Pit & Quarry • July 2023 • ECONOMY

Although equipment sales are still plentiful for the industry’s dealers, developments on the financial front are changing how some business is getting done

Not too long ago, an aggregate producer could call an equipment dealer, place an order for a piece of capital equipment and have it delivered within a couple of weeks.

“Those days are gone,” says Mike Murphy, president of ACS (Aggregate Crusher Specialists), an equipment dealer serving California, Nevada, Arizona, New Mexico and Hawaii.

“You have to floor plan more and put some equipment on financing that you normally didn’t have to do,” he says.

“Rates have gone up a couple of points, so I think everybody watches their money a little bit closer as far as equipment, inventory, financing equipment [and] renting equipment,” Murphy says. “We have a rental department on some of our lines that we pretty much treat as a rent-to-own thing. But, because we are a family-owned company, I do personally watch what we have on capital equipment on order for stock.”

While today’s dealers are quickly moving equipment off their yards, the dynamics surrounding how they offload it are changing.

“Overall, the outlook is positive and demand continues to be high,” says Kirk Rainbolt, CEO of Kimball Equipment Co., an equipment dealer serving California, Nevada, Utah, Arizona, Idaho, Oregon and Washington. “But there is concern with the Federal Reserve policy and interest rates having an effect on customer financing and the customer’s ability to do business.”

As Rainbolt describes, dealers must run their businesses in a manner that makes them comfortable. Dealers must take risks sometimes, but all dealers have to decide how much is enough.

The same logic, of course, applies to end users. Today, Rainbolt says more end users are looking to rent equipment to buy themselves wiggle room should economic circumstances call for it.

“Interest rates are going higher, and the banks are becoming more conservative,” Rainbolt says. “So, we’re seeing a demand out there for a longer-term RPO.”

“We just did four drills and we did one last year,” he says. “All of them are fairly long term. The comment I’m getting is: ‘We know we’re good for this year, and we’ll either keep renting it or we’ll purchase it at the end of the year depending on how things are. If things look really bad, we have an out option.’”

“They’re a necessary part of the business to get machines populated,” he says. “But, at the same time, your ability to do business in the future will be impacted long term. The more capital you finance reduces your buying power in the future.”

Although the Fed raised interest rates 10 times during a 14-month stretch spanning March 2022 to May 2023, one dynamic tied to equipment has stabilized somewhat within this calendar year: pricing.

Equipment and raw material price increases were experienced more frequently in 2021 and 2022, according to Murphy. But price increases are less frequent in 2023 – a welcome development for dealers given the volatility those price increases created in the years prior.

“I’ve been in this business 35 years,” Murphy says, “and it was always Jan. 1 that you pretty much got a letter from your suppliers saying they were having a 3, 4 or 5 percent cost-of-living increase. That would be good until Dec. 1.

“Then, in ‘21 and ‘22, we had some people who raised their prices four or five times a year as they tried to keep up with the raw supply fluctuation,” he adds. “That was very, very hard.”

“We’re experiencing more predictability compared to a year ago,” Rainbolt says. “Last year, price increases came frequently and they were retroactive, which diminished the margins on sold goods. A number of dealers took a hit.

“This year, we are seeing fewer increases, more communication and more planning, so the consistency this year has been manageable,” he adds. “We can be more consistent and not take a margin hit when the price increases aren’t retroactive.”

“The component pricing overall has stabilized” Rainbolt says. “A lot of that was driven by offshore shipping costs. It has certainly improved.”

Still, as Murphy looks back on 2021 and 2022, he says he’s never seen prices rise as often as they did then compared to all of his years serving the industry.

Equipment pricing hasn’t come down, though – and it’s quite possible it doesn’t come down at all, according to Murphy.

“Nobody has lowered their price,” he says. “We haven’t seen anything like that. I guess I would have to say maybe they come down if it starts slowing down and people lose market share. Then, you might see some price adjustments. But if it stays busy and everybody’s making money – the end users are making money and the equipment suppliers are making money – then I don’t know if you’ll see equipment prices come down.”

“I’ve heard that steel is starting to go up again,” says Matt Dibble of Dibble Equipment, an equipment dealer serving New York, Pennsylvania, New Jersey, Maryland and Delaware. “Equipment pricing has been going up, but it’s not at an alarming rate. It’s just been steadily going up. I think there’s a lot of things globally that are impacting the price of steel, and that’s continuing to impact the prices that we’re seeing.”

Fortunately, Dibble says producers have been largely successful in mitigating the price increases they’ve taken on.

“They’re raising the prices on stone products,” Dibble says. “That’s the only way to deal with it. You have to raise your prices, and that’s been steady. It’s not just capital equipment and steel that’s going up – everything’s going up. It’s everything that’s going up that’s getting more expensive.”

Dealers in a number of markets have had fruitful years of late because the three key construction markets their customers serve – residential, nonresidential and nonbuilding – have provided ample opportunities for sales.

While residential has taken a step back since its COVID boom, nonresidential and nonbuilding continue to fuel producers in many regions. As long as two of the three core markets keep pumping out projects, Murphy is confident business as usual will continue.

“Last year and the year before, we had all three sectors going,” he says. “Right now, we have two of them going. Our [customers] right now are running six days a week, 18 hours a day with one maintenance shift. When [the industry] gets slow, we go down to either a single shift or five days a week. We just don’t slow down a whole lot. So, I’m hopeful if we do have a little bit of a downtick that it’s not going to be too much.”