Industry Corner: The Global Demand for Heavy Construction Equipment
Gross, Andrew C., Weiss, David D., Business Economics
Heavy construction equipment consists of earthmovers (bulldozers, loaders, excavators); off-highway trucks; large cranes; mixers, pavers, and related machinery; and components (i.e., parts and attachments). These items are used for the construction of residential and nonresidential buildings, new power and manufacturing plants, and adding to or renovating such infrastructure projects as sewage and water lines, roads, bridges and tunnels.
The key determinant of spending for such equipment is the ability and willingness of sovereign nations and private sector firms to commit funds for fixed investment. This in turn is influenced by a host of factors, chiefly per capita income, the condition of existing infrastructure, the rate of urbanization, and various social conditions ranging from traffic congestion to housing shortages.
DEMAND BY MAJOR REGIONS
In the year 2000, North America and Europe will still account for 25 percent each of the total global demand for heavy construction equipment, with Japan holding on to a 20 percent share. However, the rate of growth in these areas, as shown in Table 1, will be just above 3 percent per annum, considerably less than those for the industrializing nations of Asia, Africa, and Latin America. This trend is expected to continue well into the twenty-first century.
In the highly developed areas, shipments of heavy construction equipment are slated for a variety of end uses.
1. Many central cities in these areas have an aging infrastructure that must be maintained, repaired, and gradually replaced. Interstate highways and autobahns need upgrading.
2. While growth of population is slow in these regions, there is mobility plus a pent-up demand for better residential housing. Fast-growing suburbs also attract new office buildings and shopping malls.
3. Many old power plants, manufacturing facilities, and commercial warehouses either must be renovated or replaced.
4. There will be special, one-of-a-kind structures requiring major commitment of equipment and funding. Such undertakings, however, must be well-planned (e.g., the financial problems of the Chunnel in Europe, the Toronto Skydome, and the new Denver International Airport).
[TABULAR DATA FOR TABLE 1 OMITTED]
In the developing regions, Asia will lead the way with a 9 percent annual growth in the sales of heavy construction equipment, followed by Latin America and Africa-Middle East at about 5.5 percent per annum. In these regions we see a five-fold breakdown:
1. National and local governments are committing funds for roads, water supply, and sewage lines.
2. To accommodate their fast-growing urban population, low-cost housing must be erected.
3. Electric power and other energy generating plants will have to come on stream.
4. Old mines and oil wells are being upgraded even as new ones are explored.
5. One-of-a-kind projects are also on the drawing board or under construction, ranging from flood control in China to gigantic skyscrapers in all capital cities of Asia. Again, financing is not always fully assured, e.g., the World Bank is now more reluctant to loan money for dams.
DEMAND BY MAJOR CATEGORIES OF EQUIPMENT
The dominant class of construction machinery, as shown in Table 2, consists of a wide variety of earthmoving machinery (excluding off-highway trucks). On a global basis, earthmovers will continue to account for about one-half of total sales in 2000 and beyond. Within this group, bulldozers and crawler loaders are losing share to hydraulic excavators. The latter are more versatile, have higher productivity, and are easier to use, especially in tight spaces. Specifically, the share of hydraulic excavators in total earthmoving equipment sales increased from 31 percent in 1985 to about 45 percent in 1994. The shift away from mining and major roadwork activity in the highly industrialized countries lends further support to this trend. …