Manufacturers discuss changes and trends in the concrete industry and why rental companies should attend the World of Concrete.
What kinds of changes, developments and trends have you seen in the past year in concrete equipment and what do you expect to see in the coming year?
Von Ruden: There is uniform agreement that the recession has not been favorable to those directly involved with anything related to concrete in North America. While there might be some bright spots with specific road construction projects, generally speaking the market continues to fall victim from a general lack of direction from Washington. Especially in the areas of residential and commercial construction. This has forced huge numbers of small, concrete-related contractors to simply vanish and the corresponding demand for light equipment to become significantly reduced.
If there is any silver lining, it will be in the area of specialization…for both equipment manufacturers and contractors, alike. We believe manufacturers will focus on developing new and innovative solutions to age-old problems. The goal is to allow a contractor to become more productive and efficient as the downward pressure on profit margins becomes even more strained. The key word will be innovation. Old solutions or methods to solving problems no longer offer the same profit margins as when the economy was in a growth mode. The ultimate goal for all members of the economic chain is to first maintain your assets and keep your key employees productive and on the payroll. Then, be in a position for growth when the economy does rebound.
Multerer: Most manufacturers scaled back their R&D efforts over the past few years. We haven't seen much recently in the way of meaningful new developments in concrete equipment. We don't expect to see much in 2012, at least in terms of advancing the state-of-the-art. The most noteworthy trend we have noticed is that manufacturers have been absorbing significant increases in the cost of producing products of all kinds. Most manufacturers have reached their limit; the industry will see significant price increases in 2012.
Carroll: Development of wider ranges of saws and drills with dust extraction ports for collecting concrete dust. Development of special saws and drills with unique features for niche applications. Reduced weight and more power.
Talk about the World of Concrete and what it means for concrete manufacturers. A lot of our readers in the rental market have never attended that show, what are some of your thoughts about it?
Von Ruden: Like every tradeshow, WOC is going through changes in response to the economy. Not only is general attendance down significantly, but the types of attendee have changed. In the growth years, WOC fielded a wide variety of small father and son(s) contractors from the Southern California, Arizona and Nevada areas. We would even meet with a number of Mexican contractors that ventured across the border to attend the show searching for equipment solutions. That has all changed. The small, U.S.-based contractor segment is almost nonexistent as we once knew it. Last year, we only met with a few, larger, Mexican-based contractors. The complexion of the show has changed.
So, what does WOC offer the equipment rental dealer in terms of opportunities? We believe there are many opportunities for the equipment rental dealer to actually learn from the many concrete-related processes that are on display at WOC. Some might apply. Many will not. One good example is concrete polishing. Yes, there are the large concrete-polishing contractors that walk the show floor. But, those same providers typically do not get involved with the smaller-scale, polishing projects that the equipment rental dealer is confronted with. Small contractors and homeowners are intrigued with the concrete-polishing process for basement, garage and even foyer areas, but the option of hiring a large contractor is not a feasible alternative from cost and even electrical power perspectives. WOC presents an opportunity for the equipment rental dealer to learn about new and innovative construction processes, things not found at The Rental Show. It should challenge the dealer to determine if a market does exist for a specific process within its geographic territory. The dealer should ask what is the most cost-effective solution to provide its customer base? The vast majority of rental dealers will probably not make the decision to purchase $75,000 worth of concrete-polishing equipment as a direct result of attending WOC. But, they might elect to explore feasible solutions that utilize their existing fleet. Good example: polishing attachment kits have been developed to work with the standard single- and dual-head surface grinders found at almost every rental center. This solution is not as productive as utilized by professional contractors, but can be a perfect solution for the small contractor or homeowner.
The value of attending WOC or any target-specific tradeshow is to best determine how the rental business envelope can be expanded to increase existing equipment utilization rates. You cannot do that sitting behind a desk. There comes a point when you need to get out and see what the rest of the world is doing.
Multerer: WOC has been our most productive trade show for years. Attendance is good to excellent, even in down years, and attendance is weighted to end users. Manufacturers roll out the full dog and pony show complete with hands-on product demonstrations. Rental folks who have never attended WOC miss the chance to compare and evaluate a broad range of products and business opportunities. That's a bad miss in today's environment.
Carroll: WOC is the largest forum for the manufacturers and contractors to exchange ideas about the latest concrete tools, equipment and materials. It is a learning experience about new applications, new trends and new equipment to get the job done faster and/or safer. The contractors are there to find products that reduce labor costs, maximize efficiency and increase profit. Everyone comes away with new ideas. Manufacturers get first-hand feedback and knowledge about what is important to the customers. Rental dealers can discover new profit makers and be able to buy at show specials when offered.
Steck: WOC is an extremely valuable show for us in Chicago Pneumatic. It is one of the most concentrated collections of direct concrete contractors and decision makers who are serious about finding tools and techniques to optimize their performance. ARA usually runs a few weeks after WOC and that may be why some rental leaders do not attend. But we find that we still see many quality contractors and rental professionals at WOC. For rental leaders who only select one show to attend, I would encourage them to reconsider and attend both because the type of professional networking is a bit unique for each show and we find both extremely valuable. If only one show is possible, then I'd recommend a rotation in attending both but in alternating years.
New advances in technology are of course affecting all kinds of equipment. What kind of technological advances do you see in the equipment you manufacture and concrete equipment in general?
Von Ruden: We see a general direction of equipment design with more emphasis placed upon ergonomics and productivity. Unlike the automotive industry, construction equipment is pretty much a static thing. The challenge for manufacturers will be to make their product lines more dynamic…giving the customer more incentive to retire that old machine to the scrap yard and purchase new equipment. If manufacturers fail to take note and accomplish this task, then what is the incentive or motivation for the rental dealer to invest in something new? More band-aids and bailing wire? That works for only so long. It becomes a convenient excuse not to purchase new equipment. As humans, we use this same excuse when making a wide variety of purchasing decisions.
Customer expectations are also increasing and driving these same advancements. Driving our 1955 Dodge pickup truck is a unique experience, but I'll take my 2011 Ford F150 for any length of drive. I appreciate the advancements in performance, safety and comfort. Our customers expect the same for even something as simple as construction equipment.
Carroll: Dust collection tools. More power with lighter weight.
Steck: In CP we see…
Improvements on the air side: the compressed air is dryer air and the compressors offer higher CFM — bolstering efficiency.
Technical advances on the mining side have facilitated the process for the equipment operators with better information and control.
On the construction tools side there are not significant changes — in part to preserve the stable, reliable technology already in use.
Multerer: While R&D has slowed appreciably over the past few years, considerable effort has been devoted to compliance with state and federal regulations, especially those associated with emissions.
Has 2011 been a strong year for you? What are your expectations for 2012?
Von Ruden: 2011 was an excellent year in comparison to 2009, but there is still room for growth to match prerecession levels. Like most proactive manufacturers, the economic conditions were an incentive to expand export programs. One third of our 2011 sales volume was export related and our goal is to substantially increase that percentage as the North American market continues to search for direction and positive, sustainable growth. We see 2012 domestic market growth to be less than 5 percent. We do not see any real sustainable growth occurring until 2014.
Multerer: 2010 and 2011 have been years of strong recovery for MBW. If we maintain current growth rates, we should be flirting with record revenues in the next 12 to 18 months. Of course, there's no guarantee that the economy is going to cooperate. That said, we recognize that a portion of MBW's increasing revenues have come our way by default. When suppliers fall short of expectation in the support or delivery of product, the supplier able to satisfy expectations benefits.
Carroll: 2011 has been a very strong year for us especially in the industrial manufacturing industries and the energy markets. Commercial construction and infrastructure projects have been coming back steadily in the last half of 2011. We are optimistic that commercial construction will continue to grow unless Europe goes into a deep recession or financial crisis.
Steck: Yes, in 2011 we saw healthy growth. And we see greater opportunity for growth through 2012. The big question mark is for 2013, but we also know that there was good demand for the equipment we brought to market during the past periods of economic difficulty. This allows us to conclude that if we continue to focus on our product quality and our ability to service customers better than any others can, we will feel less of an impact as a result of the economic conditions.
As rental companies replenish their fleets and experience greater demand, are you seeing changes in the kinds of equipment they are looking for? Are they facing changing market needs?
Von Ruden: The answer to that question depends upon where the growth comes from and what is fueling it! While real estate sales continue to climb at a very slow rate, property values continue to decline. Where is the balance needed for positive, economic growth? We see the independent equipment dealer facing some serious decisions regarding fleet. Fleets have aged. Maintenance costs are becoming substantial cost factors. The prudent dealer is looking at past demand history to better prioritize new equipment purchases. The real trick for any business is to know what its customers will want going into the future. The kiss of death for any manufacturer is to walk out into a plant full of old, worn-out and obsolete equipment that will no longer deliver competitive prices. That usually spells eventual ruin. The same thing can be said for an equipment rental dealer. Fleet replacement is a function of utilization rates. The trick is constant evaluation and prioritization.
Multerer: While there are some changes in what the market is calling for, those changes vary market to market. The bigger issue facing rental operators goes to suppliers' ability to respond to customer needs. Product delivery has proven to be a costly problem. Some suppliers have cut back on fundamental services (spare parts, service, engineering, and other technical staff) to a point where their ability to satisfy customer needs has been compromised. Perhaps the most significant change in 2011 had to do with the fluidity of relationships. Equipment dealers connected the dots between their own performance and that of their suppliers. Unfavorable linkages resulted in increasingly transient alliances.
Carroll: We all face changing market needs. Today the changes come faster than ever. Rental dealers are challenged to have the special equipment to handle the concrete and masonry materials used today.
Steck: From our view, we don't see major shifts in the kinds of equipment they are looking for, but it's good to see the healthy replenishment. We believe 2012 will be good for this sector of our customer base as they focus on replenishing with new stock. The replenishment will help to make 2012 a great year for our rental partners, for us and for the end-user, rental customers as well. Everybody wins.
Are concrete manufacturers facing any significant supply issues — raw materials, components, etc.?
Von Ruden: 2011 saw a significant increase in raw material costs, especially alloy steel. The majority of manufacturers have only begun to pass these increases along. We anticipate this trend to escalate as the U.S. dollar continues to fall in value. Lead times for specific components such as engines and some hydraulic components are critical factors in product forecasting strategies. We are experiencing up to six-month lead times for these components. Manufacturers are no longer stockpiling huge inventories just waiting for some future demand. Even in this era of slow economic activity and demand, expect the norm will be longer lead times along with higher prices.
Multerer: All manufacturers are dealing with inventory management issues. It seems everyone in the manufacturing chain has adopted lean and just-in-time methods. The problem is that “lean” and “just-in- time” are relative terms. Even a meager uptick in demand can convert these inventory management schemes into the practical equivalents of “too damn lean” and “not-nearly-in-time.” The distribution chain is rapidly developing a new appreciation for inventory-management capabilities.
Carroll: Deliveries of castings from foundries are very slow. Other components are also long delivery times. Companies are reluctant to hire and make long-term investments in these uncertain times.
Steck: We've seen good signs that U.S. concrete stock prices are up. Raw materials seem far more plentiful than they were a few years ago. Hopefully this is helping across the board. But with our air compressor and drilling equipment, we've experienced some delays from our suppliers, but the delays are not related to raw material concerns.
What are the primary concerns you as a manufacturer are facing in going into 2012?
Lack of direction and leadership from Washington is creating a culture of indecisiveness in our society. People are scared to act because of uncertainty. This fuels the classic definition of a recession: people afraid to spend money.
Raw material and critical component price increases even with reduced demand.
The snowball effect of the European debt crisis and its ultimate effect upon this market, much less the total worldwide demand for construction products in the emerging markets.
The continuous pressure presented by China on raw materials and critical component costs. We have allowed the United States to become a country of people waiting for the Chinese to do something rather than restoring our role as the dominant world manufacturing giant it once was.
Multerer: The global economy is, for lack of a better phrase, a mess. Europe defies prediction in the mid to long term. The U.S. economy is treading water. Pressure continues to build in regard to China's predatory trade policies, especially currency manipulation. Everything is interrelated but not necessarily understood. At current scale, globalization remains something of an experiment. Uncertainty, the inability to project into the future, even the short to mid-term future, is the overreaching concern. Yet, we all have to deal with uncertainty. Life in the construction industry will continue to be an extraordinary adventure for some time.
Carroll: The biggest challenge we have will be to keep up with the demand. We are stocking more tools and products to service our customers quickly. Our gravest concern is about the financial crisis in Europe. It has the potential to drag our economy down if they do not resolve it.
Steck: The single largest area of concern for me is ensuring that our suppliers can keep up with our increasing demand for the components that are used for Chicago Pneumatic equipment. But this is achievable and it's a good problem to have since it is caused by the rise in demand for our equipment that is triggered by more commercial building activity and more restoration that seems to be taking place. We are ready to provide more for concrete professionals in North America.
Dennis Von Ruden, president, General Equipment Co.
Frank Multerer, CEO, MBW Inc.
Tom Carroll, president, CS Unitec
Ellen Steck, president, Chicago Pneumatic and Pneumatech North America