Growing pains1 November 2000
The North American mobile crane market is going through some interesting changes. Phil Bishop reports
The US crane industry enters the new millennium on a downturn. Now that may sound a sour note to open on, but no one is weeping. The market, for both manufacturers and crane owners, has grown spectacularly during the Clinton years and the worst that 2001 will offer, it is widely believed, is a return to the levels of 1998 – a year when all graphs were bursting through record highs. Not a bad place to which to return.
Gross domestic product in the USA has grown for 10 successive years, and by more than 4% for the past four. While there is no real sign of an overall reverse to this healthy situation, demand for durable goods is down. It fell more than 13% between June and July.
In the crane industry, the evidence of growth being checked is that, in general, distributors are now carrying less inventory, fleets are no longer growing and crane purchases are to replace old machines rather than to fuel expansion. While there is still plenty of construction going on and output is forecasted to keep rising, so utilisation is reasonable, rental rates are under pressure. Some rental companies are looking to manufacturers to lease equipment to them, to keep it off their balance sheets, but the manufacturers cannot afford to take the hit. They need outright sales to maintain the attractiveness of their own balance sheets.
The end result is that crane sales were down 18% in the first eight months of the year in North America.
All of this may just be a reaction to six small increases in interest rates since August 1999 and a little political uncertainty over the change in the presidency. Some say that, with construction still booming and with the price of oil high, the market will return to growth mode in 2002 and will rise again for another 10 or 15 years. But there does appear to be a restructuring taking place in the industry.
Maxim and EBITDA
‘Dumb money’, as one distributor calls it, has been flooding into the equipment rental industry over the past three years, funding expansion and consolidation. Venture capitalists looked at EBITDA (earnings before interest, taxation, depreciation and amortisation) in the equipment rental industry and liked what they saw. Now they understand the crane hire industry a little better and realise that any assessment that fails to take account of interest, taxation, depreciation and amortisation is an assessment not worth making. Consequently the ‘dumb money’ is drying up.
Jeff Fenton, chief executive officer of Maxim Crane Works, disputes this analysis, as well he might for Maxim is a creature created by venture capitalist from the acquisition by Bain Capital of Anthony Crane Rental, Carlisle Crane and a host of other crane rental companies. He says EBITDA is still the key measurement that the financial markets are really interested in, and in Maxim’s case this is justified, he adds. The actual depreciation rate of Maxim’s fleet is a mere 4% he says, while the rate shown on the books is four times that. “We sold a range of equipment that was an average of 11 years old and got back 80% of the original purchase price,” he says. “Our book depreciation does not match reality. It is much more aggressive.”
It could be argued that it is in Maxim’s interest to defend EBITDA. It made a reasonably healthy $59m EBITDA on £200m revenues in the first half of 2000, following full year EBITDA of $81m and $61m in 1999 and 1998, but the company is not actually a profitable business. It has made net losses of $7.1m in 1998, $15.7m in 1999 and $8m in the first six months of 2000. Fenton argues that it is not Maxim’s policy to make net profits at the moment. “The strategy is to put money back into growing the business rather than show a profit and pay tax,” he says. “If we wanted to go to net income [as the strategy], I’d change our depreciation policy.”
Maxim estimates that its business now accounts for 20% of the US crane hire market, with its next five largest competitors together accounting for 19%. Rental companies are estimated to account for 80% of hydraulic crane purchase (compared with 40% 20 years ago). What Maxim does, therefore, has a significant impact on the industry and several crane manufacturers attribute the downturn in their sales this year to a cut by Maxim, and to a lesser extent the other majors, in capital spending.
Maxim spent a massive $350m in 1999 – $220m on acquisitions and $130m on equipment. That level of spending is not sustainable, says Fenton. To plan growth more prudently, a net capital expenditure budget of $35m was set for this year. Revenue from selling old equipment will take spending on new kit this year up to $50m. This money has mostly gone on crawlers and towers. Maxim has taken about 20 Manitowocs and has grown its fleet of Terex Peiner tower cranes to about 70 units.
Maxim has also spent $40m on acquisitions this year, taking over Sacramento Crane and Coulter Crane in California, as well as King’s Crane of Cincinnati, Ohio.
The budget for next year will be up again, to between $50m and $100m, including acquisitions. “There is more value in buying companies than in buying new equipment,” says Fenton, “but we will always be buying new equipment.”
Contrary to industry gossip, Maxim has not suddenly stopped buying cranes, but it has reduced its budget back down to a more sustainable level. And Maxim is thinking hard about where that money will be going. Fenton has brought in Anthony Razzano from his previous company GE Capital in the new position of vice president, asset management. Razzano’s sole role is to take a step back and consider the full life costs of the cranes and take out some of the emotion that can sometimes affect crane purchase decision making.
“We are really getting our house in order so that we know the true cost of equipment ownership,” says Fenton. “The smarter we get, the more selective we will be in the equipment that we buy. And we are feeding that information back to the manufacturers.”
Some have interpreted this initiative as evidence that EBITDA is going back out of fashion and that residual value will be a higher priority in purchasing decisions. But Fenton, who has already explained that he does not see depreciation as a problem for Maxim, says that the key issue is return on asset. A used Terex crane may realise a lower resale price than an equivalent model from a competitor, but as it cost less in the first place, the return on asset may be higher, says Fenton. Actually, Fil Filipov, president of Terex Lifting confidently claims that the return on a Terex crane is at least 50% better than any other.
While Maxim has in the past – as Anthony – placed significant orders with Terex, now Grove, Link-Belt and others have forced their way into Maxim’s thinking. “They have got more aggressive on price,” says Fenton, “so the playing field is more level than a year ago.”
It is untrue to say, as some have, that Maxim is no longer buying Terex cranes. In fact it placed multi-million dollar orders just last month for several rough terrains with both Terex and Grove.
Another big crane buyer of recent years (buying big cranes as well as big numbers) is All Erection. While the market this year, across all product types, can best be described as softening, All Erection is actually spending more in 2000 than 1999, says vice president Jack Swan, including big orders with Manitowoc and Grove, plus an order placed last month for 10 units of Link-Belt’s 40 ton rough terrain, the RTC 8040 Series II. These are scheduled for delivery by the end of this month.
However, All Erection is now reaching the end of an investment cycle, says Swan, and next year will not be buying anything like as much.
While the overall market for cranes in North America may continue to run at a high level, any kind of downturn at all is a challenge to manage for publicly quoted companies. Among the manufacturers, Manitowoc and Terex issued statements in September warning that their profits would be below previous expectations, while Grove has well documented problems which threaten its debt repayment schedule, although the actual crane business of the company, aided by the German manufacturing operation, appears back on track. For Manitowoc, which saw its crane sales double from $170m in 1995 to $370m in 1999, and annual operating earnings grow from $3.2m to $64.8m over the same period, the company recognises that a major acquisition is the only way that this growth trajectory can be maintained. A team from the corporate centre continues to apply itself to this goal.
Terex has not had a single order that it considers ‘major’ from any of the larger rental companies in the past 15 months, Filipov says, but he adds that sales are down by less than 15% on 1999 because sales to the smaller companies are strong.
In the late 1990s Terex dominated the North American market for 20 ton and 30 ton RTs. It still has more than 50% of that market, even without selling to the major players, and more than a third of the market for sales of RTs of 50 ton capacity and above.
In spite of its difficulties, Grove still produces more than 50% of all rough terrain cranes sold in North America, according to sales and marketing vice president Dave Birkhauser. Rough terrain cranes make up the biggest market in North America, but while they were 90% of the market in the early 1990s, they now account for just two thirds of all crane sales, while trucks and all-terrains have doubled their market share. The whole crane market, however, expanded significantly during the decade.
Shipments of RTs grew through the mid to late 1990s but levelled out in 1999, and began to fall towards the end of the year. In the first nine months of 2000 they were down about 10% to 15%.
Both Grove and Link-Belt have been busy with new RT product, having given Terex a free run for too long. Terex’s 30 ton capacity RT 230 at one time had a market share as high as 80%. Only now has the competition begun to put up a fight. Strong sales are now being reported by Grove and Link-Belt in the 30 ton class, though many of these may be to the rental fleets of their exclusive distributors.
Grove’s new E series of RTs featured strongly in the May issue of this magazine. The 30 ton RT 530E was launched at Conexpo last year, the 50 ton RT 650E in December 1999 and the 60 ton RT 760E in May 2000. The 640 and 750 are also available in 40 ton and 50 ton versions, respectively.
There has been some comment in the industry that the 650E was brought to market too quickly. Grove’s accelerated product development programme did not allow time to iron out the bugs that field testing usually eliminates, it is claimed. One major customer told Cranes Today that while he had various problems with the 650E, such as hose links between the upper and lower being exposed to the elements, all were simply rectified. For balance, it should be stressed that the same buyer expressed satisfaction with the 530E and 760E models: “They’re great. The operators love them,” he says.
However, Dave Birkhauser denies that there have been any problems at all with the new E series, and he says that they had more test hours on them before coming to market than any other crane that Grove has produced. He says that all the E series RT models have been very successful for Grove, enabling it to grow sales in a declining market. A combination of price reductions, new product and switching to direct selling to the large rental companies have helped Grove to hit back at Terex. “We have aggressively chased market share,” says Birkhauser.
Link-Belt, too, has renewed its efforts in the RT market. It brought out its Series II 30 ton and 40 ton models at Conexpo last year and last month unveiled the 50 ton RTC-8050 Series II, which features the distinctive flat deck carrier design of the other Series II models. The predecessor 8050, launched in 1995, was seen by the manufacturer as a high specification, high price machine. This crane has been re-badged as the RTC-8060, with just the addition of an extra sheave and line of rope needed to make it a true 60 ton model. A kit is offered for sale to owners who want to upgrade their original 8050 to an 8060.
While the 8060 weighs in at 84,000lb (38t), the new 8050 Series II weighs just over 72,000lb (less than 33t).
Terex has responded by adding a sheave to its 50 ton RT, enabling it to re-rate it at 55 ton and re-name it the RT 555.
While the rough terrain market began softening towards the end of 1999, signs of truck crane sales slowing took a few months more to appear.
The lattice boom truck crane market is dominated by Link-Belt, given that Manitowoc has had only limited success with its 777T. While lattice boom truck cranes are considered something of a throwback product by those who prefer the large European all-terrains, Link-Belt is determined to make them ‘fashionable’, to quote sales and marketing director Bill Stramer. Last year Link-Belt brought out the 300 ton rated HC-278H lattice boom truck crane and last month it brought out a Series II version of its 150 ton HC-238. Key improvements on the original 1995 model include a new carrier, new outriggers, a new cab (in fact all Link-Belt truck and crawler cranes have this year been given new cabs), and perhaps most significantly a luffing jib attachment. The HC-238 II has a maximum boom combination of 165ft (50m) luffing boom plus 150ft (46m) luffing jib plus 30ft (9m) fixed jib, according to preliminary figures.
Six orders had been taken for this crane as of 1 October, four with luffers and two without. Florida-based Zeiger took the first unit last month, while Boston-based Baldwin (no relation to the similarly named UK hire company) has ordered two.
When it comes to the more popular telescopic truck cranes, Link-Belt again claims North American market leadership in the 50 ton and 70 ton classes, having responded to Grove last year with a ‘long boom’ version of its HTC-8670, giving the 70 ton model an extra 12ft of boom, taking it to 127ft (39m) when fully extended. It has now shipped about 60 units of this model, the company says. New from Link-Belt in this segment this year is the 60 ton rated HTC-8660, a beefed up version of the 50 ton HTC-8650.
Birkhauser admits that Grove has taken a battering in the truck crane market this year, although the TMS 875, now rated at 75 ton instead 70 ton, “has had a very good year”. This crane is now available with a 125ft four-section boom as well as the existing options of a 138ft five-section boom and a 110ft four-section boom.
Grove has this year brought out the 50 ton and 60 ton TMS 700E truck crane series, featuring the German-style Megaform boom, as reported in the September issue of Cranes Today. Grove plans to launch new 30 ton and 40 ton rated E series truck cranes next year.
Interesting things have been happening in the all-terrain market – certainly a segment in transition. Roland Hammer, vice president of Schiller, the Liebherr distributor, and Heinz Ott, vice president of Dematic Corp., concur that the market has shifted to smaller sized models, into categories previously considered simply unmarketable in North America. The received wisdom used to be, until as recently as two years ago, that the German-built AT product had a market in North America only above 150 US ton (120t/130t), and that for anything smaller the cheaper and more readily available US truck cranes would rule. Today, however, the Euro is at such a low value against the dollar that the price premium for the smaller- to medium-sized ATs (60t to 100t) is now only about 15%, and there are plenty of customers, it seems, willing to pay that.
The timing of the currency fluctuations has been remarkably fortuitous for the German manufacturers, as demand for the bigger machines has now tailed off.
Hammer sees no market for the biggest Demag and Liebherr ATs (the AC 500-1, AC 650, LTM 1500 and LTM 1800). A few were shipped in the late 1990s, but the road regulations in most states makes it very difficult to exploit their value. Now that crawler cranes are so much easier to mobilise than in the past, they are winning favour over the more expensive, big telescopics.
The market for 300t to 400t (400 ton to 500 ton) is “pretty much full”, Hammer says, with replacement purchases being a long way off, since “they don’t recycle as quickly as in Europe”.
Ott agrees, and say that even though the price of the large ATs is the same as it was five years ago (because of currency fluctuations), persuading customers to renew is proving impossible.
“I don’t see a renaissance in the USA at all for the larger hydros of 300 tonnes or more,” says Hammer.
Doug Williams of CP Buckner Steel Erection, who has recently bought a 250t-rated Liebherr LR 1250 and a 400t LR 1400/1, admits to undergoing a mind shift and says that he is now more likely to buy crawlers for steel erection than telescopics because – bizarrely to European minds – they are easier to mobilise. He has also ordered a second LR 1400/1 for delivery in January.
The shift from larger to smaller ATs has meant that dollar revenues have levelled out for Liebherr, but unit sales have risen. This year Schiller is importing about 100 new Liebherr ATs into North America. Hammer sees no downturn ahead and believes that North American crane users are still being converted to the AT concept at a growing rate.
Sales of the 80t LTM 1080/1 are solid, and for more restrictive states a US version of this four-axle model has now been produced to boost sales further. The 1080/1L features a new carrier, increasing the axle spacing between the second and third axles. The first 20 units will be shipped to the USA by January.
Schiller is also introducing the 60t rated LTM 1060, with the fixed counterweight modified to give an 80,000lb gross vehicle weight to make it roadable in most states without a trailing dolly.
Dematic is also improving its performance in North America, increasing its sales of ATs by 25% this year to about 60 units, excluding the 38 Demags that Baldwins of the UK is shipping over by March 2001 for its new Texan subsidiary, Phillips Crane & Rigging. Ott’s target is for a further 10% increase in sales in 2001.
Like Liebherr, Dematic also offers a long version of one of its ATs for the North American market, the AC 100L, and eight of these have so far been sold to North American customers.
Dematic used to sell direct in North America but has this year established a full distribution network: Webb in Denver, Colorado; Owsley/Con-Equip in South Carolina and in Texas; Syracuse in New York; Colton in California; and Equipment Sales & Service (1968) Ltd in Toronto, Canada.
Dematic conducted a survey of more than 100 customers in North America, seeking their opinions on the company and its product. One question asked whether respondents preferred to buy from distributors or direct from the manufacturer. Two thirds said they preferred distributors, because of the quicker response, the closer relationship and the more ready availability of spare parts. One third said they preferred to deal directly with the manufacturer since there was no price mark up from a middle man and they felt that they received better, first-hand, information. The majority ruled, and the switch to distributors was implemented.
Tadano America, which has mostly focused on selling the Japanese-built RTs, is also enjoying success now with the German-built Faun ATs. It sold 20 units of the 60t-rated ATF 60-4 in the USA this year. The main market for this machine seems to be New York City where eight are now at work. Tadano has also sold its first ATF 100-4, a 110t rated AT modified for the North American market, and sold there as the ATF 1300XL, rated at 130 US ton (CT Sep00, p27). As previously reported, the first unit has been delivered to the United Space Alliance at the Kennedy Space Centre in Florida.
Grove sells more ATs in North America than any of the competition – perhaps not surprising given its North American distribution network and its ownership of the former Krupp company in Germany, which produces ATs. Particularly successful this year has been the 100t-rated GMK 5100 which was designed with the American market in mind and so is roadable in every state with the boom trailing on a dolly. Roading restrictions inhibit the success of the GMK 3050, although a number have been sold where they are road legal. Birkhauser also reports that end-user orders have already been received for the GMK 4075, which Grove plans to launch at the Bauma show in Germany next April.
The only question mark against future demand for the technologically more advanced European ATs in North America lies in their resale value compared to simpler American-built product.
Developments in new crawler cranes were reported in detail in the July issue of Cranes Today, though the relative success of these products in North America now becomes hard to judge as official statistics are no longer available for crawler crane sales. Manitowoc decided to stop reporting them to the Construction Industry Manufacturers Association (CIMA) in July 1999 because it feared it was disclosing too much information to overseas competitors. Link-Belt felt compelled to follow suit this year, though would prefer to see the situation reversed.
However, it is unarguable that Manitowoc continues to rule the roost above 250 ton capacities and Link-Belt dominates the sales of smaller models. Link-Belt has, however, sold about 20 units of its top of the range 250 ton crawler, the LS-278H, which it launched last year.
Manitowoc readily admits that sales of its 111 and 222, the 80 ton and 100 ton models formerly branded West-Manitowoc, have “softened considerably”, in spite of replacing the operator cabs with the more reliable EPIC controls. Plans for a duty-cycle crane from Manitowoc have yet to come to fruition, leaving Link-Belt to dominate the duty-cycle and smaller lift crane market in North America. Link-Belt, a subsidiary of Sumitomo, is seeking to reinforce its market position with the launch of new 50 ton LS-108H II and 110 ton LS-218H II models, shown at its CraneFest open house last month (see News). Between these two models is the 80 ton LS-138H II and its duty-cycle version, the LS-208H II, both launched last year.
The big launch for Manitowoc this year was the 250t (275 ton) model 999, which Link-Belt likes to think was prompted by the arrival on the market of its LS-278H.
The 999 has been a success for Manitowoc – 85 orders had been taken by September, on course for the 100th order by end of the year. Sales and marketing vice president Larry Weyers says that the 50th 999 will be shipped before the end of the year. This makes it faster selling than even the 888 which took more than two years to hit 100 sales, while the 777 took three years to reach that mark.
The success of these machines means that while unit deliveries are down this year, revenue is ‘about flat or up’ for Manitowoc Crane’s crawlers, according to Weyers. Group figures, that include Manitowoc Boom Trucks, the new name for the consolidated operations of Manitex, USTC and Pioneer, show that sales of all crane products were actually down for the first nine months of the year, though only by 1.5%, and from a record high level. With the higher margin, bigger models selling well and the smaller models ailing, operating profits were up 3.5% for the nine month period. (Worrying, however, is the 12.5% fall in crane sales in the third quarter of the year (see News.)
The biggest crane built this year by Manitowoc is the fourth unit of the 21000, not pre-sold, which comes out of the factory this month. For future product development, as well as a duty-cycle model, Manitowoc is discussing plans for a series three version of the 777.
American Crane is gradually building market share since its acquisition in 1998 by Terex. General manager Jerry Loughren forecasts that it will sell as many as 75 crawlers next year. Its Japanese-built HC 80, up against Link-Belt’s LS-208H II, claims a 20% share of the 70 ton to 80 ton crawler market.
Shipments begin next month of American’s newest model, the HC 110, designed to be 100 ton capacity, but under testing it was found to be 110 ton. Like the HC 80, it has been produced by IHI but has been designed specifically for American Crane with such features as a Cummins engine as standard. This crane goes head to head with Link-Belt’s LS-218H, and according to Loughren has the benefit of being transportable with the side frames on.
Next year American plans to introduce a 250 ton rated HC 250 in mid 2001, completing a range of hydraulically operated crawlers which also includes the HC 125 and HC 210 (formerly known as the A 100 and the A 1500). American also plans to upgrade the HC 125 from 125 ton to 150 ton.
Demag has sold 12 crawlers to North American customers this year and will have shipped 10 of them by the end of the year. Its biggest customer is Marino which has taken four Demag crawlers this year and has two more on order, including a yet-to-be-launched 1,000t capacity Demag.
Liebherr is also rapidly growing in profile as a crawler crane manufacturer and last month sold two LR 1400s to Bragg Crane Service in California, in competition with Manitowoc’s 2250 Max-er. They will be shipped next February and April.
Kobelco’s most significant sales have been via Europe, to Baldwins, which shipped the cranes to its subsidiary Phillips in Texas, though as previously reported, it has modified its 200t model 7200 for the North American market, badged CK 250 and rated at 250 US ton.
Hitachi’s bid to enter North America does not yet appear to have made much impact. It is marketing its CX series cranes with capacities from 70t to 200t, first introduced in Japan in 1994. Hitachi has shipped more than 12,000 crawler cranes since 1949, and in 1971 introduced the world first fully hydraulic crawler crane, the KH 150. Since then it has sold more than 6,000 hydraulic cranes around the world so it certainly has the experience to be taken seriously as a potential competitor by the established players in North America. However, to date Hitachi has shipped to the USA a single 90t-capacity CX 900, which went to Morris-Shea of Birmingham, Alabama last December and a 70t CX 700 to Newell-Bush in Mobile, Alabama. Hitachi has 30 excavator dealers and is working on sales contracts with some of these.
While the numbers show a clear downturn in demand for new cranes in North America, and a further fall is widely expected next year, both manufacturers and rental companies remain confident that the market remains fundamentally robust. They talk of the market softening and say that they are experiencing a period of readjustment. But that readjustment could be quite substantial. It is clear that there are too many cranes out there. In recent years, manufacturers have responded to the rising market by fighting for the biggest share. They have cut prices, increased output and offered attractive equipment at such favourable terms that buyers have been unable to resist, regardless of whether they really needed it or could even afford it. If some of the manufacturers and venture capitalists are now feeling the heat, perhaps it is their own fault for lighting the fire in the first place.