At the annual awards ceremony of European crane federation ESTA in Amsterdam, ESTA president Christian-Jacques Vernazza struck out at manufacturers’ price increases. “Unfortunately, the users have not yet been in a position, up until now, to increase their prices at the same speed level as the manufacturers have been doing it over the last years. We are far away,” he said.
Manufacturers reply that the price increases are due to the increasing price of steel. According to metals trading journal Metal Bulletin, the price of commodity steel alone has risen by than 60% this year.
Crane makers say that steel price rises are now making it impossible to fix a crane price at the time of order. “If you fix a price, and the cost increases in steel and other components rise more than you are expecting, then you have a problem,” said Wolfgang Beringer, Liebherr Ehingen head of sales promotion.
He continues: “We are taking in orders, but we cannot fix a price for a certain limit of time from now on.” Mobile crane maker Liebherr Ehingen and some others are now taking orders that guarantee a customer’s place in the list, but do not fix a price until a later point.
“We include a price adjustment clause in the contracts with our customers,” said Beringer. “This does not have any effect on down payments. The advantage of having real orders (even though price and exact delivery date is not absolutely fixed) is that both customer and manufacturer have planning reliability.”
Other manufacturers, primarily ones who sell only through a dealer network, have found another solution to this problem. Although they take forecast orders, they do not enter them into the production system, and so do not quote a final price. Then, at regular intervals, they allocate cranes for an upcoming period based on dealer forecasts, and/or strategically.
For example, earlier this year Terex Cranes announced that it had stopped taking orders for rough terrain cranes for 2009 until prices are confirmed in August.
“We have three times as many orders as we can sell for IHI-made Terex American crawlers,” Scott Smith, Terex Cranes USA sales director told Cranes Today. “We are taking forecast orders, but not entering them into any kind of production system.”
“Pricing is not the real issue,” he said, “It’s more how many can we build, and can we get the components.”
He said he did not know whether the company was still considering adding a steel surcharge on top of the crane price, as many airlines are doing in Europe to cover increasing costs of jet fuel.
“People have argued that point. In some cases, bigger dealers get less than the full increase. In the past, some customers were not willing to pay the full amount.
“Domestic markets are good because dealers are able to peddle cranes internationally,” Smith said. “Customers are willing to pay [higher prices] up to a point, but just because the market is good you can’t go over the edge with pricing. Most international customers have accepted the increases they have had,” he said.
He said that for the past three years, Terex in the USA allocates machines once a year to dealers based on market share in their territories. Before that, it was first come, first served. International dealers are outside of this arrangement.
US crane manufacturer Link-Belt will request orders from dealers this month for the first half of 2009 with firm pricing, said Brax Snyder, worldwide sales manager. He added that the company will make assignments in August. In January it will ask for orders for the second half of 2009.
Japanese crawler crane manufacturer Hitachi-Sumitomo seems to work in a similar way to Terex Cranes and Link-Belt in the USA. It fixed its prices and 2008-2009 fiscal year allocation in February, said Yasinori Ijiri, Hitachi Construction Machinery Equipment sales manager. Ijiri said that the company allocates machines to markets strategically. It favours frequent customers in stable markets, Ijiri said. “If the market is stable, and they are a frequent customer, they can have a gold card; but not a platinum one. Now, everyone can sell a crane. They are not special. We respect dealers who sell in difficult situations. Five years from now, what will remain?”
The situation at Japanese manufacturer Kobelco is similar. “We are tentatively holding off of accepting new orders for (basically) 2010 production, because of uncertainty of cost increases, and enquiries are much more than our production capacity,” said Tatsuo Maruo, senior director, international marketing department. “We are considering how we can allocate limited machines to each area. But I feel we have to make some decision soon.”
Beringer at Liebherr added that the company is taking steps to make sure orders are bona fide. “We are concerned that customers use purchases to speculate on the market. Therefore we want to make sure that they are really using the crane for crane work and not for dealing,” Beringer said.
Link-Belt is also aware of the issue. “By taking orders in six-month increments, we are limiting the ability to speculate on the market,” Snyder said.
One company that has not changed its order processing rules at all is Liebherr Nenzing, according to marketing department head Wolfgang Pfister. “We have to take the risk, so we don’t artificially limit sales due to raw material pricing,” he said. “The limiting factor is not material costs, the limiting factor is a capacity question,” he adds. Nenzing is building two manufacturing halls to expand production.
Manitowoc-Grove declined to comment for this article, except to say that it was taking orders for rough terrain cranes in 2009. We also were unable to receive comment from Tadano-Faun by press date.
