InFocus | Heavy Equipment
Heavy on demand
In the UAE, this is especially true as the heavy equipment industry has piggybacked on the growth the country has made in the construction and oil and gas sectors in the past five years.
- By Neesha C. Salian, Staff Writer
- Published: 00:00 August 21, 2006
- Image Credit: AP
- Today's advances in the heavy and moving equipment sector are closely linked to important industries such as construction, infrastructure, oil and gas, marine and offshore, especially in growing economies.
The UAE's construction boom fuels steady growth in the heavy and moving equipment sector in the country
When you think of how the ancient Egyptians constructed architectural marvels such as the Great Pyramid of Giza, the Pyramid of Djoser and the Red Pyramid, you feel a sense of awe, considering this was happening as early as 2600BC.
Workers moved huge limestone and granite blocks over miles and lifted them to heights of up to 485 feet. They used rollers, wooden gliders, wheels, pulleys and ramps to move and lift stone blocks weighing up to 70 tonnes.
The workforce numbered in thousands and the time they took to create the pyramids spanned decades.
Thousands of years later, time and technology have transformed the rudimentary devices of the past into state-of-the-art heavy and moving equipment such as excavators, dump trucks, wheel loaders, telescopic handlers, forklifts, hydraulic cranes, work access platforms and trucks. These machines have made human effort easier, safer and a lot faster.
Today's advances in the heavy and moving equipment sector are closely linked to important industries such as construction, infrastructure, oil and gas, marine and offshore, especially in growing economies.
In the UAE, this is especially true as the heavy equipment industry has piggybacked on the growth the country has made in the construction and oil and gas sectors in the past five years.
"Growth has picked up since 2002 and has been consistent due to the construction boom. Demand is so high that it's difficult to keep up with supply. In fact, we have advance orders for the first quarter of 2007.
"High oil prices and the subsequent investment in sectors such as infrastructure, property, manufacturing and trading, among others, have supplemented this demand," says Shakil Merchant, Operations Manager, Kanoo Machinery, one of the leading material handling and equipment distributors in the region.
"After construction, the heavy and moving equipment sector is the second industry that has shown such dramatic growth in the region. In fact, demand has increased by about 200 per cent for the industry.
"Due to such rapid growth, it has also become necessary for most companies to augment their fleet and personnel to satisfy the requirements," says Dennis Durairaj, HSE/Operations Manager, Al Faris General Land Transport, a noted transportation and crane hire service company in the UAE.
Merchant says he has never before witnessed such tremendous expansion in the sector, which comprises construction equipment such as bulldozers, dump trucks and wheel loaders; power industry machinery including generators; material handling equipment such as cranes, forklifts, access platforms, agricultural equipment and cutting and welding machinery.
Heavy equipment and machinery catering to the oil and gas, mining and quarrying and maritime industries, cleaning equipment (for industrial use) and air compressors (used in malls and factories) are also part of the sector.
Buyer's market
Also integral to the industry are distributors and dealers, leasing and rental companies, used equipment and spare part dealers, auction companies and repair and maintenance service providers.
Internationally renowned brands such as Caterpillar, which offers construction equipment such as telescopic handlers, skid steer loaders and wheel loaders, and Aggreko that offers power generator sets, have a presence here.
Another important brand in the region is Tadano, which supplies hydraulic cranes that are used in the construction and oil and gas industry.
Regional companies have also helped their customers source equipment from world-renowned companies. Al Hamid Group, for instance, offers equipment from industry leaders such as Tadano, Kobelco, Dumec, Kawasaki and Mitsubishi.
Kanoo Machinery has brands such as Grove, Hyster, Cascade, Kaup, Baumann, Bobcat, Perkins and Sullair. Al-Futtaim Auto and Machinery Group (Famco), which services the construction, manufacturing, warehousing and marine sectors, has equipment from Volvo, Ingersoll Rand, Kato, Linde, Ynamar, SDMO, Stanley Proto, Fenner, Jaleema, Bott and System Edstrom.
Mohamed AbdulRahman Al-Bahar offers Caterpillar's comprehensive range of construction equipment.
German-Gulf Enterprises Ltd. has equipment from M/s. Putzmeister, Liebherr, Bosch Rexroth, Brueninghaus, Hydromatik, Meiller, Sulzer Metco and Kemppi Oy's.
Some of these companies also lease out their equipment and offer technical support to their clients among other services.
Buying and leasing equipment
Buying heavy and moving equipment involves substantial investments. While that is not often a problem in the UAE, customers are increasingly opting for leasing or renting equipment.
Costs, maintenance and value-added services can make the options of renting or leasing more practical. "Owning equipment necessitates incurring greater storage and transport costs, especially when the equipment is idle. Hiring equipment enables contractors to save on storage and transport costs.
"Equipment hired includes full maintenance. So a company that is leasing equipment does not require a repair shop, spare parts inventory, mechanics and added maintenance payroll or records.
"When rented equipment breaks down, the rental company replaces it at no cost. The continual billing on hired equipment helps establish personal accountability for hired items. It is difficult to establish personal accountability on a large amount of owned miscellaneous equipment," says Laxman Ramsinghani, Director, Mubarak & Sons Transport.
The company provides general road transport services, including container and cargo transportation, haulage and supply of sand/aggregates and petroleum products. It also rents out plant/machinery such as cranes, forklifts, skid steer loaders and trailers.
"The choice to buy or hire is dependant on a number of factors. It is impossible to say whether one option is better than the other without first considering the customer's requirements.
"For instance, there is a relatively high capital cost for the pump sets that we offer, so if the requirement is sporadic or short term, it is best to rent the equipment.
"There are instances where our clients take on long-term rentals and this is generally driven by the customer's desire for a solution that includes technical support and operating skills that are not available in the customer's own organisation," says Alan H. Bryden, Director, Corporate Services, Hydrolink Group of companies, which offers pump sets for dewatering, fire-fighting, flushing, wash-down, concrete demolition and surface preparation applications.
Auctions
Equipment auctions are also practical solutions both for companies that want to buy equipment for their own use or lease it out. The two important players who have a strong international presence and are active in the UAE equipment auction market are World Wide Auctioneers (WWA) and Ritchie Bros Auctioneers.
"We are constantly filling our yard with a variety of good equipment for our auctions in Dubai," says Eric Montandon, Chief Executive Officer, WWA Group.
"There is now more than $600 billion (about Dh 2.2 trillions) committed to major construction projects in the UAE, Qatar and Saudi Arabia alone. The demand for equipment is strong in virtually all of the world's largest user markets."
World Wide Auctioneers' auction in June showed gross sales of $17.7 million (about Dh65 million) and involved more than 360 registered buyers from 30 different countries.
A total of 4,000 items were sold to more than 600 successful bidders for more than $55 million (about Dh202 million) at three of the company's auctions in 2006.
Both auctioneers hold unreserved auctions with no seller bids, minimum bids or reserved goods, which provides trading and selling at a fair market price. Auctions are also carried out online.
Tough challenges
Competition in the sector is getting tougher as more players want a piece of the pie. Chinese-made equipment is finding its way into the market, which is marked by the presence of big international brands.
"Sales are at an all-time high. Since demand requires supply, there are new players coming in to fill the requirements. If customers cannot find equipment from top suppliers in the market, they're more than willing to go to the smaller manufacturers from China.
"The downside to this is that most projects are on a fast-track status. If the maintenance team is not strong, spare parts supply is not regular and the machine or equipment breaks down, then the project is in jeopardy," says Jaweed Iqbal, Sales Manager, Construction Equipment Division, Famco.
It takes a number of sectors, including construction, to make an equipment leasing company profitable, says Durairaj.
"An upswing across different sectors has motivated new and often inexperienced players to set up shop overnight. Offering quality services to the client should always be the first priority of a service company.
"An equipment leasing company will not do well if its infrastructure or commitment is not up to the mark. In fact, as the sector gets busier, it becomes imperative to buy state-of-the-art equipment and hire more experienced personnel, among other steps," he says.
The future
Despite the problems, prospects seem bright for the next few years for heavy and moving equipment across all segments.
"The construction sector will lose some of its momentum in about three to five years. However, in addition to projects such as the Palm Islands and other waterfront properties, Dubai still has major commitments, which cannot be shelved because of the high investments in them.
"So we will continue to see the boom in the heavy and moving equipment sector for some more years. Even if construction in the region slows down, it will only affect certain segments in the housing market, the residential apartments' category in particular, and not across the board," says Ashfaque Azad, Area Manager, Mohamed Abdulrahman Al-Bahar, dealers for Caterpillar.
According to Merchant, there are indications that the sector will have a good run up until 2010. He predicts that the slowdown in construction thereafter could have some impact on the sector.
"However, construction activity in Abu Dhabi, Sharjah and Ajman seems to be gaining momentum and that is a good sign for the industry."
Takuji Murakami, General Manager, Tadano Middle East, says, "Growth has been strong in the industry. According to statistics, new units (cranes) bought in 2001 were a little more than a 100. In 2005, new units purchased almost touched 500. This indicates that the market has grown by a good measure. This trend will continue considering countries such as Saudi Arabia and Qatar are showing promise."
Qatar, in particular, is also becoming an important market especially for the equipment auction segment. In fact, a recent auction held in June by WWA in Doha sold equipment worth $9 million (about Dh33 million) in one day.
The Heavy Equipment and Truck Free Zone, which is set to open in the near future, will also be a boon for the industry especially in terms of boosting re-exports. The new zone will function under the umbrella of the Jebel Ali Free Zone Authority (Jafza).
Jafza is focusing on six core industries (electrical and mechanical equipment, electronics, food and beverage, metals/primary materials, chemicals and auto parts) and enabling industries (transport and logistics, packaging, and traders) based on regional demand and the free zone's trade volume.
The free zone will have the facilities and administrative support needed to promote the trade of heavy equipment and trucks including licensing offices, banks, on-site customs, a chamber of commerce office and staff accommodation to serve the needs of traders setting up office inside the zone.
