Viewpoint: US Heavy Equipment Industry Set to Soar in Next Few Years
On March 1, in a deal that was widely reported in business and trade media, Hitachi and John Deere formally ended a joint operating agreement that had been in place for more than 30 years. It was considered the longest and most successful collaboration in the heavy equipment industry.
Under the agreement, the two industrial giants had worked together on the manufacture, distribution and sale of excavators in North, South and Central America. Now the two companies have parted ways amicably and will forge ahead independently.
The Deere-Hitachi deal made news in a heavy equipment market that is worth approximately $200 billion annually and is expected to exceed $230 billion by 2025. What should be noted, however, is that this was not simply the random dissolution of a joint operating agreement. Rather, it is indicative of trends in the industry and the economy as a whole.
The heavy equipment industry is poised for explosive growth around the globe in response to economic and geopolitical developments. The mining sector is seeing a significant uptick in activity driven by demand for lithium, graphene, cobalt, nickel and other components for batteries, electric vehicles and clean technologies.
Further bolstering the mining industry is increased demand for precious metals and traditional commodities such as gold, silver, titanium, copper and other metals around the world, especially in Latin America, Asia and Africa.
In construction, demand for equipment and parts continues to skyrocket as countries around the world begin a new push to update roads, bridges and other infrastructure. Upgrades are especially pressing in the U.S., where roads, bridges, rail and other infrastructure projects are finally starting to receive significant government funding. That will directly benefit the heavy equipment industry, but it also will see logistical issues mount and supply shortages become more acute as the war in Ukraine and sanctions against Russia drive up energy costs in the U.S. and elsewhere.
In the U.S., the industry is seeing some regional consolidation in the Southeast, specifically Georgia. Six of the world’s top 10 equipment manufacturers have identified the state as the new Silicon Valley of equipment manufacturing.
Georgia’s business-friendly climate and a host of strong structural advantages have provided a strong boost to manufacturing and the heavy equipment industry in particular. Georgia provides significant tax breaks for manufacturers and job creators, augmented by a generous state R&D tax credit. The state also offers a skilled labor force, low rates of unionization, a top-tier university and technical college system, a superb manufacturing infrastructure and a world-class transportation system.
While the world economy teeters on the brink of a recession, pummeled by inflation, rising interest rates and war in the Ukraine, which is precipitating energy and food crises, select industries continue to prosper.
The heavy equipment industry has successfully leveraged global economic, infrastructure and geopolitical conditions to considerable advantage. As a result, the industry is poised to continue thriving for the foreseeable future, driven by demand in multiple, only partly overlapping, industries, including mining, construction, energy and agriculture.
States that seek to attract more heavy industry should follow Georgia’s business-friendly example.
