SWAP. Many owners are retiring older units and freshening up. (Photo by Nancy Soulliard for ENR)

Machines that contractors buy, rent and lease are in demand again as aging fleets are being supplied with younger reinforcements.

Manufacturing is going strong. "Business is better than anyone anticipated," says Craig Paylor, senior vice president of sales, marketing and customer support for JLG Industries Inc., McConnellsburg, Pa. "We are 30% to 40% ahead of last year." Delivery times for most products are 90 to 120 days, he adds.

The pickup has prices on the rise. The U.S. Dept. of Labor indicates that overall construction equipment prices, which typically creep up 1% each year, rose 2.6% between January and August. The global economy is a factor in the inflation trend. North American construction equipment exports shot up 19% during the first half of 2004 to $4.2 billion, according to the Association of Equipment Manufacturers, Milwaukee.

Domestic contractors also are bulk-ing up, as are consolidated fleet owners such as United Rentals Inc., Greenwich, Conn. With machines averaging 39 months old, United is starting to gobble up new units and charge higher rents, officials say. Between January and June, the firm spent $321.7 million on equipment, up 21% over the same time last year. Its second-quarter rental rates increased 7.9%.

SOURCE. Bureau of Labor Statistics Construction Equipment Prices. Year-to-year percent change for August.

For many contractors, getting machines delivered on time is more of a concern than price. "If you have an immediate need, then you are going to have a problem," says Bob Andrade, vice president of equipment management for Chicago-based Walsh Construction.

The lag time partially is due to a shortfall of components commonly used in construction machines, such as steel plate, tires, hoses and pumps. Many lean-manufacturing-oriented component vendors "have not been able to turn the nut" fast enough, says R. Dale Vaughn, president of OCT Equipment, an Oklahoma City Case/Hitachi/Hamm dealership, and president of the Associated Equipment Distributors, Oak Brook, Ill.

David Ashby, product manager for Bridgestone-Firestone’s offroad division in Nashville, points out that global demand is creating shortages for car, truck and industrial tires. According to U.S. data, tire prices crept up 5% during the first half of the year.

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Steel prices are still higher than last year and equipment manufacturers are catching up. In the spring, JLG imposed a temporary steel surcharge when prices for the material surged. But early this month, it announced a permanent list- price increase of 3%, says Paylor.

Moline, Ill.-based Deere & Co. has imposed similar increases to align prices with its leading competitor, Caterpillar Inc., Peoria, Ill. Executives report "a very strong level of business confidence," says David Reinders, Deere’s chief market research officer. He estimates that shipments will be 30% higher than last year. As for used equipment, Vaughn says the once vast market is in short supply as a result of the new-order crunch.

The long backlogs may prevent some owners from pulling ahead to meet a depreciation tax break set to expire by the end of 2004. Christian Klein, AED’s Washington counsel, says dealers are asking Congress to let buyers place orders this year but extend the deadline to place new equipment into service from Dec. 31 to April 1. "We think that is pretty reasonable," says Klein.