It’s been a long while since the construction equipment market saw consistent availability and attractive prices. Constraints in production and the supply chain that started during the 2020 economic slowdown of the COVID-19 pandemic have had a long tail in the heavy equipment sector, keeping prices high for used machines. And with a busy summer construction season underway, many fleet managers are hanging on to aging equipment or eating the elevated costs to get the iron they need to do the work they have booked.
the construction sector right now, the thing that sticks out to me is that the activity levels are falling for [sales of used equipment],” says Sam Pierce, sales engineer with industry analyst EquipmentWatch. The analyst firm’s numbers showed a year-over-year drop in construction equipment resale activity of 30.3% in May 2022 (the most recent data available), which is also down 45.6% from the resale activity level seen back in May 2020.
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That could indicate several possible trends, but Pierce says the most obvious answer is fairly clear. “It looks like people are generally holding onto their equipment,” he says, citing the rise in equipment age seen in the last two years, both in resale and at auction. “Production and supply chain issues are slowing things down, and driving up the cost of new equipment.”
But even though equipment is getting snapped up as soon as it becomes available, there is some sign that prices in the resale and auction channels may be stabilizing. EquipmentWatch reported only small increases in equipment values from April to May, 1% for resale and 0.7% in auction. While equipment prices are still noticeably higher than before the start of the pandemic, there may be reasons to believe that they are beginning to plateau.
But some of that stabilization may just be buyers raking over the same generation of equipment from increasingly older model years. The age of equipment in the resale and auction channels is still rising, with resale equipment up 16.9% from May 2021 and up 33% from May 2020. In auctions, equipment age is up 6.7% from May 2021 and up 33.5% from May 2020.
EquipmentWatch also reported a surprising 98.2% month-to-month jump in auction activity in May, but that may just be a quirk of the schedules of the major auction houses, says Pierce.
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Several large contractors have told ENR that equipment availability continues to be their greatest concern, even as ownership costs rise and rental prices increase.
“Specialized equipment, such as drilled shaft equipment, is being sold before it hits the ground,” says David Shier, project executive for joint-venture contractor Walsh/Fluor on the first phase of the Chicago Transit Authority’s $2.1-billion Red and Purple Modernization Program. He says navigating the equipment market today takes advanced planning to make sure the required machines are available, and may even require designing a schedule around what contractors can get their hands on.
Michael Gomez, Walsh Group’s corporate vice president of equipment, says that on some categories of equipment, even getting orders in to dealers and manufacturers has become more difficult as order banks have been closed for longer periods of time.
Equipment auctioneer Ritchie Bros. conducted 24 online auctions—selling more than 34,000 pieces of equipment and attachments—between June 18 and 24. The two largest auctions took place in Edmonton, Alberta, and Houston, Texas, where Ritchie Bros. sold a combined $114 million worth of equipment online for approximately 1,800 consignors.
“As expected, we continue to drive strong pricing for late-model, low-hour equipment and trucks, resulting in a lot of happy consignors,” Chuck Roberson, regional sales manager Ritchie Bros. in Houston, said in a statement.
There has not yet been an equipment need that Gomez and his team at Walsh haven’t been able to fill. Skilled labor to operate the equipment remains a bigger challenge, even as the equipment itself has become more scarce and expensive to fuel.
“In some cases we have increased our life cycles from 12,000 to 15,000 hours, etc.,” Gomez says. “We have not changed our philosophy in the way we procure, or how we determine to purchase versus rent.”
Gomez says Walsh has in some cases decided to go to rental when it has overlapping needs for several projects over a short duration, rather than buy equipment as they normally would. This sometimes has increased the rental duration and cost because of schedule creep on some projects, he explains. Gomez adds the contractor’s biggest issue is that there are just not enough skilled craftsmen to meet the demand due to construction volume in several regions, which has only increased competition for skilled workers.
“I am sure every contractor in Texas, Florida, the Dakotas and Carolinas would all agree,” he says. “Non-union regions are impacted the most by the labor shortage.”
Mike Pranger, senior vice president of Castle Contracting in St. Louis, says there has been no significant relief from the leveling off of commodity prices on materials, equipment or fuel at this point. This has led the firm, which is a civil construction subsidiary of contractor McCarthy, to believe the markets will not get better by the end of the year.
“Our biggest challenge is in the larger earth moving equipment” such as bulldozers and scrapers, he says. “In addition, vendors are less apt to sell equipment, diminishing an already impacted rental fleet, which drives pricing up for purchases.”
In addition to sharing equipment more effectively across Castle’s projects across the nation, Pranger says the contractor is using its project data for forecasting with a longer view to try to mitigate cost increases as well as the long lead-time of equipment procurement.
Pranger said Castle has not experienced much willingness from clients to adjust schedules due to equipment sourcing challenges. Because of Castle’s forecasting, planning and owning an appropriate amount of its fleet, “we have not faced considerable delays or challenges in getting work executed and have been able to solve most of what we’ve faced,” he says.
Walsh’s Gomez says most of the contracts he enters into today are more complex and almost always exclude anything that was not in the bid that is considered annual escalation turned in at bid time. While some states do have two-way relief on fuel costs written into contracts, there’s little relief from other escalating costs.
“The majority of the country is hard bid, no relief if you didn’t have it in your original bid. Same with the rental rates on equipment,” he says.