Riding the storm: The crane industry in 2008 and beyond

Although the well-documented credit squeeze began in 2007, crane manufacturers were seeing little sign of a slowdown in business with record sales across the board during most of 2008. By the beginning of the fourth quarter, however, there were real signs that 2009 could be a tough year, writes Euan Youdale.

Crawler crane manufacturer Kobelco summed up the widely held industry view, following its 2007 financial year second half figures. The company reported a 36.5% increase in consolidated sales, amounting to Yen 34.6 billion (US$ 326 million).

"In the Middle East investments are being made to rapidly expand production in the energy field and to improve infrastructure. Demand in South Korea continues to be brisk owing to the active shipbuilding industry. In Southeast Asia, demand for new cranes is growing due to the shortage of used machines. Demand in North America continues to expand, despite the slowdown in residential construction, while in Europe the market continues to be bullish."

Terex was also looking forward to substantial expansion at the beginning of 2008. This followed Rick Nichols' appointment to president of the cranes division and Steve Filipov's move to president of developing markets and strategic accounts.

"With these appointments, we are putting in place the leadership we need to meet the challenging objectives we have set for Terex, including our ambitious 12 x 12 in ‘10 goal. We are clearly aiming to grow Terex to have $12 billion of net sales with a 12% operating margin in 2010," said Tom Riordan, Terex president and CEO.

Terex Cranes remained strong throughout the year, while other divisions suffered a more difficult second half. Terex net sales for the crane segment, in the third quarter of 2008, increased 36.2% versus the third quarter of 2007, to $717.4 million. Excluding the translation effect of foreign currency exchange rate changes, net sales increased approximately 26%.

Elsewhere in the group, the worsening economic situation resulted in the aerial work platforms division cutting around 18% of its 5,000 worldwide workforce.

Slowdown

Perhaps, a glimpse of the financial uneasiness to follow came from Australian rental giant Boom Logistics and the resignation of its chief executive officer Mark Lawrence, in February. The announcement came in the same month that trading of the company's shares was halted ahead of its half year results.

They included a 22% fall in pre-tax profits, an AU$2.9 million (US$2.6 million) accounting charge relating to the 2005 acquisition of Sherrin Hire, and news that severe flooding in the Queensland Bowen Basin would impact on the company's second half performance.

The profits fall was primarily put down to a "pronounced slowdown" over the pre-Christmas, early January period.

However, business remained brisk for some Australian rental companies. In November Freo Cranes received the first machine in its AUD$20 million (US$18 million) order from Manitowoc for 15 Grove all terrains. The company believes it is the largest single order for all terrain cranes placed in Australia.

Many of the major manufacturers were expanding through acquisition throughout 2008.

Cargotec, which includes Hiab, Kalmar and MacGregor, is one of them. Company sales grew in the January to September 2008 period by 15%, amounting to €2.476 billion (US$3.135 billion) with services sales representing 26% of total sales. Sales for the third quarter were €848 ($1,074 billion).

As a result of lower demand and profitability, however, Cargotec announced in September that it would initiate restructuring measures, mainly in Western Europe and North America, affecting some 700 people. The measures are aimed at adjusting capacity in Hiab and improving it and Kalmar's profitability.

Manufacturing will cease in Salo, Finland, along with cost saving and efficiency measures in Finland; Dundalk, Ireland; Bispgården, Sweden and Tallmadge, Ohio, US.

The plans were expected to improve annual financial results by €25 million and provide costs and asset write downs of about €35 million.

Prudent measures

Manitowoc enjoyed huge growth in 2008, but reported a slight drop in its backlog in the third quarter.

Its 2008 third quarter crane segment sales totaled US$991 million, an increase of 22% on the third quarter of 2007. Operating earnings for the latest quarter were $139 million, up 24% on the same period last year.

Crane backlog for the quarter stood at $3.3 billion, nearly 26% higher than the previous year, but was down slightly from the second quarter of 2008. This decline reflects slowing demand for tower cranes in Europe, said the company

"The availability and cost of financing in Europe, Russia, and Africa began impacting the demand for tower cranes during the quarter. Accordingly, we have taken prudent measures to maximize the performance of the crane segment during this period of economic turbulence," said Glen Tellock, Manitowoc president and CEO, added.

The company has also announced that it will stop production of its National brand articulating boom cranes at the end of 2008. It is "a management decision related to market positioning of the National Crane brand," Manitowoc said.

Acquisitions

Most major rental companies have been displaying their wealth this year with large orders and buyouts. Notably, Netherlands-based rental house Mammoet, which announced a record US$90 million crane order from Manitowoc at ConExpo in March.

They included Manitowoc 16000 and 21000 models and 60 Grove GMK telescopic mobile cranes from across the capacity range. Most are for use in Europe but there was also demand from India, China Brazil and Australia. Delivery of the machines is scheduled for 2009 and 2010, said the company.

"We feel that the market is so good. We see another two or three years of good work. Demand for energy is so huge," said Roderik van Seumeren, Mammoet CEO, at the time. At the announcement, Mammoet's turnover was €600 million.

Leading French rental house Mediaco acquired competitor Group Sogecof, which has a fleet of 150 mobile cranes with up to 500 tonnes capacity, along with other equipment, and a workforce of 400. The acquisition expands Mediaco's network to70 depots with 700 cranes and 2,400 people.

In the first half of the year tower crane rental giant Arcomet acquired Singapore-based Y&P marketing, Terex Comedil dealer for that country and others in Asia. Arcomet is now the official Terex Comedil distributor for Singapore, Hong Kong, Macao, Malaysia, Taiwan and South Korea. This gives it the rental option and distribution of new cranes. "Asia is on the brink of a new growth decade after years of recession," said Dirk Thyeskens, Arcomet CEO, just after the deal was struck.

And in the fourth quarter of 2008, Private equity company Kirtland Capital Partners completed the sale of US-based Essex Crane Rental Corp to Hyde Park Acquisition Company for US$210 million. This came despite the economic concerns in the country.

Expansion

Manufactures have also been expanding, particularly their factories, demonstrating that although the market is down, production development is still part of future plans.

In October crane and handler manufacturer Sennebogen officially opened its new €30 million (US$40 million) factory in its home town of Straubing, Germany.

Manitowoc has expanded its factory in Niella Tanaro, Italy. The plant is now manufacturing all the company's two and three axle Grove all terrains, after production was transferred from the Wilhelmshaven factory in Germany.

Niella Tanaro also builds self-erecting and top-slewing tower cranes from the Potain brand. "The expansion here is important because it gives us greater capacity to build more cranes, but equally important is the capacity that is freed up at our other facilities," said Eric Etchart, Manitowoc president and general manager in November.

Tower crane manufacturer Wilbert Turmkrane officially opened its new €20 million (US$ 30 million) production plant in Waldlaubersheim, Germany in September.

"We are convinced we will be manufacturing more cheaply in a few years' time here in Germany than in the neighbouring countries to the east. Over the last two years, besides the enormous increase in wage costs, expenditure has also risen due to currency fluctuation, by 25%," said Franz-Rudolf Wilbert.

Demand

Tower cranes have been one of the segments hardest hit by the downturn. At October's SAIE exhibition in Italy, some manufacturers were reflecting on a 20 to 40% reduction in sales, with a potentially worse 2009 ahead.

Chinese manufacturer Yongmao was demonstrating its answer to falling export markets. Group revenue for the three months to 30 September increased by 44% to RMB204.9 million (US$30 million), from RMB142.2 million ($20.8 million). Domestic revenue was up 224% to RMB70.4 million ($10.3 million), while sales in Europe and the USA declined. The company said it would mitigate the impact of lower demand from these overseas markets, by focusing on growing its share of the Chinese market. It expects demand in China to continue thanks to infrastructure development.

The company has entered into a joint venture with Singapore-based crane rental firm Tat Hong Holdings, to establish a tower crane rental joint venture based in Beijing. Yongmao will hold 45% of this business.

But the company said the sharp increase in steel prices in the quarter, coupled with a shift in revenue mix towards a higher proportion of lower-margin ST Series tower cranes, pushed the gross profit margin down from 38 % in the second quarter of 2008 to 30.6%. Net profit for the group fell 25.7% to RMB22.1 million ($3.2 million).

Movement

All round crane manufacturer Liebherr is telling a cautionary tale following its report for the first six months of 2008. Turnover for the period increased 10.7% (US$ 484 million) to €3.864 billion ($5.014 billion) in the first six months of this year, compared to the same period 2007.

Production capacities were well utilised, although there were signs that demand was slacking off. "World economic growth has slowed down distinctly in 2008. At the beginning of the year there were still hopes that the remainder of the world would only be slightly affected by the threatening downturn in the US. But in the second half of this year, and especially in recent weeks, it is evident that the burden imposed by the crisis has jumped across to Europe, South America and Asia, and is already beginning to have adverse effects on the real economy," said Winfried Boehm, member of the directorate Liebherr-International.

Nonetheless, the group forecast a turnover increase of 10% for the whole of 2008, although it was unable to forecast a figure for 2009. "Following the dynamic growth phase of the past five years...a consolidation phase is likely to set in from next year onwards," concluded Boehm.

Loaders

This outlook is a common view among European manufacturers, including loader crane manufacturer Fassi. Indications are that company sales will drop 25 to 30% in 2009 on the continent, where it sells 75% of its products.

However, Fassi said there were still some strong markets, notably in Eastern Europe. France, Italy and Germany were also likely to fair better in coming months with a 10 to 20% decrease in sales. "Other markets, like Spain, are dead," he added.

Outside Europe, the Middle East, South East Asia and South America are still seeing strong sales; the downside being that they are not big markets for the company.

Fellow knuckle boom producer Palfinger recorded double-digit revenue growth in the first three quarters of 2008, but rates were lower than previous periods.

Revenue for the first three quarters of 2008 at the Austria-based loader crane manufacturer was €607.2 million (US$770.5 million), an increase of 20.3% compared to €504.6 million ($640.3 million) for the same period of 2007.

Revenue in the third quarter, however, was lower than in each of the first two quarters of 2008.

Herbert Ortner, Palfinger CEO, summed up the feelings of many crane manufactures and rental companies.

"The uncertain economic situation prevailing in many of our core markets is a great challenge for Palfinger, especially because its ramifications cannot be predicted right now. But at the same time we also see numerous opportunities for the months to come and the year 2009."