As the construction industry prepares for the first half of 2019, there’s good news and bad news – or, to better rephrase, there are going to be opportunities along with challenges.
Several 2019 forecasts have already been released so it’s not news to most that the construction industry likely isn’t going to grow as much this year as 2018. In fact, there’s good reason to believe that it may remain flat year over year – not exactly what most would hope for but, after a strong 2018, not a bad outlook.
When focusing on the used equipment outlook for the first half of the year, the market should stay strong. Supply of good used equipment is still low, and demand is high. As the broader market begins to slow the need for quality used will remain strong for the first half of the year.
Two key drivers of the health of the industry and equipment are already looking a bit down in early 2019: housing starts and oil. While housing starts aren’t expected to pick back up in 2019, oil remains an area of potential – yet very cautious – optimism.
As I write this, WTI is at $46.71 a barrel. While this is up from 2018’s low price of $42.53, it’s down from the high of $76.41 we saw in October.
Oil prices are volatile, and the only thing known for sure is that there’s no way to know when the next low or high will be. If the low for 2018 is the low for 2019, we will see the oil industry continue as is and it will bring with it the equipment demand experienced in 2018, especially in key producing states like Texas and North Dakota.
The other part of the oil business is the pipeline business. With pads and roads completed, and drilling done, the next area to look at is what to do with all the oil. It must be piped out of the oil fields. With record levels of production, the need for pipelines has expanded. This need will drive the need for heavy equipment, both new and high-quality used.
One more key area that looks optimistic, and one that greatly contributes to industry and equipment livelihood is roadbuilding. Anyone who drives in this great country knows we have an issue with our roads. In November of 2018, voters approved transportation initiatives generating more than $30 billion in transportation revenue. This is a great news for this issue and for the construction equipment industry. The building of roads takes all kinds of construction equipment and, with weather and contract deadlines, the equipment must be quality.
With housing starts not looking optimistic, oil and roadbuilding will be the two areas to closely watch in 2019. Pick-up in oil and/or roadbuilding will no doubt see an increase in used machinery demand and values follow.
There’s one more factor that continues to dictate the construction business, including equipment and technology needs. This one also won’t surprise anyone in the equipment industry: labor.
The continuing issue of a qualified labor shortage isn’t going anywhere this year and virtually everyone with an interest in the subject is doing their best to help address it.
What is changing related to the shrinking workforce is the growing technology opportunities on machines. While it can’t replace workers, it can help existing teams work well with fewer people. It also can help inexperienced operators work more effectively, with less time needed for training and more forgiveness in terms of simple productivity mistakes.
Used equipment continues to show its worth when it comes to technology integration. Late model used machines present nearly the same opportunity to outfit with valuable technology, often in a more cost-effective way.
Longer lead times on new equipment is a continuing trend in 2019. 60-day waiting periods are no longer realistic for new machines; depending on the manufacturer and machine, six to nine months is now the typical lead time for a piece of new equipment.
While this is becoming the new normal, there’s still room for adjustment and adaptation from companies. Better planning and seeking out different avenues now must be part of the fleet management strategy, and dealer partners need to do their part to work with customers in addressing this challenge.
Conversely, used equipment availability looks to be better this year. Quality pre-owned machines were scarce in 2018, good news for values and those potentially looking to sell but more challenging for those interested in buying. In the latter half of 2018, more used machinery was available at auctions. The quality was still not what we have seen in past years, but it shows a trend of more used equipment being available in the market. That’s expected to hold true in 2019, great news again for those looking to invest in used machines.
Rising interest rates are another important piece to 2019’s equipment puzzle. Whether new or used, equipment comes with a significant price tag, so a seemingly small interest rate increase can become big. And, while a challenge to both new and used, the larger cost magnifies even more with new machine purchases, which are higher this year because of 2018’s steel and aluminum tariffs.
On a related note, rental equipment prices and availability typically affect the health of used equipment. This year, rental rates look to rise along with interest rates. To better manage risk and keep assets low, rental fleet managers will continue to place high emphasis on fleet size and utilization, affecting the availability of the units needed for projects and when they’re needed. Companies that rely on rental equipment throughout the year need to prepare for the likelihood that some machines may not be as readily available and find alternate sources.
Areas of Opportunity
Even with an overall, tempered optimistic outlook for the first half of the year, there are bright spots and areas of opportunity on which smart companies can capitalize.
For those looking for a used machine, the combination of more availability and lower demand makes it a great time to pursue a purchase.
Those not looking to purchase any machinery, new or used, should consider a different kind of investment: fleet management.
Fleet management has become somewhat of a trendy topic, with areas like telematics leading the way. It can be a bit overwhelming, turning off the idea entirely to many companies.
However, at its most basic, fleet management is daily, simple steps taken to better the health of a fleet. Monitoring machines’ locations on a jobsite, tracking preventative maintenance, and watching operator productivity are simple steps that can pay off large dividends in a company’s overall efficiency.
Those who operate John Deere construction equipment, learn how to maximize JDLink for your heavy equipment fleet.
Whether it means devoting more time building a fleet management program or training on new technology, companies need to make the best out of a potentially slower time and create opportunities to better position themselves for the future. 2018 was a great year for the used equipment industry especially for those who had inventory to sell. In 2019, new equipment availability will improve, and the market will stabilize, making it a good year for used equipment industry.
The construction industry is a great industry and 2019 will be another exciting year full of opportunities.