States of happiness13 November 2018
The crane market in North America faces steel tariffs and mid-term election uncertainties. Nevertheless, Julian Champkin finds optimism, even in hard-hit areas.
Go to Seattle and you will find that it is full of cranes. Where America is booming, it is booming, and the West Coast is the prime example.
All along the coast, from San Diego to San Francisco, tower cranes puncture the skyline. The West Coast of course has digital enterprises, from Silicon Valley to Seattle’s ever-expanding Amazon. Texas has oil. “We are Houston-based,” says James Young, of International Cranes and Equipment Exchange. “We have a lot of Texas oil customers and out there it is a different world. Oil is booming in West Texas, and making everything else boom as well.
And that includes prices. All the companies getting oil out cannot get enough workers and are hiring anyone who can pick up a spanner, so prices are going up and up.
It goes as far down the chain as Burger King, who are having to pay $18 an hour to burger-flippers; but as far as cranes are concerned, rental rates for a Rough Terrain are now $1000 a day instead of $200.”
Young acknowledges the fragility of the oil market: “As soon as the price of oil drops these places will become ghost towns.” But for now, West Texas is happy.
“There is a sequence in energy, a cycle there,” says Bill Stramer, senior vice-president, marketing, sales and customer support for Link-Belt.
“In 2014, prices fell from $100 to $50 a barrel. Extraction companies sold a lot of their equipment then. So now that the market price is up, they are having to buy. First they needed lattice cranes: during 16-17, people bought those but did not spend much on all-terrains or truck cranes. Now they are replacing these. Four- or five-axle all-terrains, 110t crawlers, drilling movers: those things are moving now. So all market segments are, basically, building up, some more than others. There is a good replacement cycle.”
But there are patches, indeed areas, of stagnation. Chicago, despite its tower cranes, is one, as is its state of Illinois. If you don’t have oil, and you don’t have digital, you don’t have the two outsize drivers of the economy either. Ken Martineh is vicepresident of the family-run Illinois crane rental company Stevenson Sales and Service. “The state is not sharing the boom” he says.
“There is no spending on infrastructure. The state has no spare money. There is no bridge work; not many roads are going in. Work for lattice-boom crawlers, for bridges, for pile-driving - that work isn’t there.” With 130 machines in his fleet, and around 200 employees, that clearly impacts on the company. “Rental rates are very cautious,” he says. “They are not as high here as in the rest of the country.”
But even in Illinois he has cause for cautious optimism. “Stevenson Sales and Services are dealers as well as renters” he says. “That helps, and gives a sound core to our business.” The company has been adding Liebherr cranes to its fleet. “And recently there has been some upturn in our options level. I anticipate a good fourth quarter 2018 and first quarter 2019.”
And there may be some good news for those in the rust-belt. The steel tariffs introduced by President Trump, controversial as they are, seem to be having an effect.
In the immediate wake of the tariff announcement US Steel announced that it was re-opening two blast furnaces in Granite City, Southern Illinois that had been closed down since 2015.
“That helps in two obvious ways,” says Martineh. “We supply lifting to them; and it gives a boost to jobs and to the local economy.” So far, so good, and exactly the effect the tariffs were intended to produce. The law of unintended consequences, however, also, as always, applies. “Since the tariff was announced, US Steel has raised its prices, twice in succession,” he says. “That is putting pressure on us.”
In the mid-west, Doug Hughes, president of Gunnebo Industries, making crane blocks, sheaves and above-the-hook equipment in Tulsa, Oklahoma, is also being affected by steel prices.
“Business is improving” he says. “It has been a strong year for the mobile crane industry, and we are tracking it pretty well. Three years back things were low; in 2015, oil price took a nosedive. In 2017 there were signs of improvement; in 2018 we are doing well.
“Ultimately, tariffs will have an effect. We make our rigging components in Europe; we make our sheaves in the US, from US steel.
“Since tariffs apply to raw material, not to finished products, the rigging components should be unaffected. But because Chinese steel has become more expensive, no-one is buying, and US steel makers are raising their prices and their lead times. So the price we pay for steel is rising even though it is US made.”
Which Stramer of Link-Belt also finds. “Our concern in 2017 was supplies—that there would be a struggle with global supply of construction machines. At that point steel prices had been flat for five years. Since 2017, steel prices have put pressure on us. It was supply and demand initially, rather than tariffs.”
Link-Belt, of course is one of the few crane companies to manufacture entirely in the US. “Steel and aluminium—we use a fair amount of that.” (Aluminium is also subject to the new tariffs.) “Most of our steel is US made. Our hard tensile steel is imported. So tariffs are impacting us. We have had to move our prices.”
“The tariffs have not affected us,” says James Rex, Liebherr’s sales manager for the East Coast, covering the area from Virginia to Maine. “Liebherr manufactures in Europe, and its cranes are already taxed.” Speaking before the midterm elections, he said “Most of my customers are waiting to see the outcome of the November elections.
“The Trump tax cuts have a very positive effect. We are very busy, sales are very good, well up on last year. Our lead times are longer for three-, four- and five-axle cranes; we would sell more if we had more. Rough terrains are in stock. Everyone is optimistic about the future.”
Liebherr is the exception as far as tariffs go. Even booming California is not entirely unaffected by the tariffs, or the vagaries of the sell-and-buy cycle. Tyler Elliff is vice president of Precision Crane Services, based north of San Francisco.
“In California we have CARB (California Air Resources Board) regulations—our own set of rules for engine standards” he says. The requirements are for modern, low-emission engines.
“So people with crane models dating from the year 2000 have been forced to sell them. The return on investment when you sold was effectively zero. To sell early at the peak of your profits, and replace your crane now that steel tariffs make prices higher, puts you in a trying place,” he added.
It would be a mistake to interpret that as doom and gloom. Sales are more than buoyant. “Boom trucks are the hottest sellers, always pretty popular, and lower priced,” he says. “New and used are in equal demand. Tower cranes are big just now. Everyone is happy with the upturn in the economy.”
Return rates, he says, are stable but capital costs are going up and up. “Customers are expecting higher utilization rates, and long-term utilisation” says Harley Smith, global product director, crawler cranes, for Manitowoc, expanding on the same point.
“They are factoring higher revenue returns into their business plans. The next 18 months look pretty strong for sales, in all sectors. We sell to rental companies and to end users. Boom trucks are leading in growth, but growth is good across the board.
“The US and Canada are well up on last year. Whether it is infrastructure, energy, petrochemicals: all our core areas of focus are seeing a vibrancy, an energy there.
“Utilisation set out for a long time ahead is the story, and no-one seems dispirited about utilisation rates. In the US there has always been an emphasis on rental rates, so everyone would like to see those higher.” Returning to tower cranes, Bill Carbeau, vice president, business development at Comansa, is finding that the US market is strong.
“A lot of new tower cranes have been sold in the past two or three years,” he says. “The tower crane population in the US is currently around 3,000, and luffers make up about 8% of that.”
An example of the largest luffing-jib crane in Comansa’s range, the LCL 700, launched in April 2017 with a maximum load of 64t, is currently one of the 65 or so tower cranes at work in Seattle, the first unit of this type to be sold anywhere in the Americas, north or south. It is working on part of Amazon’s urban campus, which already hosts more than 40,000 employees in the city centre.
“In the US, tower cranes are gaining in popularity, as they are being used in more types of projects than ever before,” says Carbeau. “However, the US still lags Europe in tower crane population, as Europe uses more cranes because of space considerations: in the US, we have room for crawlers. However, times are changing and you will see a tower crane in almost every big city now. Twenty years ago that was not the case. Yet, to keep things in perspective, Spain has more tower cranes than the USA has.”
At present, rental rates on tower cranes are more than satisfactory. “In 36 months, you can pay off the price of a tower crane” he says.
“The target is to achieve 4% of the capital cost as the rental rate per month. Sometimes rates are above that, sometimes below. Fortunately, we have a great product, and the market has been favorable for us.”
The potential for Stateside tower cranes is also illustrated by Wolffkran. The company first entered the US market some years ago, then pulled out. Now they are back again, with two offices, one on the west coast, one on the east, in New York City and San Diego, handling both sales and rentals.
So for tower cranes, as for crawlers and mobiles, business is on the up. Happiness, it seems, is everywhere in the North American lifting world.
Tadano and Manitex: Seeking synergy
The news that Tadano, headquartered in Japan, was to acquire a 14.9% interest in Manitex cranes, headquartered in Illinois, broke in May 2018. Tadano paid $32.6 million for its stake, thus valuing Manitex at almost $219 million. As part of the agreement a director appointed by Tadano was to join the Manitex board.
According to Tadano at the time, the purpose of the share acquisition was to accelerate the globalisation of the company. Koichi Tadano, the company’s president and CEO, described it as a “strategic alliance.” David Langevin, Manitex CEO, used the same phrase.
Tadano has global annual sales exceeding $1.7 billion. It imports finished Japanese-made cranes into North America, while Tadano Mantis is manufacturing telescopic crawler cranes in Virginia, and is a leader in all-terrain and rough-terrain cranes, with around 25% of the US market in the rough-terrain and all-terrain segment. Manitex is a leader in the manufacture and distribution of boom trucks and knuckleboom truck cranes, manufacturing them in Illinois with locations in Minnesota, Texas and Indiana, and in Italy. The product ranges were therefore seen as complementing rather than competing with each other.
There has been speculation that the investment was a preliminary towards a later full takeover. It would not be Tadano’s first US takeover: in 2008 the company acquired Mantis.
For Manitex one benefit of the deal was gaining access to Tadano’s global distribution network. Langevin told analysts that the investment from Tadano will open up an Asian market worth ‘hundreds of millions’ of dollars. The possibility has also been raised that Manitex could use Tadano components in its cranes: “Tadano has some of the best components in the industry, many of which they produce internally, whereas we buy almost all of our components from many independent suppliers,” he said. “We see synergies in distribution and marketing, technology and engineering as well as in component sourcing.”
Tadano America president is Ingo Schiller; and it is he who has been appointed to the Manitex board. Interviewed in September, he said that no decision had been made about the use of Tadano components, and that that was just one of many possible synergies between the two companies that were being explored.
“The investment by Tadano opens opportunities to explore what might make sense” he said. “Manitex International has strong products and divisions. Tadano is looking at the product lines and at opportunities to market them in places where Tadano has strong distribution networks.
“The flipside is that this would also make sense for Manitex and their products. There is enough investment now to explore the ideas.
“There are no hard, firm decisions yet, but the engineering departments and the marketing departments are putting out hundreds of ideas about the opportunities that are out there.”
Asked whether eventual full acquisition was an aim, he said this: “We of course did due diligence before buying into Manitex; we explored what further investment is needed to make to exploit the synergies effectively.” The crane industry, he said, does not tolerate incompetence. “There are a lot of brilliant people in Manitex cranes, and it is a lot of fun.”
A conclusion might be that no-one invests more that $30m without the hope that there will be benefits and future investments.