NAVIGATING THE EUROPEAN HEAVY EQUIPMENT INDUSTRY DURING COVID-19

Industry data forecasts are key tools for heavy equipment businesses to plan, strategize and define the appropriate actions in anticipation of market growth or downturn. However, even when defined carefully, based on solid historical data, forecasts provide educated estimations or scenarios which provide managers additional knowledge to determine potential outcomes. Predictions should always be considered with care, coupled with qualitative feedback and trends from the market. DuckerFrontier’s heavy equipment team is here to help you business anticipate market growth and downturns.

Heavy Equipment in EMEA pre COVID-19

Despite weak global economic growth in 2019, the heavy equipment sector has maintained a high growth supported by a strong construction sector and technological development. The industry saw major rise in innovation driven by main trends including electrification, digitization, and increasing costumer-centricity. In Western Europe, governments have pressured manufacturers and end-users to embrace sustainability and reduce emissions, thus enhancing electrification. On the other side, the continuous labor shortage resulted in manufacturers promoting machine automation, connectivity, and digitization. Traditionally an engineering-led industry, we saw an increased focus on the customer’s experience as a driver of change.

The impact of the pandemic on heavy equipment has been dramatic, forcing the closure of manufacturing sites and causing a sharp drop in sales. Although observers have drawn a comparison to the last 2008-2009 financial crisis, executives claim that this was by far the worst crisis ever experienced due to the rapid impact. According to industry experts, there will be a reduction in sales of construction machinery in almost every country, except for China in 2020. Experts suggest 16% of global contraction, buffered by the economic stimulus in China, which will lift the domestic market up to 14% of growth, the highest figure in the country since 2010-2011.

In EMEA, the construction industry is expected to show slow recovery between 2021-2022, although with an output average below 2019. While the forecast for 2020 is at 9% of contraction in construction in Europe, The Netherlands, UK and Spain will be the slowest to recover, while Poland has seemingly not been significantly impacted, according to Euroconstruct. Moreover, the safety measures put in place do not allow a return to business as before Covid-19. Euroconstruct does not expect construction activities to recover before 2022.

In agriculture business, although the supply of food has held up well in many countries, the measures put in place to contain the Covid-19 spread disrupted the supply of agro-food products to markets and consumers as well as access to labor, already deficient. Farmers have been forced to manage food surplus due to lack of demand from the hospitality industry and disruption on the logistics, causing a reduction in revenues. Moreover, access to intermediate inputs has also been affected, with low availability of pesticides, fertilizers, and a fear of seed shortage.

Impact on Geographies and various segments

Covid-19’s domino effect initiated from the disruption on the supply chain continued with the shutdown of factories, freezing of infrastructure projects, and increasing costs due to safety measures. Italy, Spain, France, and the UK were the hardest hit. The most striking aspect of this crisis was the rapidity in the drop of revenues due to the lockdown, with companies losing up to 90% of revenues in March and accumulating significant losses until just recently. While Italy experiences a dramatic situation, the impact in the short-term has been milder in Germany and CIS. While, the Nordics and Baltics have the highest equipment utilization percentage. Nonetheless, there is a strong fear that major construction projects will be cancelled or postponed in 2021. In the Middle East, Covid-19 exacerbated an already difficult situation due to slower growth in recent years, acute competition, geopolitical instability, and a drop in oil prices.

Noticeably, the impact perceived by companies in the heavy equipment space is diverse, according to the position they have in the value chain. Manufacturers of heavy machinery used in construction were hit the hardest for the longest time. Key players in the industry have experienced site shutdowns, only reopening in July, and undergoing major organizational changes to ensure survival. Renting companies experienced short-term hardship between March and June, with temporary closures of construction sites. However, they have been some of the most resilient segments together with parts replacement and used machinery.

Agriculture has maintained sustainable growth in long-term projects like irrigation systems. However, in the long-term, this segment may be negatively impacted. In fact, 70% of agriculture equipment dealers expect a significant decrease in sales in the coming months. 16% of these companies expect a drop below 25% in sales of machinery.

Heavy Equipment Trends and Forecast

Uncertainty about the sanitary emergency and the 2021 infrastructure budget is causing significant delays in investment leading to the promotion of rentals and used machinery. As it happened in the aftermath of the financial crisis, a sharing economy is accelerating. This has forced main manufacturers to rethink their product and service offering. The strategy to provide both machines and services through short-term rentals and a “plant hire” model, could push the frontier to fleet renting. Alongside the uberization of machinery, companies are also revaluating their sales of used machinery strategy.

The most impactful trend on heavy equipment is digitization. The lockdown has forced even the most conservative customers to go digital – both in the construction and agriculture sectors, creating a boom in digital services demand.

The most utilized applications include online ordering and invoicing, in-store pick-up for construction tools, contact-less payments, and online trainings. Companies have also promoted remote control and comprehensive digital managerial solutions. The benefits are not limited on support, they extend into better understanding end-customers with quick feedback apps. The current sanitary and business circumstances are forcing multinationals to re-evaluate their comprehensive digital strategy, both internally and externally.

European governments have been extremely proactive in supporting businesses through this unprecedented sanitary emergency. Although survival is the main objective, sustainability remains imperative for businesses. The overall sales of heavy equipment machinery undoubtedly fell; however, the number of electric vehicles will likely increase in the future. Companies are trying to diversify their end-markets, which will lead to diversifying machine types and increasing number of electric fleets. Recently, the European Parliament has backed an amendment to postpone the Stage V deadline. The revision focuses on building machines installed with transition engines, delayed by one year from June 30, 2020 to June 30, 2021 – and placing those machines on the market December 31, 2021 instead of December 31, 2020. Despite this hiccup, pressures over sustainability will continue, accelerating the electrification trend. Key players are maintaining investments in greener solutions. Additionally, enhancing sustainability within their organizations by reducing emissions and embracing social responsibilities.

DuckerFrontier’s Heavy Equipment team continues to follow and analyze the key trends and impacting the industry, both during and post Covid-19 disruptions. Visit our Covid-19 Resource Hub for the latest insights and implications for global business, or contact us to connect with a team member.