Making cranes great again

It has been a tough slog for the crane industry since the 2008 global financial crisis.

While there have been occasional moments of optimism with growth in some markets, the trend has been one of declining sales.

Steve Filipov recently returned as president of Terex Cranes after a stint at the group’s MHPS division, ending with its sale to Konecranes. “Last year,” he said at ConExpo 2017, “Terex Cranes lost about $26 million. Over my first 100 days, I’ve been putting a plan together to break even by the end of 2017. That’s a massive challenge as we’re forecasting revenues on cranes to be down 8% over this year.

“We have three distinct businesses: mobile cranes, tower cranes and utilities. Our tower cranes and utilities businesses are doing very well; they are profitable and have experienced growth.

“Our problem right now is the mobile-cranes business. That’s where the [need for a] turnaround lies.” Manitex has faced similar challenges. Randy Robertson, director of sales and marketing, said, “Tower crane and crawler markets have been relatively steady but rough terrains and boom trucks really saw a very weak year in 2016.

When oil prices went down, it caught everyone by surprise – even the big oilfield services companies. There was a lot of equipment available that was underused. This was all sold or auctioned and it flooded the market in North America.”

Jack Fendrick, president of Kobelco Cranes North America, stated that the market was, in fact, challenging for the crawler industry, too. “The North American crawler crane market shrank by 16% in 2016. We were fortunate because we gained market share during that decline so we were on par with 2015. I’m forecasting 2017 to be flat with 2016.”

A Trump bump?

In the run-up to ConExpo 2017, manufacturers reported seeing renewed optimism among customers. As President Trump’s inauguration took place, there was a significant rise in the S&P 500.

But was that confidence due to the new president?

For Manitex’s Robertson, there is a link. “With the new government, there’s been a lot of change. You can sense it here; there’s a lot more optimism, a lot more confidence,” he said at the show.

Torben Reher, managing director of Liebherr USA, also sees new confidence. “The mood in the market is that everyone is in good spirits. We expect to see growth. On the crane side, there is big demand; the challenge for the factory is keeping up with demand and getting enough cranes to the US.”

Pat Collins, director of product marketing at Link-Belt, commented, “This is my tenth or 11th ConExpo and it has been the best ConExpo experience I’ve had. This is not because it’s the best market; there have been better, like in 2008. The lead-in was uncertain and a lot of customers were saying, ‘If we get that job…’, but people [ended up] writing orders at ConExpo 2017.

“In 2016, the market was very soft. By the time customers landed at ConExpo 2017, the market was better; they were keen to buy and, perhaps, worried about lead times. It was a great spring – a momentum change in the market.

“I think we’re moving into, maybe, not more confidence but more optimism. People aren’t saying ‘we have the jobs; we need to buy cranes’ but they’re optimistic. They are suspicious about any softness, any changes, that could affect that.” Kobelco’s Fendrick reckons the new administration’s policy positions may have helped.

“What we’re hearing out of Washington now sounds really good. We’re hearing a lot about investment in infrastructure. We’re hearing a lot about corporate tax reduction. We’re hearing a lot about reducing regulations. All of these are good for business,” he commented at the show.

“They are basic business principles and, historically, Republican principles. Excessive regulation diminishes the desire to invest as it makes it hard to make a profit. Excessive taxation reduces the funds to invest. If you can reduce taxes and regulations, it makes for a more business-friendly environment, allowing American ingenuity, the engine of the economy, to flourish, and creating jobs and wealth.”

While Fendrick is clear that a business-friendly government will be advantageous, he doesn’t directly ascribe the renewed optimism in the market to the US president. Indeed, the new-found confidence began before the results of the presidential election were in.

Tadano America’s newly appointed president, Ingo Schiller, stated, “It was another down year in 2016. However, towards the end of 2016, there was a subtle shift. Optimism began to grow a little bit.

“We see our market going up. I think the consensus in the industry three months [before ConExpo] was that we would see 2017 being very similar to 2016. I think after the show, we will see a slight uptick in confidence. Now, everyone expects 2017 to be better than 2016. “[The change in mood] started before the election. It might be a nice catalyst to point to. There is a confidence in the market that wasn’t there six months ago.”

Oil-fuelled

Much of the industry’s struggles in recent years have been tied to low oil prices and a consequent lack of investment in new drilling. Filipov pointed out, “If you look at the fleets that have moved around North America in the past 24 months, you’ve had cranes moving from Canada to the south of the US; from the west to the east of Canada; from the US East Coast to the south. You just have this massive fleet movement.”

There are signs that the worst may be over for the market. Robertson points to the Baker Hughes rig count, a long-standing measure of oil and gas activity.

“We’ve seen a healthy recovery in rig count. We saw rig count bottom out at around 400; it’s now back to more than 700, so it’s recovering.

“Exxon is talking about a $20-billion investment in refineries along the Gulf Coast.”

At the same time, the oilfield services industry has become more efficient.

“Oil is not where it was in 2013– 14 but oilfield service companies have adapted, reducing their costs to complete wells and still making money at a lower oil price.

“The 45–70t boom trucks’ role, though, is in the completion portion. After the oil companies drill wells, in the DUC [drilled but uncompleted] stage, the Halliburtons and other big oilfield services come in to complete the well. That’s where our equipment comes into play: in coiled tubing and wire line services. That’s what gets the well to produce.”

With new rigs working, the future looks a little brighter for those in the sector.

However, the question of what will happen to underused fleets remains. For Manitex, the market shows promise. According to Robertson, “The good news is that the underused crane population has now been flushed out. We’re pleased to see a healthy increase in order rates beginning in December 2016. We’re very optimistic that the trend will continue throughout 2017 and beyond.”

Schiller sees changes in the shape of the market, partly as a result of the increasing attention to costs after years of oversupply.

“The industry itself is changing. It’s far more of a rental business and less of an owner business,” he said. People are trying to be careful with their capital. People talk – not in the crane industry but outside – about the sharing economy. You use the equipment and service when you need it but don’t own it if you don’t have to. People are being much more efficient. There’s been a broad amount of work but the demand for new equipment is not as high as it was in past years for the same amount of end-user work.

“Even with the telecrawlers and rough terrains, people are more interested in renting them. There are still contractors who want to own them but people are owning a slice of their overall need, whether its 30 or 60% and the rest they are handling through rentals.

“We’re seeing more people setting up fleets [of rough terrains and telecrawlers] in order to be able to rent when there is demand. We’re also seeing a shifting market. People are being more financially responsible and doing more analysis, paying more attention to smaller details in their purchases. They’re less attracted to lower purchase cost and more attracted to lower cost of ownership. They’re trying to take a look at the big picture.”

With the market showing signs of a rise, Schiller is not alone in seeing new opportunities.

Liebherr debuted its new range of rough terrains at ConExpo 2017. Reher said, “The first rough-terrain units will be delivered in 2018.

The interest in the product is huge. Customers have been asking us for years, ‘When will you go back into the rough-terrain business?’. North America is traditionally the biggest rough-terrain market in the world.

And, from the Middle East, which is also a huge rough-terrain market, we’ve had many Saudi customers who have made the 13-hour flight here to see the rough terrains. The interest is huge. The demand is there regardless of the economy.

The first production batch has been sold already. For us, though, there’s no correlation between a new product and the overall state of the industry.”

Manitex, too, has launched new cranes targeting this sector: “Products like our M150, which was designed in 2012 to replace an ageing fleet of cab-down rough terrains – the out-of-production Galions,” Robertson commented.

“There are hundreds, if not thousands, of those machines. Now, the refineries need a lot more safety equipment on the cranes: light warning towers, an external override switch, for example. The old crane was just an exposed seat and a lot of levers; now, you have a very ergonomically designed crane with electrohydraulic controls. It has a heated, air-conditioned, sealed cab to keep the dust out. It’s got a full LMI with a display like that of a larger rough terrain. This is a direct replacement for the Galion and the pressure for improvement is coming from refineries.”

After such a long period of challenges, many fleets are beginning to show their age. Some might think that renewal is inevitable. Filipov, however, sounds a cautious note.

“From a maintenance and ROI perspective, a new fleet is better. But with that underuse over the past two years due to the cranes not working as much, that has pushed out the use of the crane by a couple of years. If a crane rental company’s aim was to have a fleet with an average age of eight years, they might now accept ten.

“What we need is stability. When you get a stable oil price above $50 a barrel, some of these projects will get online. When momentum gets into the market, people will spend.”

Home sweet home

The big push for the construction market – not just in the US but around the world – came with the growth of residential construction in the early 2000s. When that bubble burst, it took out not only construction but also large chunks of the banking industry that had provided finance for new homes, as well as cranes.

The residential sector has been developing slowly since 2007. In 2013, residential construction started to exceed 2008 levels for the first time on a per-unit basis and has continued on a promising trajectory.

Robertson said, “Residential and commercial construction is a big part of what drives our industry. We are seeing a recovery from the recession since 2009: it’s been very long.

With regard to the US economy, GDP growth is still 2.0% but we’ve seen a big surge in the stock market and housing starts are up. The hope is to get back to 3.5–5.0% GDP growth.

“Everyone’s very cautious though. They don’t want to get into the situation where mortgage companies finance just anybody.

That’s what got us into trouble before – we overbuilt.”

The resurgent house-building market has paid off for Manitex’s recently acquired Italian subsidiary, PM. “With PM we’ve had good success with new distribution and getting the product better known in North America. It’s not well known here. We’ve got new dealers and some big accounts. The drywall machine, the PM74, has got a good reception in the market for payload and reach: six storeys with a bunk of drywall. In this sector, payload is king,” Robertson added.

As much as drywall is key to much of US residential construction, so tiltwall is key to the country’s commercial sector. Link-Belt took aim squarely at this sector with its new 250USt telecrawler – its biggest yet.

“If you look at what we had introduced before, we had covered well up to 140USt, with a choice of cranes offering ease of transport, and then the reach with the long boom,” Collins explained. “We didn’t see any real drive for anything in the next 60–80USt. We wanted to jump all the way to the biggest practical telecrawler. To us, 250USt was the perfect spot: we could offer the capacity, reach and transportability. It’s about ROI for the customer, and this crane lets them reach a unique spot in the market.

“It’s usable across sectors: for general construction, wind-farm site work and preparation, and pouredin- place tiltwall. Those tiltwall jobs generally want nothing smaller than 200t. The ‘big box’ stores – all the Costcos, Walmarts and Sam’s Clubs – all of that is tiltwall.”

Building bridges

Many in the US view a lack of a workable highway-funding plan as one of the biggest failings of the previous government. While spending on highways by states and the federal government has risen slightly, it is nowhere near the hundreds of billions that many say are needed.

Kobelco’s Fendrick said, “The bridge collapse in Minneapolis in 2007 really drew focus on our ageing infrastructure. We in the industry were aware of it but the collapse brought that wider attention. Unfortunately, politicians have been doing what politicians do; they talk about it in election cycles but do nothing during their governing term.”

According to Filipov, it is a national embarrassment: “We need infrastructure investment. I’m not saying that just to sell more cranes.

As an American, I’m sometimes embarrassed when foreigners and customers come into the country, and see the state of our bridges and the terrible potholes. We’ve got to do a much better job.”

So far, what work has been done has been done on a local level. Stephen Scott is owner of Heavy Iron, a Kobelco dealer in the Carolinas.

He’s seen different approaches by local state governments.

“In the Carolinas and South-East, our state governments have done a bit. There are slight contrasts. North Carolina has spent more than other states on infrastructure using its own state dollars. South Carolina has not done that as much but is doing it now.

“In North Carolina, you go from the mountains to the coast. Bridges are crucial. It’s important that they are safe and secure, and there are just so many of them. It’s brought steady work for our customers in North Carolina and, over the past year, in South Carolina. So, from the state level, funding is OK.”

One cause for optimism is that, after ten years of divided government, the US executive and legislature are now in Republican hands. Filipov said, “With the last government, former president Obama put a bill together with $787 billion that was supposed to go to infrastructure. In the end, 3% of it went to infrastructure.”

Schiller thinks progress may now be possible. “I think with the alignment of the executive and the legislative branches, [a highway spending plan] has the best chance of moving forward now than at any time in the past decade. Over the past ten years, there have been a significant number of checks on congressional spending. Everyone wants to do it, they just have to figure out how to do it and how to pay for it. With the White House, Congress and Senate aligned, it has the best chance. I just don’t know how quickly it will happen.”

“I’m hopeful,” Filipov said. We want to participate in that growth and investment. It will be great for the country and for President Trump; just the size of the infrastructure investment that’s needed – it will create jobs.”

Cut to fit

Many companies have had to make tough choices through the lean years. Terex is in the middle of reducing its production footprint worldwide and paying close attention to its product range.

Filipov explained, “You can’t continue at a $26-million loss. We’re reducing our footprint by 50%. We’ll probably reduce our head count by close to 1,000 team members, 20–30% of total.

“We’ve closed our facility in Jinan, China. We’ve closed the facility in Waverly, Iowa, and moved that production to Oklahoma City. We’re closing a satellite facility in Zweibrücken, Germany, and we’re selling our components business at Pécs, Hungary.

“I’m happy with our progress on rightsizing. On our path to break even, the footprint reduction amounts to about $30 million in savings. There’s an additional $15 million in sales and general administration savings, and then there’s further sourcing and materials savings. So that gets us well on the way back to profitability and a big part of that is the footprint reduction.”

At the same time, some products have been dropped. “Right now, we’re going to have to pick and choose. We were supposed to launch the 300t crawler crane [at ConExpo] but I decided not to bring it. That was because of a lot of things but one of them is I need to choose where to spend those [product development] dollars and this wasn’t a place I wanted to spend them,” Filipov said.

“We looked at getting into this class where we don’t have a product. We’ve got great products above and below 300t. Everyone loves our HC line and our large crawlers. But here, we’re getting into a market we haven’t been in before. If we’re going to do it, we are going to have to beat the competition. And I didn’t get a good sense that was the case with this product.

“On top of that, we would have had to spend a lot more money to get the product up to snuff. We have other priorities, so we’re going to put this aside. And, obviously, the Jinan question came up. What are we going to do? We’ve got an empty facility. With the plan that we had to build those 300t crawler cranes, we couldn’t have attained profitability in China for a very long time.”

For Manitex, that also meant cuts in production. But, with customers returning, the company is determined not to miss out. Robertson said, “We’re already ready to ramp up. We want to make sure we do not find ourselves missing opportunities because of extended lead times. It’s been a buyers market for the past two years. Manufacturers have had inventory, and been begging and pleading for orders.

“Now, we’ve seen an influx of business and we’re trying to react. The tables have turned and we’re trying to catch the business. We want to have the equipment available for our distribution network.

“We’ve brought employees back; we sought them out. We want to have people who we know are familiar with the product and provide good-quality skilled labour.

And then there is material and the supply chain. [Before,] we couldn’t offer them forecasts with any confidence. Now, we’re saying ‘Hey, we need this material; when can you have it?’. Manufacturers are gasping now. We don’t want to see a spike; we want good healthy growth but it has to be manageable. We’re trying to get out in front and manage that.”

Terex, too, is keeping an eye on the future, according to Filipov. “People may ask, ‘What will you do if business comes back?’. If it does – great. We’ll figure it out. We have tools; we can outsource more; we can go to second and third shifts; and we can bring contract workers in. We’ll still have an opportunity to grow, even at the new level of footprint that we’ll have.”

Growing sales

In a country the size of the US, particularly as the market begins to grow, a well-organised and comprehensive sales and support network is key.

When the German giant Liebherr began selling cranes directly, it did so, coincidentally, by taking over from the business established by Ingo Schiller’s father, Heinz Schiller.

Last year, it brought together its US construction equipment businesses in one company, Liebherr USA. Reher says, “With the US being such a big country, customers require a good infrastructure for product support. The growing market share over the years has shown that we’re on the right track but the feedback suggests it will grow even faster with the formation of Liebherr USA. This was really the missing link – to increase the footprint – and with Liebherr USA, we’ve done that now. Most of it was there in existing branches but they were under different divisions.

“With the formation of Liebherr USA, we were able to increase our footprint here. Before, for the crane business, we had two locations, Newport News and Houston; now, we have 12 locations that the crane division can use.

“This is particularly important for the new rough terrains. For all terrains, the users are specialists who are used to flying around the country. For rough terrains, customers don’t want to drive too far to see machines. You should be closer to the customer. This will come in handy with rough terrains.

It’s perfect timing to be back in rough terrains and it coincided perfectly with the formation of Liebherr USA, as the crane guys will be able to use that bigger footprint.” Filipov has been working to build Terex’s relationships with its customers too. “We’ve got to refocus on customers. We haven’t been close enough to our customers and we need to do a much better job of that. I’m leading by example – going out and meeting customers. Over the past 100 days, we’ve picked up some pretty good business.

“We need to get much better at dealer management. We need to get much better at managing our pipeline, understanding where our opportunities are and focusing on growing our share. We’ve implemented a couple of tools so that we can manage our business better.

“We’re getting more robust about sales management. I need to know where to focus my time. When I came in, we didn’t have a lot of visibility. Now, I can see how many machines we’re quoting to a customer, the probability of getting those deals and where we are in terms of getting the deal.”

Kobelco has a long-standing strategy to build its dealer network. Fendrick explained, “At Kobelco, we have a philosophy behind how we look for distribution. We look for owners with direct involvement in day-to-day operations. Stephen does that – he’s very hands on. We look for someone who is very dedicated to service and understands that it is key to our business. The third thing is crane expertise. With all of those in mind, we were very happy to work with Heavy Iron.”

Schiller stresses the importance of strong relationships. “I am a firm believer that you get up in the morning, you go and take care of customers, and you talk to customers. Market share is an end result.

“We want go and take care of our customers. If we have the time and capacity to go to new customers, we will grow our customer base. So we want to run a more efficient operation through building our staff and our skill sets within Tadano America in order to expand our marketing effort,” he commented.

Looking ahead

While Filipov has cut some products from Terex’s range, he hasn’t taken his eye off the future.

He explained, “We’re going to increase our spend in new product development. Our strategy needs to be around keeping product vitality. We could, perhaps, achieve profitability quicker by just cutting a lot of products, but we are not going to do that. You can see a lot of new products here at ConExpo and, over the next 18 months, we’re going to continue with that.

“We’re going to bring out a city-class crane. We got out of that business and we never should have. The teams are accelerating plans to bring a new 45t cityclass crane to market by the end of 2017. It’s a very successful product; we have thousands of those cranes out in the field. Customers want that crane, we listened and we’re going to bring that crane out.

“We’ve also got a new 300t sixaxle crane that we’ll bring out at the end of this year.

“What we’re starting to do now is take some of the Demag technology and bring it into the Terex product. The new 100t rough terrain, T110 truck crane and our all terrains all have the same cab and control system, and they share a lot of the same hydraulics. That leverages the spend that we have on products, and gives the products a more common look and feel.

A driver can be in an all terrain, jump into a rough terrain, and the environment is going to be very much the same.”

Tadano is also looking to leverage technology across its range. Schiller said, “The new 120t rough terrain is the star of our stand. It’s in a front-and-centre position. Dimensionally the same as the 100t, it has most of the same components in the carrier as the 100t and the superstructure of our 160t, with a long pin boom. It’s made up of proven technology and components mated to fill a need between the two-axle 100t and the three-axle 160t.

“Having a modular design definitely helps, as does having a Tadano system architecture for the systems within the crane.

It’s operated very similarly; the service technicians know what the schematic looks like and they know how to deal with it. It speeds everything up,” Schiller adds.

The US crane and construction industry is by no means out of the woods but the future is, at last, not a source of dread.