is ready to be replaced.”
Lepp can also attest to a changed mindset among customers.
“A drum motor is a value-added solution,” Lepp says. “In the past, if your older motor went down, you went to the corner motor store and got another motor without improving the system. But we’re seeing a transition of people looking at long-term value of new technology.”
Lepp sees more customers investing in large capital projects and putting the fixer-upper approach behind them.
“Money is being made and there is confidence in the future,” Lepp says. “We’re seeing a lot of large projects on both sides of the border, and we’re getting more interest in the Canadian markets.”
Changing terms
The sheer demand for equipment isn’t the only change that’s taken place in the industry. Manufacturers are experiencing more demand for leases and rentals, as well.
“We’re seeing a lot more of these guys wanting to lease equipment or rent it for a season and give it back,” says Bill Royce, regional sales manager at KPI-JCI & Astec Mobile Screens. “I think that’s going to be trending forward on equipment. We as OEMs are going to see that in the future.”
Beasley agrees.
“With the economy doing so well, that kicks up demand not only for sales but short-term rentals, long-term rentals, you name it,” he says. “It’s a hot market all around in the U.S.”
According to Krause, rentals and leases are up because producers and contractors have simply adapted to the just-in-time world. Producers and contractor views are much more short-term, he says. Renting and leasing equipment allows customers to better keep up with modern technology. Renting and leasing also require less commitment.
“We’re all living in the Amazon world where I can wait until the last minute to buy it,” Krause says. “And if I don’t have it, the next guy will. If I can’t get it fast enough, I’ll pay a little extra for it. Also, when they do get capital they have to show their payback very quickly.”
Additionally, leasing equipment can come with yet another benefit that offers a solution to an industry-wide problem.
“In Texas, the word was if you lease a truck you get an operator with it,” Krause says. “Because they can’t get people to work.”
Leasing equipment offers advantages to manufacturers and dealers, as well.
“We lease because it allows us to moves our assets around and it allows us to stay with current technology,” Krause says. “That was good confirmation of this different mindset. People would hold onto equipment for 30 years. Now, it’s just a different mindset: quicker turnover of assets, quicker movement of assets.”
This is the new norm, Krause adds, and he expects it to stay this way for the next five to 10 years. “It’s changing how we’re looking at our businesses,” he says.
2019 and beyond
Don’t expect the market environment and the subsequent demand for equipment to change anytime soon. Equipment manufacturers expect demand to continue into next year, and some see high demand continuing beyond 2019.
“I’m sure we’re going to see continued growth,” Lepp says. “There are no signs to me of anything slowing down.”
Beasley expects equipment demand to be as strong in 2019 as it has been in 2018.
“From everything I’ve read and from what I’ve heard in industry organizations and meetings, 2019 should be as good, if not a little better,” he says. “We really don’t see a slowdown in the next couple of years.”
Gross does not expect a slowdown, either. “It’s going to be strong for the next two to two and a half years,” he says.