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Momentum is Building

Optimism proliferates for construction equipment manufacturers, spurred by federal funding of infrastructure projects and other factors. Here’s what to expect.

Posted: February 23, 2022

AEM reports 91 percent of its construction equipment members expect growth. Image: Utility Expo 2021.
Excavator working on earthmoving at open pit mining on amazing sunset background. Backhoe digs sand and gravel in quarry. Heavy construction equipment during excavation at construction site
Benjamin Duyck, Association of Equipment Manufacturers
Michelle Meisels, Deloitte’s Engineering & Construction practice
Volvo Construction Equipment reported 2021 sales of about $9.7 billion, up 13 percent over 2020 sales. Image: World of Asphalt 2019.
A directional drill at work. Image: Utility Expo 2021.
Vacuum excavation equipment at work. Image: Utility Expo 2021.

The expansion and growth of original equipment manufacturers (OEMs) of construction equipment, and by extension, their suppliers, is poised to accelerate in the coming year. OEMs are faring well thanks to factors such as the booming housing market, the bipartisan passage of the federal Infrastructure Investment and Jobs Act (IIJA), and the expected construction boom in nonresidential segments.

Consider these highlights:

  • Volvo Construction Equipment reported 2021 sales of about $9.7 billion, up 13 percent over 2020 sales of about $8.6 billion.
  • Caterpillar’s sales climbed 23 percent to $13.8 billion in fourth quarter 2021; construction industry sales rose 27 percent, driven by an improvement in dealer inventories, higher end-user demand and increased prices.

Construction equipment OEMs and their suppliers have plenty to be confident about. Every type of construction activity — whether its housing, “old” infrastructure projects such as rails, bridges and dams, and “new” infrastructure investments such as internet and telecom — requires all types of equipment to complete the jobs, such as demolition and utility specific equipment.

The forecast and numbers from several construction-related organizations point to an increasing need for construction equipment in the coming year and beyond. A review of the numbers, even with the lingering supply chain challenges and inflation, is filled with many positives.

Total construction spending continues to remain strong, reaching record-high levels ($1.57 trillion) in July 2021, noted Michelle Meisels, a principal in Deloitte Consulting’s Technology practice and leader of the Engineering & Construction practice. She pointed out revenue growth for the industry was around 6.9 percent in 2021 and will likely accelerate in 2022.

What’s more, according to the U.S. Department of Commerce, the 5.7 percent growth in gross domestic product in 2021 was the largest annual increase since 1984 when Ronald Reagan was president. The construction industry’s value is expected to grow by 4.5 percent.

Here is what those numbers mean to construction equipment manufacturers: the Association of Equipment Manufacturers (AEM) found that 91 percent of its construction equipment members felt there would be normal or above normal growth this year. The information was reported in the first quarter AEM 2022 Business Intelligence Equipment Market Outlook. Construction equipment companies expect a six-to-10 percent growth rate in the next 12 months.

The numbers in all categories that AEM tracks in the construction equipment sector are up: aggregates, construction, forestry, lifting, mining, road machinery and utilities. Year to date November 2021, the recovery from 2020 was positive, noted Benjamin Duyck, the director of market intelligence for AEM, although numbers in several categories are still lower compared to numbers in 2019. However, the latest numbers from AEM’s members point to 2022 sales surpassing 2019 levels. “That is very optimistic for our industry,” Duyck stated.

AEM applauded the signing last year of the IIJA by President Biden, noting that “the 2.8 million men and women of the equipment manufacturing industry are ready to get to work and ensure that this historic investment ushers in a new era of economic prosperity for all Americans.” According to IHS Markit, the legislation could create more than 100,000 equipment manufacturing jobs before the end of President Biden’s first term in office.

The AEM team advocates on behalf of construction and agricultural equipment manufacturers at the state and federal levels. AEM is also the primary owner of CONEXPO-CON/AGG, which brings construction equipment manufacturers, buyers and end users together every three years. The next conference is scheduled for March 2023 in Las Vegas.

Further Perspective

In the 2022 Deloitte Engineering and Construction Outlook, 91 percent of survey respondents characterized the business outlook for their industry as somewhat or very positive, which is 23 percent higher than last year. In addition to infrastructure work, these firms see a mix of projects that includes data centers, warehousing and health care, Meisels noted. These sectors will likely see more activity than offices or commercial segments.

Both residential and commercial segments are expected to present substantial growth opportunities in 2022 compared to 2021 when residential and nonresidential segments grew at different rates. The IIJA will close the gap, Meisels pointed out, providing a boost in nonresidential construction. The funds from the IIJA are directed toward health care, public safety and infrastructure projects.

What’s more, the Associated General Contractors’ 2022 business outlook report outlined that its members are most optimistic about the market for highway and bridge construction projects, and similarly optimistic regarding transit, rail and airport projects, as well as water and sewer projects.

Duyck said the construction equipment industry will experience good to normal growth, which could be even stronger if there were not so many issues in the supply chain. “To me, the biggest thing between suppliers and the equipment manufacturers is figuring out the supply chain issues,” Duyck said. “Manufacturers are struggling with this and if I look at the top answers they give on how to combat supply chain issues it is always about additional suppliers, faster onboarding and better communication.”

He added OEMs are also reviewing where they source materials. “The impression I get from talking to manufacturers is they are considering reshoring to shorten the supply chain, especially because international shipping has been such a bottleneck,” Duyck said. “We aren’t talking about vertical integration — we are not that far — but definitely bringing materials and components back to the United States where they have more control.”

Half of AEM’s members also reported they would consider different inventory systems because of the challenges with just-in-time deliveries. However, Duyck cautioned there is a difference between saying this now and going through with it because companies need to consider the impact on the actual revenues and shareholders.

The takeaway for suppliers to construction equipment OEMs? “Supply chain disruptions and volatility are expected to be among the biggest challenges in 2022, and the companies that can navigate through them will likely emerge as winners,” Meisels noted. “Finding solutions that enable on-time delivery will be a critical first step for companies that supply heavy equipment manufacturers,” she pointed out.

The outlook for construction equipment OEMs and their suppliers is positive and will remain so thanks to several factors, including the influx of funding from the IIJA. The momentum regarding the expansion of the industry continues to build. The future holds promise.

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