Mediterranean explorers set sail for new worlds

For crane manufacturers and dealers in Southern Europe diversification is a must. Broadening target markets aims to balance the sheer decline in domestic demand recorded since 2008, when the global economic downturn hit Mediterranean countries alike.

Companies have found opportunities overseas, notably in energy and infrastructure projects underway in emerging economies of South America, Asia, Africa and the Middle East. Export deals are coupled with efforts to populate in-house markets that were overlooked during prosperous construction cycles.

The crane market in Spain reveals the current trend in the region. Liebehrr spokeperson Gerold Gobler says exports account for almost 100% of Liebherr’s Spanish branch Industrias Metalicas’ production. Local tower crane manufacturer Linden Comansa experience the same. “It will be difficult to get sales in Spain again because many cranes were sold during the residential boom until 2008. Infrastructure projects trigger some demand, but in any case it’s very low,” says Mariano Echavarri, Linden Comansa communications and marketing manager.

The residential construction sector in Spain dropped from an average of 600.000 houses per year to less than 150.000, and there are not signs of improvement. The glut of unsold property is estimated to be close to one million units.

The stagnation in the market has prompted an intense competition among machinery and equipment suppliers. The market is more difficult for rental dealers because demand for cranes shifted from the bust housing bubble into supporting construction projects in a wide spectrum of industries.

Spanish rental company Agrutrans thrived during the residential boom. Demand from housing projects is now only 10% of the business, which is 30% less than last year. The company currently works in maintenance at industrial facilities with truck-mounted cranes. “The most in demand jobs are for the Fassi XP 800 and the Liebherr LTM 1080 to support overhaul operations, such as the breakdown of an engine in chemical and petrochemical industries,” says Agrutrans executive Alvaro Forniles.

Recovery for the crane market is still a long way off. Data from the 71st Euroconstruct Conference held in Helsinki in June are not promising either. Besides Spain, the construction sector in Portugal and Italy are also experiencing the lowest performance in years. However, a rebound in the market is forecasted to 2013 onwards.

According to Italian research company Cresme, the sector will remain stagnant during 2011, following the steep drop in the value of construction output of 8.7% in 2009 and 6.6% in 2010. In Portugal, the National Institute of Statistics, INE, recorded an 8% decrease in the construction index in the first quarter this year compared with same period 12- month ago. In Spain, the Catalonia Institute of Construction Technology, ITeC, registered new housing output shrunk by 80% against production volume of 2007. Non-residential projects are forecasted to fall 18.5% this year and 6% in 2012.

The scenario is affected by particular economic and political environments within each country, but all key players in the market share similar hurdles: unsold stock of property, a saturated crane fleet, lack of liquidity and funding and credit constraints.

Meanwhile, export deals help many companies to remain afloat. Jorge Cuartero, managing director in Anmopyc, the Spanish Association of Construction Equipment Manufacturers, says companies and businesses should also tackle the crisis by synching up with customers, trends and global demands.

“We must be aware of the need to innovate with more creative products and services and through alternative ways of funding. Innovation also means looking into new sectors and countries to offset any fall in domestic demand and drawing up new agreements and strategic alliances. We should revise our own structures and processes to reduce costs and increase efficiency.”

Spanish makeover
In Spain, companies that have followed Cuartero’s suggestions are doing well. Talgrutrans is a local rental dealer that developed a new business model in the wake of the burst of the residential bubble. The strategy associates cranes with the transport of construction materials as part of a contract.

“Customers request a fixed price for assembly and transport altogether, so we added the latter in our services only to get the rental deal for the cranes. The scheme has worked fine and we have 60% of our fleet hired. We are working with projects related to energy power plants, pre-formed concrete, viaducts and in civil engineer in general,” says Talgrutrans executive Vanessa Perez.

The saturated fleet within the market is another issue to solve. The spiral growth of the residential boom triggered the creation of a large number of enterprises. Axesor, a local research organization, reported that 41.66% of Spanish companies were in the construction industry by 2009. In total, they invested €23b between 2004 and 2007; construction machinery took a fair share of that lot.

“When the residential boom collapsed, Spain turned from being a massive importer of new cranes into exporting loads of used cranes,” says GRComex manager Claudio Rubi. The company specializes in exporting used cranes and thus his business is now flourishing.

“I sell to clients from all over the world, but most requests come from Asia and Latin America. In terms of demand, the models that are getting more sales are Liebherr telescopic cranes of 55t and 90t as well as Demag AC 180 and AC120.”

Demand for used tower cranes is yet a reality in Spain, albeit there is a tight price competition from Chinese manufactures that are gradually entering the market. Tecnogruas manager Daniel Romero says: “Latin America used to be a natural market for us, but demand has declined due to the strong value of the euro. Another factor is the growth in Asia where there are crane manufacturers that compete with lower prices.”

Linden Comansa marketing manager Mariano Echevarri agrees. Although he recognizes the Spanish market has always favored smaller tower cranes, he says the trend is changing. “You could find tower cranes of 5 tons of maximum load, because it was mostly used in residential projects. However, larger capacity cranes the likes of 24, 32 or 48 tons are hard to find and there is an opportunity in the market. These are often requested for infrastructure projects.”

The market for mobile crane is not fully fertile. Juan Perez Gallardo, commercial department executive at the Spanish branch of Terex, says they had sales last year, but in 2011 they haven’t got any demand. “We sold 30 new cranes and 300 old units in 2010; around 10 cranes for energy projects. The more in demand types were between 80 to 200 tons all terrain models AC 80-2, AC 160, and AC 200-1. These were mostly from customers that want to renovate their fleet.”

Any change in sales figures depend on the country’s economic recovery. Projects that are already assigned to contractors, like the high-speed motorway connecting Portugal and Spain, are postponed due to lack of funding; projects which are pending allocation are suffering delays for the same reason. Minor domestic demand comes from ongoing private industrial and infrastructure projects where cranes with major capacity are needed.

Energy in Portugal
The outlook for Portugal is heavily reliant on overcoming the country’s financial crisis. The Portuguese Technical Institute for the Construction Industry, ITIC, reported building permits fell from around 100 thousand in the beginning of last decade to around 20 thousand dwellings a year. As in Spain, resuming infrastructure projects on hold for lack of funding are key for the local crane industry.

There are projects underway, many are viaducts under PPP schemes, but their full construction is threatened by financing problems. In the energy sector, the main projects are related to the construction of 10 dams as well as wind farm initiatives aiming to decrease the country’s energy dependence.

Grupo Vendap is a Portuguese construction equipment rental company. Mobile crane division manager Fernando Sá Moreira says the fleet comprises 100 mobile cranes, mainly all terrain working for energy projects. “We are working in two refineries in Sines, one for the company Galp Energia and the new Mega PTA Artenius; 30% of the company’s fleet is there. Mobile cranes are also assigned in the assembly of wind towers for Enercon all over the country.”

The company also works internationally with projects held in a partnership basis. They are particularly interested in expand into Angola. “We are searching for opportunities in other countries and continents given the European crisis and the situation in Portugal, where the construction sector is stagnant. I don’t see any market trends that could trigger opportunities in Portugal, but many in emerging markets. There is where the crane industry in Portugal is likely to grow.”

Some domestic demand also comes from refurbishing and expansion projects of city buildings. ITCranes is a local tower crane manufacturer with business in South America, Africa Europe and the Middle East; exports represent 90% of the company’s sales while the domestic market is based on rental deals.

ITCranes commercial director Vitor Tavares says due to the type of buildings in Portugal, the tower cranes that are more in demand are those which have 50-55 meters jib length with 1-1.5 tons jib end loading capacity. “The majority of the buildings have 6 or 10 floors and that require a tower crane of 18-30 meters height. For the construction of bridges we have demand for 60-70-80 meters height of tower cranes.”

Tavares thinks the future for the crane industry in Portugal is promising. “In recent years private investors had doubts about Portuguese national economy. We see that it has started to change. We expect the construction industry will increase in the coming years by private investments associated to residential projects.”

Italian recovery
Federcostruzioni, the Italian constructor’s association, reported in June that residential construction turnover is down 2.9% year on year; non-residential construction turnover is down by 2.5%. The downturn is coupled with curb in public spending. It decreased 11% in 2010 and 3% this year.

Franco De Michelis, marketing executive of Assodimi, the Italian association of leaders in rental equipment and distribution, says the industry has reasons to be optimistic despite gloomy figures because the potential is great. “Many projects are on hold due to lack of funding, but there are discussions about new tax incentives among other plans to trigger recovery in domestic demand. We are awaiting the outcome of these negotiations.”

The main ongoing constructions are related to infrastructure and energy projects. There is the Porto Tolle power plant, the motorway in Pedemontana, and a bypass in Milan. Those that are on hold pending funds are the construction of stations and railways for the high speed train between France and Italy (Lyon- Turin), the modernization of the Salerno- Reggio-Calabria highway and the bridge over the strait of Messina, which if built it will be the largest suspension bridge in the world.

Michele Montanari is manager of rental company Pancar. He says any recovery in the crane market will happen in the long-term. “Our crisis may not be like that of Spain, but quite similar; many projects have financing problems and consequently, cranes rental companies like us are struggling to get payments.”

Following the Spanish motto of innovation, Giorgio Gris, Terex manager for Italy, says the possible drivers for the crane market are sustainable building design and infrastructure investments. “Italy needs to make a step further to improve its competitiveness in the modern world. This means we need to replace or redecorate buildings that don’t have historical value not only in the basis of energy efficiency, but with an innovative approach.”

According to Rudy Corbetta, publicity officer at Fagioli rental crane, heavy crawler cranes are getting more demand from petrochemical and offshore jobsites. “We are in a huge project in Algeria for the GNL3Z project in Arzew with an LR 1750. We are also working in the extension of a refinery in the North of Italy with similar equipment.”

Shining Turkey
Opportunities for the crane industry in the easternmost part of the region are much better. In Turkey, crane distributors have business overseas, but most queries come from construction projects for infrastructure, highways, railways, energy power plants, and housing across the country.

Tekno is a local company that distributes Potain crawler cranes. The company’s vice president Sinan Tureyen says demand “is growing in cities because residential constructions, and especially big shopping mall projects, are very popular”.

The Zorlu Center, in Istanbul, is one of the country’s biggest projects. It consists of four blocks comprising a hotel, an auditorium, a shopping mall and a business center. “In the jobsite we have cranes of 6, 8, 10 and 14 tons, the latter is a lattice jib crane,” says Tureyen.

Tekno sold two units that are currently the world’s biggest crawler crane. These are the MD 2200 and MD1100, which are now working in the construction of a hydroelectric power plant at Boyabat city.

Sinan Tureyen says the industry is rewarding. “We have 95% of the fleet occupied in residential and general constructions and I think the trend will continue for at least three years. My expectation is for an increase demand for lattice jib cranes, because the construction within cities is done in a very constraint space, so lattice jib cranes are more useful.”

Karun, a company that trades and distributes Manitowoc crawler cranes and Grove telescopic cranes, is also a rising star within the region. Ersan Öztuna, the company’s founder, says most queries come from the EMEA region and it triples demand from local projects.

“I’ve seen a slight slowdown in domestic demand compared to last year; however Turkish contractors keep their position as the second biggest exporters after China.”

Karun rental deals and sales are related to “the construction of the Izmir-Istanbul highway, the Nabucco gas pipeline project that will connect Asia to Europe and the Ilisu dam project, among others”, says Öztuna.

In all, prospects for Southern Europe are heavily reliant on political decisions. Businessmen are unsure about whether recovery is anywhere near, but the only certainty is that when it happens these five countries are going to thrive again. Will they make a sustainable growth?