Construction machinery: Digging deeper

Growth in the market is fuelling more demand for heavy machinery

ANALYSIS, PMV, Construction market, Gcc, Heavy machinery

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Growth in the GCC’s construction market is fuelling more demand for heavy machinery. Gavin Gibbon reports.

Despite the worldwide financial crash in recent years, which cut sales by over a third, the market for earthmoving equipment showed a 1.67% compound annual growth rate (CAGR) between 2008 and 2012.

“By 2015, the global construction equipment market is expected to rebound to an estimated market size of $145.5bn,” said a recent report by Ventures Onsite published for PMV Live, which will take place in November as part of the Big 5 trade show.

Holger Amann, director Liebherr Middle East, said: “The recovery of the project sector – and the growing scale of projects across the GCC – is creating significant new demand for heavy duty equipment in the region.

“Construction for projects such as the Expo 2020 in the United Arab Emirates and the FIFA World Cup 2022 in Qatar are part of the story, but on-going investment in healthcare, education and housing projects has also supported healthy growth across the industry.”

Total construction projects in the GCC this year is forecast by Ventures to reach $195.67bn – up $35.8bn (22.4%) compared with 2013.

“The region’s increase in number of large-scale infrastructure projects, either announced or already underway, are driving companies to seek a wider range of innovative, international solutions for their heavy construction needs - and we’ve seen this reflected through the immense year-on-year increase in exhibitors, participants and floorspace since the inception of the combined niche construction shows three years ago,” said PMV Live event director Nathan Waugh.

But for construction companies there are tough choices to make when considering which piece of machinery is best to add to their fleet, namely whether to buy new, used or lease.

In the premium price range stands the company founded by Joseph Cyril Bamford back in 1945. JCB has a proud history of innovation within the fields of construction and agriculture. It was Bamford who invented the backhoe loader in 1935, and his company has since laid claim to the world’s first telehandler, the fastest diesel engine, and even in-cab kettles to boost operator productivity.

And at a recent international press conference at the manufacturer’s world headquarters in the UK, the climax saw the unveiling of the 3CXG, an entry-level take on JCB’s iconic 3CX backhoe loader.

The ‘G’, which stands for ‘global’, reflects the fact that the model has been designed with an eye on contractors operating in emerging markets. This working man’s backhoe will initially be rolled out in Russia and CIS countries, with its Middle East launch slated for 2015.

Tim Burnhope, JCB’s chief innovation and growth officer, said: “The JCB3CX has a long-standing reputation as a premium product that continues to deliver value for discerning customers around the world.

“However, as a full range supplier of construction equipment, we work very hard to deliver solutions for different customer requirements, so we’ve recently come up with an alternative offering.

It’s an entry-level 3CX backhoe loader designed specifically for arduous applications in developing economies…
our 3CX Global backhoe.”

The global construction equipment market might be experiencing lacklustre levels of demand, but for JCB itself, business remains strong, especially in the Middle East. In 2013, the firm sold just under 1,000 units in Saudi Arabia. So far this year, it has shifted around 700 units in the Kingdom, and sales in excess of 1,200 are anticipated during 2014.

In the UAE, meanwhile, JCB sold more than 400 units during 2013, and expects to grow this figure to 450 in 2014.
Indeed, this trend is reflected across the region. Last year, JCB sold more than 2,300 units in the GCC alone.

At the time of the press conference, the firm had shipped 1,750 machines to this region in 2014, and expected to achieve total sales of almost 3,000 units in the GCC during the course of the year.

And so it is clear there is definitely a market for the ‘top end’ range of construction equipment. However, that doesn’t mean that more competitively-priced machines are being ignored. They are, in fact, turning the heads of a number of high-profile end users across the region.

During recent years, the old guard of original equipment manufacturers (OEMs) operating in the Middle East has found itself under increased pressure from the Chinese market.

XGMA, for example, has made big inroads in the wheel loaders market, while also making significant progress with its lines of skid-steer loaders, motor graders and compactors.

“We offer models from six-tonne mini-excavators all the way up to 48-tonne giants,” said Garret Gao, sales manager at Xiamen XGMA Machinery Gulf.

“With an operating weight of 21.5 tonnes, the XG822EL is situated in the middle of XGMA’s hydraulic excavator range. The model is available from $90,000, depending on the options selected by the customer.”

One of the most common concerns, historically, over purchasing machinery from Chinese OEMs, has been a perceived lack of aftersales support and spare parts availability.

While this argument may have legitimate roots, it does not necessarily hold true in the Middle East today. OEMs such as XGMA have listened to feedback from local customers, and have taken measures to address their concerns.
“Every XG822EL hydraulic excavator comes with a one-year warranty,” said Wu. “We are able to provide aftersales service and maintenance support to customers across the region.”

If proof were needed of the interest there is in the more competitively-priced machinery, then the manufacturer’s sales figures are just that.

“Last year, XGMA sold almost 500 units in the Saudi Arabia market,” explained Garret Gao, sales manager at Xiamen XGMA.

“This year, we expect to achieve similar results, or perhaps even better. The market is still a little slower than we’d like in the UAE, but things are going well across the GCC and wider Levant as a whole.”

Buying at whatever level has its advantages. If an end user chooses to purchase a machine, it is his to do as he pleases. There are no restrictions in terms of working hours. Providing the contractor has sufficient manpower, it can have its machine toiling around the clock. Moreover, although buying heavy kit is a capital-intensive endeavor, once a unit has served its purpose, it can be resold on the second-hand market.

So why rent? Well, there are several reasons that make the temporary acquisition of machinery and vehicles appealing to contractors. Firstly, there is no requirement for hefty down payments, enabling end users to better manage their cash flow. Moreover, if – for whatever reason – work dries up, the company is not left with expensive machines weighing heavily on its balance sheet.

The deal between National Contracting & Transport Company (NCTC) and GENAVCO offers the best of both worlds. The contractor is currently leasing a pair of heavy-duty Shantui units on a two-year term, with the option to purchase both machines at the end.

NCTC is using a SL60W-2 wheel loader and a SD32D bulldozer at a road construction project near to Sharjah International Airport in the UAE. For the most part, the Shantui machines are operating at different locations on the same project. Ultimately, the NCTC work teams will meet in the middle.

Kamil Nadeem, Shantui’s area manager, said: “If a customer is hard-pressed to buy a large machine, the option to pay in monthly instalments will clearly appeal to him. Of course, one of the biggest-selling points is that at the end of the term, it is the contractor’s decision as to whether he purchases or returns the units.

“This is perfect for clients who are unsure whether or not market demand will warrant heavy-duty machinery a year or two down the line.”

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