By Benjamin Roberts
Heavy machinery and equipment manufacturers have felt the force of the financial downturn, but are aiming to adapt to the new realities of contractors. By Ben Roberts
Heavy machinery and equipment manufacturers have felt the
force of the financial downturn, but are aiming to adapt to the new realities
The heavy machinery and vehicles industry has, in the last
two years, reflected many of the changes and fluctuations taking place in the
construction market generally. As the presence of specialist, expensive
equipment is near-ubiquitous for active projects, the knock-on effect makes
sense: stop a project, stop the machinery orders. Create a hub of project
activity, by contrast – as in the cases of Qatar
and parts of Saudi Arabia
– and the demand seems inexhaustible.
Leading suppliers in the region have altered their business
outlook in line with the changing project landscape for contractors.
One key factor to forthcoming earnings, say some
distributors, is the decision facing contractors to rent, rather than buy,
machinery and vehicles. Choosing to rent would represent a change for many
contractors in the GCC, which historically have owned their hardware.
The duration of a project, perhaps shortened by budgetary
constraints, encourages some contractors to choose short-term rental, suppliers
“If the client has a short duration project and doesn’t have
a maintenance team, then hiring will be better,” said PB Ahmed Mohideen,
assistant general manager-plant manager at Associated Construction &
Investments Company. Speaking at the recent Construction Week Conference in Abu Dhabi, he added: “Contractors in the past [wanted] to show
they have the vehicles in their company, and will be respected by consultants
[for] owning their equipment.”
David Semple, general manager at Manitowoc, one of the world’s biggest
suppliers of lifting equipment, has encountered the same. Also on the CW panel,
he said the project’s time frame was the ‘critical factor’.
“When it is six months or more for tower cranes you can
start thinking of owning,” he said. “Some customers say that they will keep a
core fleet, then whatever fluctuates on top of that for each project, we will
Regarding market activity, Semple said crane manufacturers
typically see a six-to eight-month lag if there is a spurt of new projects or
activity in the region – simply because this is the average time frame for a
building to rise from the ground and require equipment with extra height.
“On the tower crane side it’s been not good for us,” Semple
said of 2010. “In our industry, particularly those on the earth moving side, it
comes down to the mindset of the customers: those who say ‘machinery is not my
area; I just want a turnkey job and all the people involved with it’.”
The Middle East equipment
and machinery rental market reached $420 million in 2009, according to a report
by International Rental News. Through the report added that there is an ongoing
difficulty in obtaining precise figures for “high-growth” markets, this figure
puts the region ninth in the world, far below the $28.11 billion rental market
in Europe, and down significantly against its nearest comparisons Latin America
($695 million) and Africa ($626.2 million).
Despite the high growth of construction in the last decade,
this low position demonstrates the historical aversion to rental in the region.
But as Dragon Krznaric, regional manager at Volvo, told the CW audience, the
shift to rental, “is not quick, but is
Renting provides greater benefits than simply the
convenience of short-term use. Manufacturers will typically have the latest
equipment, with ongoing research and development, meaning contractors will
benefit from hiring the latest products, compared to the ongoing expense of
buying items that may need to be replaced in a few years.
Michael Sagermann, general manager at Atlas Copco, said at
the conference that Saudi
Arabia represented a particularly lucrative
market, as its construction industry had been impacted less than other GCC
nations. “The market fell by about 30-35% in 2009. On a local level Saudi Arabia
saw a marginal drop of 10-15%,” he said. “The plan of the Saudi government to
fund projects, to be able to keep activity, was a good move.”
Suppliers say that contractors have aimed to negotiate hard
on their machinery and equipment agreements, and are seeking a greater degree
of after-sale support. But at the same time the panel had seen an
acknowledgement from customers that the best equipment must be paid for.
“The added value of a local distributor has massively
changed,” said Sagerman. “A few years ago you needed a local distributor to
correspond with, and who would also speak your language. Now, you can go
anywhere, so there is a focus on quality and back-up services. In the last
10-15 years there has been a clear move to quality.”
“You can negotiate harder, but you can’t negotiate forever,”
added Krznaric. “People understand we had variety in the region for some time.
But people understand quality.”