Current issues causing valuations to rise on new and used crane equipment
There are several issues causing current valuations to rise on new and used crane equipment, such as the increasing supply chain issues, and more specifically, the bottlenecks on valuable parts. There has been damaging labor shortages at the manufacturing facilities and an increase in wages and material costs.
Unfortunately, there are plenty of other factors creating pricing pressure and demand on new and used crane equipment, such as:
- An escalating chip shortage for the computer components on equipment.
- The rising costs on shipping new equipment and parts has made exporting costs rise.
- There has been a tight supply (some orders are extended out to 2023 and beyond) and a huge increase in demand by the end user.
- Several emerging international markets are creating additional pressure on supply.
- The US approved an infrastructure package worth $1.2 trillion that will fund roads/bridges, rails, public transit, wastewater facilities, power/grids, and airports, all which will also increase demand for heavy equipment.
- The rising price of crude oil production has caused increasing demand, especially since the start of 2022.
- The current utilization use is over 80%, the highest in several years, which is increasing the need for used and new equipment
- There are many public sector projects (Mega projects) that are shifting work to the private sector. This is causing risk to be pushed down to the contractors, creating additional demand for equipment
Ritchie Bros , the Auctioneers, tracked page views 21 days before each auction. In 2020, page views were around 300,000. In January 2022, page views were over 700,000, meaning demand has more than doubled on used equipment at the auction in 2 years.
The average age of used equipment sales got older during Covid, and sellers were aging out their equipment by selling their older machines. Demand for rented equipment skyrocketed during Covid. Companies didn’t want to own equipment, so they decided to rent instead. Consequentially, this led to an increase in the demand for rental equipment. As of January 1st, 2022, the auction value is now at a 1.18 ratio, compared historically being under 1.00
What to look forward to in 2022:
Timing is hard to predict on equipment values, but markets will eventually normalize, though it will not be a quick fix. Auction prices will continue to rise, and OEM prices will continue to rise.
It is important to understand the cause of the heavy equipment valuations, so we can better prepare ourselves for the future.