An eye to the future

Eastern Europe has not been immune from the global economic crisis and has seen its markets retract like Western Europe and the US. Crane companies, big and small, working throughout the region have felt the impact of this and seen business stumble in recent months.

“All sales almost stopped in the first three months of 2009,” says Frantisek Chalupa from Pragotechnik, the dealer for Manitowoc and Grove models in the Czech Republic and Slovakia. “People wanted to buy but couldn’t get any backing from banks. And those who probably could pay are waiting to see what is coming next.”

“At the moment the market is totally off,” says Stefano Castagna, area sales manager for Italy’s Locatelli. “There is a big problem with the banks as they have stopped any form of investment.”

“We have seen a serious slowdown in construction and many projects have been stopped until better times arrive,” says Mariano Echávarri, marketing manager at Spanish tower crane manufacturer Linden Comansa.

“Latent demand remains strong for housing, infrastructure and energy projects,” says Frans Vanwinkel, Manitowoc’s senior vice president for sales and marketing in the EMEA region, “but a lack of financing and consumer buying power is currently hindering business activities.

“Government-related sectors remain the main driver [for business], such as energy and public works, but residential housing is depressed.”

The downturn has caused acute problems for Eastern Europe’s crane rental market, where declining business is hampering the buying and selling of cranes.

“The crane market has gone down, so a lot of companies are trying to sell their cranes,” says Kestutis Slavinskas, chairman of the board at Lithuanian crane rental firm Mazeikiu strele UAB. “But nowadays the situation is quite difficult, as prices of cranes have gone down.”

“Like anywhere in the world, buyers are more cautious today to buy on debt,” says Tomas Vacek from Czech crane rental firm JVS Cranes. “JVS for example has a tradition to buy cranes for cash, whenever the cash is generated and ready. This year JVS plans to purchase a limited number of tower cranes based on the cash ready in December. The environment is dynamic, prices are squeezed, demand is lower and payments are often delayed.

“We feel the economic downturn on the demand side, which pushes us to go down with our standard rental rate and thus prolong the normal depreciation period of tower cranes.”

Macroeconomic

Wojciech Fait, from Poland’s Zuraw Grohmann, says the effects of the economic crisis differ from country-to-country, with Poland’s macroeconomic climate more positive than its neighbours.

“The situation is completely different in countries such as Lithuania, Latvia or Ukraine, and different in Poland,” says Fait. “In Poland the macroeconomic situation is much better; a positive GDP is forecasted for 2009.”

“The main demand for cranes in Poland was driven by residential construction,” adds Piotr Guzowski, managing director of Polish tower crane firm EFH. “But now, in times of global economic crisis, residential construction is slowing down, therefore the demand for cranes in the lower classes, with a working load up to 120tm, diminishes.

“Difficult access to credit is resulting in less demand for housing. Lower demand for construction materials and services causes a reduction of prices in this area.”

Joop Saan, director of Koninklijke Saan, which has a joint venture operation in Romania with Ruttrans, says the decline is similar in Eastern European countries as it is in Western Europe.

“[In Romania] there has been a sharp downturn like here in Western Europe. There is a big fog hanging around. We’re trying to find the right way through but the fog is a hindrance.

“There are plans and projects but now there is no money. It’s strange times we live in now. How deep will it be? Are we at the bottom? I cannot say.”

Wolfgang Beringer, marketing manager at Liebherr-Werk Ehingen, which has operations in Poland, Romania and Russia, says weakness in local currencies is adding to the troubles in Eastern Europe.

“The problems are increased by the slump of the exchange rates of the currencies in countries like Poland, Russia and Hungary.”

Fait concurs. “In the past six months, the Polish zloty (PLN) currency lost in value and banks considerably limited lending, particularly mortgages. As a result, residential construction suffered a serious downturn of investments that, in turn, contributed to the decrease of demand for hoisting services. The dynamically developing market of tower crane leasing suddenly collapsed. At present, there is a supply surplus of tower cranes.

“The weakening of the Polish currency further negatively affected external equipment funding which caused a major increase of fixed costs and reduced profitability ratings.”

Positive signs

For some, there have been positive signs coming out of Eastern Europe. Linden Comansa has delivered two new models to customers in Croatia and Ukraine. In Croatia, the 8t capacity 11 LC 160 delivered to Zagorje Tehnobeton via dealer MaxiLift is the first it has sold in the country. In Ukraine, it has sold two 21 LC 750 models, the company’s first production crane to have a maximum load capacity up to 48t, to its dealer Rentakran Ukraine.

In the second half of 2008, Locatelli added two dealers to its network covering Eastern Europe, with Interbudtechnica becoming its official agent in Ukraine and Italtechimport Ltd becoming an official dealer in St Petersburg, Russia. Elsewhere in Russia, Potain tower cranes are being employed in the construction of the exclusive $12bn Moscow International Business Centre development in the Russian capital. Contractors working across the development are using the cranes, with crane rental firm Rentakran supplying a number from its fleet. It has supplied a 20t capacity MR 295 H20 luffing jib crane for ENKA’s work on the Eurasia Tower, which will see the crane climb to 202m during construction of the 305m tower; and two cranes to GSK Monolith for work on the central core, including an 8t MC 175 and 8t MDT 178. Contractor Rasen has also put two Potain tower cranes from its fleet to work on the Mercury City Tower; a 10t MD 208 and 8t MD 176. These will be dismantled later this year and replaced by two 16t capacity MR 295 H16 luffing jib cranes.

In Albania, Cargotec’s port equipment business Kalmar has signed a five-year contract to provide equipment servicing and maintenance at the Port of Durres. This covers electric port cranes, mobile harbour cranes, spreaders, reach stackers and workshop machinery.

Durres is the largest port in Albania, handling 80% of the country’s seaborne trade, and the deal is part of the Durres Port Authority’s (DPA) move to become a landlord and see the port change from a cargo-focused entity to a specialised container and ro-ro operator. This will see Cargotec’s role develop into that of a consultative partner for DPA.

“We sometimes think that all the crisis news in the media made the real crisis even worse,” says Chalupa. “Our clients have work to do but feel unsure of the future more than is necessary.”

“In regards to turnover, we have still had 144% growth in the beginning of 2009 [Jan-Feb 2008 vs. Jan-Feb 2009],” says Vacek. “Overall the 2007/2008 growth in revenue was 150% and EBITDA 168%.

“Planning for 2009 was a challenge. Our strategy has been to diversify the risks of local downturn by moving the cranes to new locations. We have done this over the winter 2008/2009 where we have solved the local downturn in normally strong Prague by moving our cranes east and opening new branches in Bratislava and Nitra. Our January and February results and distribution on revenue in regions proves that the strategy is right. We plan similar moves in all geographical directions. It seems that with this crisis we must be much more flexible in moving our fleet. Also we plan to fully restructure the firm to be able to meet the new market requirements. The future is in innovation of our services, all our people know it.”

“In this situation we have plans to sell some cranes and find jobs in neighbouring countries such as Poland, Sweden and Russia,” says Slavinskas.

“It has not been a very busy first three months,” says Saan. “People say they expect it to get better in the coming months. We’re watching the market day-by-day, week-by-week, month-by-month.”

Infrastructure investments are one of the key drivers for business, as are upcoming sporting events such as the 2012 UEFA European Football Championship, jointly hosted by Poland and Ukraine. A report from Eastern European market analyst PMR says that almost PLN95bn (EUR22bn, USD28.9bn) is to be spent on projects related to Euro 2012 in Poland, plus half again on projects in Ukraine.

“Organisation of Euro 2012 and the enormous amount of EU funds are the best things that could happen to the Polish construction industry,” says Bartlomiej Sosna, analyst at PMR and author of the report. “In the upcoming three years, projects related to Euro 2012 will come to the construction industry’s aid and they will provide a stimulus for the industry going forward.”

Echávarri says: “We expect on a medium-long term period that the positive dynamics will come back and the demand for cranes will grow again. There are some countries that can say their situation is not as bad: Poland hosts part of Euro 2012 and needs the stadiums and hotels to be done. Or Romania, whose government received a lot of money from the EU to improve its infrastructure. Or the southern region of Sochi in Russia, home of the 2014 Winter Olympic Games.”

“We expect that in the coming months the participation of infrastructure, power engineering and environmental protection will grow,” says Guzowski. “Euro 2012 in Poland and Ukraine will also bring new investments, in particular the construction of stadiums. This means that the demand for tower cranes in high working load classes, more than 230tm, will increase.”

“Economists see an opportunity to save infrastructure construction from the effects of the crisis since financing sources of many projects are less dependent on the crisis on financial markets as they are based on EU funds,” says Fait. “The conditions affecting the construction industry may change favourably, for example, there will not be any employment constraints that limit construction production.”

Future growth

The opportunities that are presenting themselves, even in times of a global financial crisis, have led crane companies to earmark Eastern Europe as a definite area for growth.

“We regard the area as very important, especially as future markets, as there is a backlog of demand,” says Beringer.

Vanwinkel agrees. “Manitowoc has always considered this region as a key expansion area and as such has set up development plans to successfully grow business in Eastern Europe.

“The current situation impacts short-term growth expectations but does not change the future business potential that this area represents and Manitowoc’s strategy.

“With countries in this area joining the EU, the dynamic demography, the high level of education and the tremendous needs in the areas of construction, infrastructure and energy there are promising factors that lead us to believe that most Eastern European areas have tremendous potential for our industry.

“Once confidence is restored, this area is likely to be among those with the highest growth rate.”