According to Russia’s richest man, Oleg Deripaska, in a recent interview with China’s Xinhua News Agency, there is an old Russian proverb that states “strong and steady wins the race”. Deripaska was discussing his advocacy of stronger business ties between his country and China as well as the need for a massive investment in domestic infrastructure. Later he told Bloomberg, “We need to triple the amount of infrastructure in terms of rail connections, port facilities and capacity, border intersections, power grid and pipelines. These are key. The (Russian) government is very committed to progress in these areas”.

Not that Deripaska has been ‘slow and steady’ in amassing his vast wealth. Included in the diverse portfolio of his investment vehicle Basic Element is the largest aluminium producer Rusal; a large construction group that includes builders, material producers and civil engineering contractors; and, within its Gaz Group division, Russia’s second largest automotive manufacturer. At the end of May Gaz Group CEO Bo Andersson and Terex’s president of developing markets Steve Filipov signed a joint venture agreement. Under this Terex will provide its construction and road-making machinery technology while Gaz will contribute local manufacturing, human resources and distribution capabilities. So far, Deripaska’s portfolio does not include cranes and whether this new relationship with Terex expands in that direction remains to be seen.

Bo Andersson is a Swedish former Saab/GM executive. Included in his group’s construction machinery assets are: Tver Excavator Plant and its Kovrovets subsidiary, which makes small-medium size crawler and wheel hydraulic excavators and material handlers; Chelyabinsk Road Construction Machines Plant, which produces a narrow line of wheel loaders, crawler dozers and Russia’s market-leading heavy motor grader; Bryansk Arsenal; and Zavodzhsby Crawler Vehicle Plant, which makes crawler transporters.

Like many post-Soviet businesses, some divisions in Gaz Group take their names from the town they are based in. This Chelyabinsk business is different from Chelyabinsk Mechanical Plant, the mobile crane manufacturer also based in this town, with its long heritage of munitions production. Similarly Gaz Group is a different enterprise than Gazprom crane, part of Russia’s largest mobile crane maker, Avtokran Ivanovo. Although the initial announcements by Terex/Gaz left product plans vague at the recent St Petersburg International Economic Forum, Bo Andersson told journalists that the joint venture will manufacture large dump trucks, backhoe loaders and mini loaders.

Not only does Deripaska have significant vested interests in advocating the historic transformation of Russia’s infrastructure, he also has the personal resources to heavily influence its fulfillment.

If this transformation really takes shape (which seems critical to Russia’s long-term economic prosperity) it will include the manufacture of a vast fleet of construction machinery and cranes. Whether this Terex joint venture will become a fundamental element in this potentially huge national enterprise, or whether Deripaska has bolder ideas for his involvement in the construction machinery industry, only time will tell.

Today, Gaz Group’s road and construction machinery unit is quite small. Back in 2006 this unit achieved revenues of RUB6.6bn (US$238m) and at that time the company aimed to increase this to RUB36bn (US$1.3bn) by 2011, but after the global financial crisis sales of construction machinery last year were just under RUB3.5bn (US$114.41m).

Other Basic Element assets that potentially contribute to an enlarged construction machinery enterprise include its Yaroslav plant, which produces diesels to 400hp based on licensed Renault technology that were upgraded to Tier 4 status with the assistance of Ricardo UK. During May Gaz also signed a Memorandum of Understanding with German cab maker Fritzmeier for a $US50m investment in manufacturing construction machinery cabs in Tver. Also within Gaz’s automotive business is Uralaz, the well-known manufacturer of heavy duty all-wheel drive trucks used as crane carriers by most Russian producers of tele truck cranes of 15–25t capacity.

Since the financial crisis, Russian demand for cranes, along with most types of construction machinery, has rebounded strongly.

Over the years imports of new cranes have been limited to sizes and types mainly beyond those produced domestically. However there has been a steady growth in imports of second-hand cranes dominated by Japanese rough terrain and truck cranes as well as German all terrain cranes. The crane makers of Russia, Ukraine and Belarus have continued to control their traditional sectors of smaller-sized telescopic truck cranes, tower cranes and small lattice boom crawler cranes. But since 2007–8 the indigenous crane industry—for the very first time—faces a threat that challenges its very existence. As Deripaska’s recent public statements may have hinted, that threat is China.

In the 22 years since the ‘iron curtain’ started to fall, the contrast between the fortunes of the construction machinery and crane industries of the former Soviet Union and the People’s Republic of China could not be starker. Back in the 1950s and 1960s, China’s very first entries into construction machinery and automotive manufacturing came courtesy of technology provided by the Soviet Union, care of agreements struck between Joseph Stalin and Mao Zedong. But that was then. During the past decade, with massive government investment in facilities and engineering talent, China’s XCMG and Zoomlion have developed into the two largest volume producers of mobile cranes in the world and the breadth of their product lines has expanded dramatically.

In the space of the last decade, China’s crane manufacturers have developed at a pace the world has never before seen. From a production level of 3,450 mobile telescopic boom cranes produced in 2000, when its largest was a 50-tonner, China’s mobile telescopic crane production increased by a factor of ten to approximately 35,000 units last year with the largest being 1,000t capacity. By comparison in 2000, Russia produced 2,040 mobile telescopic cranes with, like China, the largest being a 50t truck crane. Although a level of over 6,500 Russian telescopics was passed in 2007, in 2010 the output was 2,735 telescopic mobiles with the largest being Ivanovets’ 100-tonner.

Since 2007, Chinese manufacturers have had the markets of Russia and the CIS squarely in their sights. In 2008 Russia imported more mobile cranes than ever before—a total of 673 new telescopics. Of these, while 189 came mainly from traditional suppliers such as Liebherr (57), Grove (48), Tadano (35), Terex (20), Kato (5) and others, no less than 484 were Chinese, with XCMG supplying 385 mainly small 16–25t truck cranes, and Zoomlion supplying 90 truck cranes mainly in the 30–70t classes.

What the Chinese brought to Russia were cranes in the segments occupied by the domestic manufacturers that offered both superior lifting performance and more advanced designs but at a price that for the first time was competitive with indigenous products. It is not that Russia hasn’t long recognised the need to advance its technology. Back in the 1980s, Liebherr and Tadano entered into technology transfer/licensing deals for all terrain and truck cranes with Russia. Local manufacturing joint ventures like these have been attempted but failed, normally because attempts to develop the necessary high grade steel and sophisticated component industries of high quality and efficiency were unsuccessful due to lack of investment.

So the big question is, can the crane and construction machinery industries of Russia and the CIS be modernised by a combination of domestic or foreign investment and technology transfers? Or, in 20 years time, will the construction machinery markets of Russia and the CIS be served predominantly not by domestic enterprises but by a combination of wholly or partially foreign-owned plants and large volumes of machinery imported from China, Korea and Germany?

On 24 June this year, Willi Liebherr and Valery Shantsev, governor of the Nizhny Novgorod Region, officially opened Liebherr’s first factories in Russia. The plant had first been announced in 2007. One of the most significant elements of the deal is that, amongst other products, this will be the home of Russia’s first wholly-foreign owned construction crane plant.

This Liebherr plant represents a planned investment of $200m (US$280m). The 120 hectare (300 acre) site is the home for two Liebherr business units: Liebherr-Nizhny Novgorod OOO and Liebherr Aerospace Nizhny Novgorod OOO, a joint venture with the Russian aerospace component manufacturer Hydromash JSC. In addition to the already announced tower crane production, Willi Liebherr revealed at the ceremony that steel fabrications will be produced for export to the company’s earth-moving machinery plants in Germany, France and Austria. The plant already has 150 of the planned 600 employees.

This sudden spurt of foreign investment in Russia’s crane industry was amplified with July’s announcement that Palfinger had acquired INMAN (Ischimbajskie Neftianiye Manipulatory JSC) based in Ishimbay, Republic of Bashkortostan, Volga Region. This investment in an enterprise that employs 415 people in two plants making knuckleboom cranes is believed to be the first ever acquisition of a Russian enterprise in this field by a foreign company. Palfinger has said it intends to retain the separate brand identity of INMAN and expects 2011 revenues of EUR20m (US$28m).

Rental opens the door
During recent years the crane rental concept has become a major driving force in Russia, allowing construction enterprises and government entities easier access to large and more expensive imported cranes. One of the first companies to introduce crane rental and modern European telescopic cranes to Russia in the mid- 1980s was Finland’s Pekkaniska, which now operates a large Liebherr-dominated fleet of all terrains and crawler cranes up to 750t capacity. Pekkaniska has branches in St Petersburg, Moscow, Ekaterinburg, Nizhny Novgorod and Novosibirsk. Germany’s Grohmann has established branches in Latvia, Lithuania, Russia, Ukraine and Kaliningrad. More recently van Adrighem opened a Moscow office and rented an LR 1750 for use at the Zenit Stadium in St Petersburg.

Dating back to 1982 when they won an order for 333 truck cranes to work on the Orenburg pipeline at temperatures as low as -50°C, Liebherr has consistently been the leading seller of imported new mobile cranes in Russia and the CIS. Liebherr’s used equipment division has also become a major factor. Liebherr Werk Ehingen’s Wolfgang Beringer says: “2010 was a record year in sales of mobile and crawler cranes and in 2011 we are experiencing a stable market at a high level. Sales of larger all terrains and crawler cranes are increasing with demand in the far east of Russia, mainly in the 100–250t classes but also for smaller cranes. In this field we face strong competition by the Japanese and Chinese manufacturers but we succeed more and more, supported by an excellent sales and service network all across Russia and the CIS.”

SOP&G, a crane rental company headquartered in Moscow, has developed a large fleet of cranes that is almost entirely comprised of Liebherrs. The fleet includes virtually every model of Liebherr AT from 45t to 500t, and Liebherr crawler cranes from 200t through to the LR 1750 and 1,350t LR 11350 in addition to a 550/800t LG 1550/LTM 1800.

The construction company Juzhstal Konstrukcija Vladikavkazskoe OAO, based in Krasnodar in the North Caucasus, recently acquired two new 40t LTM 1040-2.1 ATs and a 60t LTR 1060 tele crawler crane.

ILIM, a large manufacturer of forestry products, purchased 17 Liebherr all terrains ranging from 30t to 800t for use in the construction of its large network of facilities.

TMK, a construction company in the far east of Russia engaged in bridge construction, purchased two LTC-1045-3.1 compact cranes with three LTM 1030-3.1 35t all terrains.

Azenco, the Azerbaijan energy company, purchased ten 70t LTM 1070-4.2 ATs along with a 1,200t LTM 11200-9.1.

Moscow-based Rentakran, the largest tower crane rental company with a fleet dominated by Potain and Liebherr cranes, has developed a Liebherr-dominated all terrain fleet that includes virtually every Liebherr model, including the LTM 1500- 8.1, LTC 1055s and an LTR 1100 telecrawler.

At CTT 2011, both Manitex and Manitowoc exhibited truck-mounted cranes targeted to challenge the dominance of the domestic products with longer-boom high quality alternatives. Manitex has been pursuing this strategy since 2008 with its 45t series cranes through its distributor, Dostavka-Servis. This year Manitowoc joined the fray with its new 35t Grove GBT 35 mounted on a locally-assembled 8×4 Volvo FM series truck and featuring a 39m five-section boom that, like the Manitex, is significantly longer than domestic models.

The first GBT 35 was assembled by the Moscow-based Grove and Potain distributor Global Crane, and is the result of what Manitowoc sales manager Oleg Sokolov described as an in depth market study involving discussions with customers about their product needs. In addition to Global Crane, which has represented Grove since 2006, at CTT 2011 Manitowoc’s Eric Cohet signed up the large construction company UST as a second Grove crane distributor. UST brings 14 branches and 30 sub-dealers to support the Grove crane sales and service activities.

The truck emanates from the new Volvo factory in Kaluga, 160kms (100m) from Moscow, that opened in January. Although it’s not yet fully-operational and is dependent upon largely imported components, this investment is one of many auto plants to support the fast-growing popularity of imported heavy duty trucks. The Volvo truck has been modified to feature a large sub-frame mounted on top of the chassis rails with double stage outriggers, long stroke jacks and also has a front jack attached to the front bumper for 360-degree capacities.

Japanese cranes are very well regarded in Russia for their quality and reliability. Starting in the 1970s, Kato focused on the socialist markets while Tadano largely focused on the capitalist markets.

In the former Soviet Union Kato established a very strong presence and a name for quality that endures today, despite this manufacturer’s reduced involvement in international markets. Since its involvement in the local production of 40–100t truck cranes with hexagonal booms, starting in 1987, Tadano has steadily increased its presence in Russia and today is very well known.

Tadano’s Sergei Bobkov says: “We do not sell truck cranes in the CIS but before the (financial) crisis we supplied a few truck cranes, mainly 55-tonners. Up to 2008, demand for our 55t and 70t rough terrains was gradually growing but in 2009 we sold just six rough terrains, and then ten units in 2010.

“Existing rough terrain crane demand is covered largely by imports of used cranes from Japan, so we don’t see potential for a rapid enlargement of demand for new rough terrains. However, growing demand from the energy-related sector and from projects related to the Sochi Winter Olympics should have some positive impact on our supplies to the CIS market. Regarding all terrains, demand moves in a similar manner with rough terrains, so we think market conditions should be gradually improving in the CIS from now on.”

In terms of crane distribution, the big news was the recent appointment of JSC Kwintmadi as the Russian distributor for Terex. After many successful years as the Grove Crane distributor, Kwintmadi has taken on the sales and service of Terex-Demag all terrain cranes as well as Terex rough terrain cranes produced in the US and Italy. It remains the representative for Sennebogen cranes and handlers.

Max Skillman, managing director and co-founder of JVM Equipment, the parent company of JSC Kwintmadi and JSC Lonmadi, explained his company’s history. “Lonmadi was established in 1991 as a joint venture between the British trading company Lonrho and the highly-esteemed state technical university, MADI of Moscow.

“In 1998, following eight years as Grove sales manager for the USSR, myself and two partners established JVM Equipment, and acquired Lonmadi which at the time was the JCB dealer selling only about twenty units a year. We were appointed as the Grove crane distributor and established Kwintmadi as a separate business to handle the cranes. In 2002, we became the Sennebogen crane and materials handler distributor.

“Today JVM Equipment International, based in Dublin, has a group turnover of about €500m, approximately 650 employees, and operates 26 full sales and service branches across Russia’s four European provinces. Our growth has been steady, always mindful of the dangers of over-stretching and the need to sell only in those regions where the highest level of product support can be maintained. Organisationally and culturally, our business is managed and operated on conservative Western lines, with all of our branches individually-viable with minimum revenues of €5m. For JCB we are the number one distributor in the world and this year will sell approx 3,500 units. Our revenues are fairly equally divided between Lonmadi and Kwintmadi.

“2009 was the only really difficult year we have experienced; 2011 will be our busiest year ever. We expect the crane market to increase by 75–100% compared to 2010, and with Terex we’ll achieve a share of approximately 35% of the all terrain and rough terrain crane market. Through our long associations with Grove and Sennebogen we’re now very well established in the crane market with an excellent team, mostly organicallydeveloped, and we now service a population of some 400 cranes plus 200 handlers. To date the most popular Demags have been the AC 50-1 and AC 100/4 but we’ve also sold a couple of 160t AC 160s. When we started our business, only about 5% of the market was in the regions (away from Moscow and St Petersburg) but now it’s 55%. We now have 26 branches (including most recently one in Sochi, the Black Sea venue for the 2014 Winter Olympics). Although, for us, all terrain cranes remain the most significant mobile crane, the market for rough terrain cranes continues to grow. It’s a product that we have long fostered and continue to believe to be very well-suited to the Russian market.

“We have done very well with the Sennebogen Green Line handlers and Blue Line port cranes, especially in Russia’s river and sea ports, and we pioneered the largest Sennebogens ever built, the 270t 880-EQs, with two sold to Eurochem in Murmansk. This base makes us very enthusiastic for the sales prospects for the Terex mobile harbour cranes and port equipment. Similarly we’ve had success with the Sennebogen 643RHD 40t tele crawler crane.

“One of the critical capabilities we have developed over many years is in the winterisation of the products we sell. We’ve developed our expertise in designing installations of engine, battery and fuel heaters, synthetic oil and lubes.

“Of course we continue to push all of our suppliers to provide us with pre-winterized products (to -40°C), but until that happens it’s one of the critical services we provide our customers.

“Certainly Russia is a difficult market to work in, given its vast landmass and challenging climate. Some players run for cover at the first sign of challenging times. Russia has exacting requirements including the GOST Standards, which some manufacturers have failed to fully understand.

But unlike their image in some of the media, the Russians are pretty reasonable people and if you play by the rules you’ll be fine. But first class product support is absolutely critical and you need a strong local partner.”