Earthmoving Equipment: About to Move?

Earth moving equipment and dump trucks


Faced with the breakneck pace of business cycles in mature markets, the earthmoving equipment segment need to find new ways to predict and take the edge off the industry's wild swings.

India's large investment in urban and rural infrastructure, such as the building of IT parks, shopping malls, highway networks, residential areas, roads, ports and irrigation systems had driven the earthmoving equipment market during the review period.

The earthmoving equipment industry that was roaring with activity till recently is going through a rough patch now. “Owing to the economic slowdown, many existing projects that largely used earthmoving equipment are on hold. And to make matters worse, many mining sites have closed down. Thus, the general fund flow in this segment is a little low with not many financers looking at investing,” says Brahmanand Pandey, Vice President, Construction Equipment, Gmmco Ltd.

Reasons behind

The sluggish economy has taken its toll on the market for earthmoving equipment in the current fiscal. According to Pandey, the first impact on this segment is because of the bar on mining in many places in India including the Goa Iron ore mining ban and Karnataka Iron ore mining ban. This proscription has affected people working directly and indirectly with the mining industry including the earthmoving machinery manufactures. With solid source of revenue getting closed, the industry is forced to look at alternative options to keep the show up and running.

The current market size

According to GVR Murthy, CEO, Escorts Construction Equipment, the current market size of the Earthmoving equipment would be around 60,000 units. “Looking at various trends and government initiatives we can expect a marginal growth of 5-10 per cent next fiscal,” he adds.

The market size is expected to keep growing at a very steady rate, although a lot will depend upon the upcoming policies from the government for the coming financial year. “A compound annual growth rate of 8.5 per cent is expected though a lot depends on the government policies,” says Subhas Kedia, Director Marketing, Shakti Mining Equipments Pvt Ltd.

Global scenario

Asia-Pacific market constituted a 57.8 per cent share of the global earthmoving equipment market in 2011, making it the largest regional market for earthmoving equipment in the world. In the same year, markets in Europe and North America positioned themselves as the second and third-largest regional markets, with 22.0 per cent and 12.4 per cent shares respectively. The continuing economic uncertainty in Europe and sluggish growth in the US are expected to reduce the market shares of western regions.

A Market Research Report says that growing economies in Asia-Pacific, in particular China and India, are expected to increase their market shares as the rapid development of their infrastructural, industrial, residential and commercial sectors increases the demand for construction equipment. The share of European and North American markets is expected to be 18.2 per cent and 9.8 per cent respectively in 2016, declining from 22.0 per cent and 12.4 per cent in 2011, while Asia-Pacific is forecast to increase its share to 64.5 per cent in the same year.

New avenues

Considering the current economic crisis, manufacturers are taking efforts to bring back the situation to a sustainable level at least for the coming year and ensure that the foundations for the coming years could be fruitful. This is one of the main challenges for the segment.

With a ban on many mining sites and many more to come soon, the mining sector is clearly not the driving force for the earthmoving equipment industry at this juncture. Financiers are very careful about funding equipment in this slowdown market.

Kedia points that currently the opportunities are in fact to launch products that are low on the initial investment so that even the entry level customers can be targeted and upbringing of such sector will ensure a better and larger customer base in the future for large scale projects.

He also adds that with the country seeing heavy infrastructural development happening with huge volumes of road and rail projects planned, infrastructural projects are becoming a driving force for the market.

Industry experts agree that the earthmoving segment will have a strong demand from government backed infrastructure projects with the demand for backhoe loaders is expected to go up to 32,000 units and demand of excavators is likely to go up to 14,000 units.

The other new sectors that the industry is looking to cater include retail and any small projects that come along the way. “By the way things are, I am estimating that this year, the growth will be around 15 per cent lesser than what it was last year,” says Pandey.

“Additionally, we are trying to overcome this challenging time by improving our market coverage and engaging in customer activities with respect to sales and after sales support of the product,” adds Pandey.

Threats faced

Lack of well-trained operating staff and field service support for the upcoming range of high tech equipment will be an issue to be taken very seriously by the manufacturing sector. With external forces already affecting the segment, these are some of the threats that have to be resolved at the earliest so that the market becomes clearer.

Key market trends

According to market trends, there is a demand for equipment that requires initial capital investment at the basic minimum level and is economical to operate.  Owing to this, over the years, Indian equipment manufacturers have developed their own range of earthmoving products that were previously sold at higher pricing making an upward hike in the initial capital investment for projects. Additionally, importance is given to improved quality standards and onsite service support. “It would be worth noting that, Backhoe Loader still remains the single largest selling equipment across all the equipment segments,” adds Murthy.

Great expectations

In terms of growth, the global earthmoving equipment market recorded a CAGR of 2.50 per cent during the review period (2007-2011). The key contributor to this low growth rate was the 23.9 per cent decline in annual growth rate recorded in 2009. This was the worst year in the global economic crisis, and construction activity, along with the declining demand for earthmoving equipment, slowed accordingly. The global earthmoving equipment market is expected to record a CAGR of 7.98 per cent over the forecast period (2012-2016), in anticipation of the future growth of the global construction industry and better performance of the global economy, following the easing of European crisis.