Demand grows for multichannel trading platforms
Amid a global slowdown in sales of new equipment, used machinery is seeing greater demand, Dennis Daniel reports
Globally, heavy equipment manufacturers are continuing to face a decline in sales of new equipment due to the impacts of sluggish global growth. According to the International Monetary Fund’s World Economic Outlook report in July 2019, the slowdown in global manufacturing activity, which began in early 2018, has continued, reflecting weak business spending on machinery and equipment and consumer purchases of durable goods such as cars.
The economic slowdown in China and India and the US-China trade war has reduced demand for new equipment in both the markets. The ramifications of weakening activity in these large economies extend to other markets in Southeast Asia – for example, a decline in coal exports to China and India has affected the mining industry in Indonesia, which has reduced the country’s demand for mining trucks. However, this trend does not reflect the state of the global mining industry. There is sustained demand for heavy equipment in Australia, New Zealand, and certain parts of Africa, where the mining industries remain robust.
One of the reasons why the used equipment market shouldn’t be seen from the perspective of macroeconomic factors alone is that irrespective of an upswing or slowdown in global economies, the sector is likely to remain resilient provided the growing inventory of machines that needs to be disposed is visible to interested buyers worldwide. While the slowdown in China, India, and the Middle East has increased the supply of used equipment in these markets, it is being matched by growing demand from markets in Africa, South America, and other parts of the world.
Ritchie Bros’ president of international, Karl Werner, explains: “Generally, a slowdown affects sales of new machines and increases demand for used machines. Ongoing utility and infrastructure projects in the world will need a steady supply of heavy equipment, and during economic uncertainty, customers will opt for used machines that they can employ for short-term projects and then sell them back via our auctions and expect to get close to their purchase prices. The global used equipment market is stable because it shows little variation between periods of economic boom and slowdown.”
Demand for quality new and used construction equipment across the Middle East is starting to see slow resurgence, following the global economic downturn in the late 2000s, according to Euro Auctions. During the last 12 months, there has been a significant shift in the commercial buying processes with large equipment users becoming more financially aware of the ownership, operational cost and disposal values of their inventory.
General manager of Euro Auctions, Derek Bleakley, says: “Auctions are the real barometer as to who is buying, who is selling, what is trending and what the ‘must have’ brands are across the region. It is evident that buyers are streaming back to the market, and in general, used equipment prices in the Middle East have remained relatively stable over the past year.”
The majority of used equipment sold by Ritchie Bros at its Dubai auctions is absorbed within the Middle East, mainly in the UAE and Saudi Arabia. A large quantity of equipment is also exported to Africa. Recently, prominent buyers have also emerged from Southeast Asia and Eastern Europe.
Werner explains: “The majority of buyers at the Dubai auction is dealers and brokers who export the machines to Africa. During the last two years, we’ve seen a decline in import of equipment from China to the Middle East, although Africa remains the biggest importer of used equipment from China.
“Buyers from the Middle East are finding good deals in Southeast Asia and Europe. French-speaking markets in Africa tend to buy a lot of equipment from France, and our auctions in Moerdijk, Netherlands, regularly attract buyers from the Middle East.”
As the visibility of used equipment worldwide improves, asset disposition becomes less dependent on geographical boundaries. This trend is reflected at used equipment auctions that have created multichannel bidding and buying channels, giving customers the flexibility to plan, bid and purchase equipment in any market and from any location in the world. Consequently, an onsite auction in Dubai or Moerdijk is no longer limited to bidders and buyers from the Middle East or Europe alone.
Ritchie Bros’ Dubai auctions also attract buyers from as far as South America and Australia, who may choose to travel to Dubai or designate a local representative to inspect equipment at the auction, and in some cases, rely only on online information to close a deal.
The ease of trading is facilitated by the three main buying and selling channels offered by Ritchie Bros – live onsite unreserved auctions combined with online bidding; IronPlanet, an online auction held monthly; and Marketplace-E, an online marketplace offering multiple price and timing options.
For example, 10 mining trucks worth $14.5m from India were purchased by a buyer from Brazil through Ritchie Bros – the bidding and buying process was entirely conducted online, without the need for equipment to be displayed or inspected at an onsite auction.
Prior to an auction, Ritchie Bros tracks buyer demand by monitoring its web activity, particularly keyword searches, in the month leading up to the event. Data analytics allow the company to identify and target buyers based on their search activity, geography, and preferences, as well as intent to buy.
“Every month, we get an average of five million unique visitors on our websites and track the search and browsing patterns and locations,” Werner explains.
“This helps us make decisions about where to move items around to maximise returns. For example, if we find that searches for generators are high from Australia or Europe, we’ll transport more generators to those markets. Such data is valuable not only for us to optimise our business internally but also for our customers to be more informed to sell their equipment in the best way possible.”
Online bidding and buying at Euro Auctions Dubai have increased year-on-year by approximately 11% per annum, and the total number of vendors registered over the last 12 months has increased by 20%, over a 10% uplift in 2018. New bidder accounts over the last two years have increased by 65% YoY. Furthermore, first time registrations with Euro Auctions increased, by 75% in 2017–18 and by 99% in 2018–19.
Bleakley says: “The Euro Auctions October 2019 sale in Dubai showed that while the number of lots at each sale fluctuate and the final hammer price moves up, the interesting trends come from who is buying and how they are buying. Buyers still like to attend the sale or the inspection days; however, an increase in online activity is evident on our bidding platforms.
“The top two buying countries either online or visiting the auction to bid are predictable. [The rest is equally] interesting, proving again that used plant and machinery are truly global commodities and the world is getting smaller.”
In general, all types of equipment, particularly if it is well maintained and in good condition, will attract buyers and there isn’t any one type of machine that has gone out of favour, according to Bleakley. In some instances, prices at the Dubai auctions are lower than those commanded in parts of Europe and the Far East, which attracts new buyers looking to acquire equipment for export.
He adds: “We always find buyers waiting to invest in large equipment such as telehandlers, dozers, excavators, cranes, and access equipment, as well as smaller equipment such as mini-diggers, generators, and compressors. The models sold in the region tend to be focused more towards functionality rather than incorporating additional gadgets, making them easier to maintain.
“What cannot be repurposed within the region or command a premium in Europe or the Far East will typically be shipped to Africa, where there is an ever increasing demand for low-cost, functional equipment, and where their age or condition is often irrelevant.”
In the past, new equipment was typically purchased for a project and then disposed of upon completion. This approach has shifted somewhat as many big local construction firms, and the leasing companies that support them, seek to extract more value out of their projects. In some instances, almost-new, well-maintained, and ‘low-hours’ equipment of all types will return to the market within a couple of years of purchase as they command premium prices and are in high demand.
Some construction firms are also opting to hold onto equipment for between four and eight years, choosing instead to invest in comprehensive maintenance. When these lots come onto the market, they are in high demand because despite their age, they have full service histories and still have several productive years ahead. Prospective buyers of such equipment tend to be tier-2 companies seeking quality equipment to take on smaller building schemes.
Bleakley says: “While the market is adjusting with the high level of equipment exports over the past number of years, a gap in the market for quality used and unused equipment is opening up which is predominantly driven by the equipment rental market as large construction companies seek to step away from the traditional owner-operated model to reduce the upfront investment.”