Prior to the recent onset of the Covid-19 pandemic, the consensus among industry observers was that the Chinese market for access equipment was booming, showing at last count a compound annual growth rate of 60% since 2014.
But where have things left off, now that the world stands in crisis due to a virus that started in the Wuhan province of China, caused widespread economic shutdown and left in its wake a questionable demand for construction equipment?
Off-Highway Research stated in its 2019 report, The Powered Access Industry in China that sales of mobile elevating work platforms (MEWPs) in China exceeded 40,000 units in 2018, reflecting an exponential increase over just a few years.
“The market for powered access platforms in China has seen very strong growth in the last five years, increasing from about 8,600 units in 2014 to 43,570 units in 2018,” the report says. “During 2014-2016 growth was strong, but in the last two years the market has seen annual expansion of over 70%. Such extraordinary growth has been the result of a number of major equipment manufacturers entering the market for the first time, as well as the emergence of a soundly based rental sector.”
Off-Highway Research believes there are now more than 50 OEMs active in China, both indigenous and international, in access. The segment has become an important manufacturing hub, producing in excess of 100,000 machines in 2018.
Demand for access platforms in China was expected to continue its robust growth, although at slightly slower rates than recent years, with predictions to reach 125,000 platforms per year by 2023. However, given what is going on in the world, what now? Will the Chinese market for MEWPs pick up where it left off post pandemic?
Production back up and running
Few can argue the world faces unprecedented circumstances right now, and no one can predict what they will mean to the construction equipment market over the next several months. On a bright note though, major American manufacturers of access equipment are reporting that their Chinese operations are back up to full or near-full capacity.
Matthew Elvin, CEO of Snorkel, says that like most companies, Snorkel was initially affected by a shutdown and then by reduced output once restrictions eased. “Today, our China facility is open and working to full capacity,” he says. “We have seen customer demand begin to return and businesses nationwide are returning to normal operation.”
Matt Fearon, president, Genie Industries, offers a similar scenario. “Our team in China faced the pandemic first, and in many ways, paved the way for how to deal with such large-scale health risk and resulting business disruption,” he says. “As the virus spread around the world, we used the processes developed by our China team to help manage the crisis in the US and Europe from the onset through the start-up phases.
“All Genie manufacturing sites were closed 23 March through to 13 April, with the exception of our factory in China and our global parts and services operations.
“We have started limited production in our Redmond and Oklahoma City factories [in the US] using the start-up protocol developed by our team in China who have safely resumed production. We will continue to prioritise team member safety, stay committed to stewardship in our communities and meet customer demands as our economies rebound.”
While the situation is constantly changing, the Chinese market is well into its recovery process and the reopening of business. Meanwhile, demand for equipment is continuing the previous course of its evolution.
While the market still features an overwhelming domination of scissor lifts, which accounted for 88% of annual sales in 2018 and a similar percentage of the total machine population, demand in other areas is growing. The preference for scissor lifts is the result of the prevailing indoor applications, but growth in demand for boom lifts is growing.
“Electric scissor lifts are extremely popular in the Chinese market, and demand for these units continues to grow,” agrees Elvin from Snorkel. “However, demand is also growing for boom lifts. Initially, we saw most demand for electric articulated boom lifts, to which we responded with local assembly of our A38E and A46JE models. Both of these models are proving popular with our customer base, predominantly in the rental sector. However, as aerial lifts are being used in a wider range of applications, our customers are also adding diesel-powered boom lifts to their fleets, and we recently started assembling our 14m articulated booms and our 18m telescopic booms for the market.”
He adds that Snorkel expect that demand for booms will continue to grow in this market, and the company will assemble additional boom models locally as that demand increases.
Genie’s Fearon says demand for aerial work platforms has continued to accelerate in China, and while the Covid-19 virus created eight-ten weeks of disruption in the Chinese market, it has steadily rebounded as the country returns to work.
“It’s an encouraging sign for all of us,” he says. “We’re committed to the region for the long-term because we see the adoption of aerial work platforms continuing due to the safety and productivity that they provide. Scissor lifts were adopted first, but we are seeing encouraging trends in booms as well. We see the adoption of aerials as having reached the tipping point and are positioned to support the growth.”
Ken McDougall, president at Skyjack (which currently does not manufacture in China) echoed the characterisation of growth potential for the Chinese market, but also struck a note of caution.
“Prior to the Covid-19 outbreak, we had witnessed particular growth in China, and given the nature of the Chinese economic model, we would see a government desire for that to continue,” he notes. “At the same time, it was noticeable that the rental market and the formation of rental companies was growing at a fairly rapid pace.”
He continues, “As with many regions, a growth curve like this with new entrants and a still relatively immature market creates questions on the financial health of some of those companies. The recent issues might have stressed those organisations and there may be some rationalisation as a result.
“There could be a wave of consolidation as a result of the economic crisis resulting from the pandemic,” he predicts, noting, “As the global impact of the Covid-19 pandemic continues to affect other countries and their economies, Chinese OEMs are faced with a fairly significant challenge. The Chinese OEM model has been heavily geared toward fulfilling overseas demand through exports. As much as 50% of the output was for export. Today those markets are sluggish to say the least. Seeing how the Chinese OEMs manage their way through this will be interesting, while the domestic OEMs face interesting times as well.”
For their part, Chinese OEMs say they’re focused on the same ideals as their western counterparts and have an understanding of different market demands in different markets.
A representative of Sinoboom comments that, “We have a profound understanding of the needs of customers in the North American market and the local culture, so as to enhance the overall response capacity of the company, enhance the ability to resist risks, and make the company more flexible.”
According to the company, Sinoboom is accelerating its global localisation program; all functions of the Sinoboom European subsidiary based in the Netherlands are localised, and it is expected to formally commence operations in July this year.
A local team will be formed, with a large local stock of machines and accessories, distribution by the Dutch subsidiary, and provision of PDI, after-sales support/training, dealer support, marketing and other functions. “In the future, we will set up more subsidiaries in key markets,” the company added.
At Zhejiang Dingli, the philosophy rests on surpassing the model they originated from. “The industry originated in the West and we stand on the shoulders of giants,” a representative from the company states. “The equipment of Zhejiang Dingli has better performance, but the price is basically the same as our North American competitors, or even lower.”
Presently, Zhejiang Dingli has branches in the US, South Korea, the UK, Italy and more. The company’s global sales is mainly in the form of dealers and agents but in the future the company revealed that they will be increasingly looking to online sales; something many companies are being forced to do at the moment.
There’s currently a great deal of uncertainty in global markets due to Covid-19; it has changed everyone’s buisness projections.
“Prior to the Pandemic, we have said that we anticipate a slowing in market growth in 2020 and recovery into 2021,” Skyjack’s McDougall says. “The Covid-19 issue has both heightened and extended that time-line. We see a delay in that 2021 growth and it will come from a lower basis as the Covid-19 effect makes its mark.”
He notes that there’s a lot of talk about stimulus packages and incentives, but the question marks center on what will be the lag effect on the recovery curve as economies open up.
“We have seen a staged start up in China and would anticipate a similar event across the world,” McDougall says. “What is not yet understood is what currently in process and approved projects will be delayed or otherwise impacted by the overall economic impacts.”
JLG forecasted calendar year 2020 to be a year of slow growth with sales picking up in 2021. However, JLG President Frank Nerenhausen says the view now is a bit more conservative as a result of the pandemic.
“With many job sites being shut down, rental utilisation rates are lower than we’d typically see at this time of year,” he comments. “Needless to say, we are watching closely to see what happens as construction sites reopen and the world resumes work. We remain hopeful for a quick recovery and strong demand late in the year.”
Elsewhere, Fearon expresses a sentiment many commentators share when he says, “I’m looking for a refund on my crystal ball! So far, 2020 has taken a course that none of us would have imagined and we are not anticipating a quick bounce back.
“Outside of China, we believe that it will take several quarters for fleet utilisation, rental rates and used equipment values to get back to healthy levels. China has been rebounding nicely, but without robust export markets, there could easily be an oversupply in China in the next 18 months.”
At Snorkel, Elvin says they anticipate demand will return as restrictions are removed, but it may take some time for businesses to recover.
“Banks and formal forecasts are showing a ‘V’ recovery from this pandemic,” he notes, “and if they can be relied upon, it could result in a strong late Q3 and Q4 2020.”
At this stage, a strong third and fourth quarter would be welcomed. However, even if growth takes longer to return in the access industry than all concerned would like, it is a sure bet that China will remain a key market.
Chinese access goes green
Electrification and hybridisation are key trends in the market
In recent years, a combination of factors has contributed to the exponential growth of the access equipment market in China, including robust general economic expansion leading to an influx of large-scale infrastructure projects and increasing demand.
“China’s social demographic dividend has declined, labour costs have increased, and the market pursues more efficient and convenient working methods,” according to a representative with Sinoboom, who adds, “People’s awareness of safety is constantly improving and increasing, which is gradually changing the methods and habits of working at heights.”
Likewise, China has recently paid more attention to environmental protection, and its control has become stricter, a representative from Zhejiang Dingli noted.
“On this basis, the zero-emission, pollution-free electrification of construction machinery
and equipment must be the trend. At present, Zhejiang Dingli has fully initiated the electrification process reform of existing equipment, 14 electric arm types have been born, the maximum working height reaches 30.3m, the maximum load is 454kg, and the market responds well.”
Sinoboom concurs, noting the electric and hybrid Mobile Elevated Work Platform (MEWP) sector will be the key market choice in the years to come.
“While humans are enjoying more and more abundant material life, they are also facing a deteriorating global environment,” the company states. “Faced with various threats such as environmental pollution, resource shortages, and ecological imbalances, environmental protection has become a primary focus for all countries.
“The green economy has become the development trend of the world economy, and the demand for products will also tend towards the field of green and environmental protection. Therefore, pure electric and hybrid MEWPS are one of the important development trends
in the future.”
Off-Highway Research: Distribution in China
Manufacturers and rental firms share mutual benefits and risks
The growth in rental investment has played a pivotal role in developing demand for access platforms in China. With the evident saturation of demand in the traditional equipment market, many distributors have been encouraged to invest in new business sectors, and there is the general belief that access platform rental offers better returns and a clearer cost structure without the need to hire operators.
Over the last two years, the rental sector has attracted major investment that has provided substantial orders for manufacturers and has been an important part in the increase of the total machine population. The development of rental has been well received by customers, who need to reduce the cost of machine ownership at a time when they need to work at height in a wide variety of applications.
In view of the great potential seen in the access equipment market, a number of major Chinese manufacturers have entered the sector with new product lines, and their entry into the market has greatly contributed to the substantial growth in demand over the last two years. To stimulate their growth in sales, manufacturers have developed sales channels through cooperation with major rental companies, and very often involve easier-than-usual financial terms and conditions.
Demand has been brisk, and many manufacturers are now increasing their production capacities. The extraordinary growth in the market, which has seen the total machine population more than double to over 100,000 units in the last two years, has resulted in increased exposure to risk, both for the rental companies and the manufacturers. Too many machines are now competing for a limited volume of work.
The result is that rental rates have fallen sharply, especially for the popular scissor lifts, and here revenues may be not even be enough to cover operating costs. On the other hand, lower rental rates have generally resulted in strong levels of fleet utilisation. The competition to attract rental customers has also resulted in an improvement in technology, and machines are designed and manufactured with better quality to meet the demanding operating conditions found in rental.
Battery technology is evolving towards maintenance-free types that may reduce rental customers’ operating costs. Lithium batteries have been introduced as an option to the traditional lead-acid type, although some concerns about the cost and dangers of lithium batteries have restricted their use to less than 20% of sales.