Adversity and opportunity

By Euan Youdale25 September 2015

A JLG 12000 SJP at a refinery

A JLG 12000 SJP at a refinery

There are plenty of challenges to be found for AWP companies in South America, reports Euan Youdale, with some tough economies and a diverse range of applications across the continent.

It goes without saying that South America is an incredibly diverse region with different levels of AWP adoption among its nations. Brazil, being the biggest market, is a good place to start.

Brazil has seen the FIFA World Cup come and go, along with a huge corruption scandal at the state-owned oil company Petrobras and a generally weakening economy. Last year GDP barely grew. In the first quarter of this year it contracted by 1.6%, compared to the same period last year and is expected to shrink by as much as 2% in 2015.

According to Raphael Cardoso, Terex AWP business unit director, Brazil is in the midst of “interesting times”. “The anti-corruption programme that is now in place has driven us to a political crisis that is affecting the construction market,” Although, Mr Cardossa adds, “For sure the country will be more prepared and safer for future investments after that.”

In addition, says Mr Cardossa, Brazil has many opportunities for growth as it needs urgent infrastructure investments, particularly if the country is to get back to 5% year-on-year growth. “The infrastructure that we have nowadays, is a barrier to that.”

He adds, “We have learned how to operate in a cyclical business, especially in an emerging market. We have in place a flexible cost structure that allows us to adapt the size of the business to support the market needs.”

Another example of the difficulties in Brazil comes from the rental division of Brazil’s biggest AWP company Mills. It saw a 24.5% drop in net revenue for the second quarter of this financial year and plans to reduce its fleet by 10% over a three year period. Downward rental rates were responsible for a significant part of that figure, while lower rental volumes accounted for the remainder. As a result of the market conditions, Mills is continuing its policy of selling semi-new machines, reaching a value of R$4.5 million in the second quarter, a 16.4% rise on last year. Planned sales for the second half are set to reach R$40 million and will rise to a R$808 million, based on acquisition cost, or 10% over a three year period.

Regional trends

Luca Riga, Haulotte’s Latin America manager, says 2015 has re-established the trend that its top three markets in South America are Argentina, Brazil and Mexico - the difference being, this year Mexico has taken over from Brazil.

Brazil used to have more than 50% market share, says Mr Riga, until 2015. The end of the FIFA World World Cup, the Petrobas enquiry and a general economic slump have all contributed. This may be a critical period for the industry, says Mr Riga. But he reminds us that over the previous five years there was double or triple digit growth. The AWP business is a cyclical one, therefore, he says, the forecasted slowdown in 2015 and 2016 is normal in the overall scheme of things.

For JLG, Mexico, Colombia and Panama are its main markets of focus, given the growing demand in those countries for construction, industrial, and oil and gas. “In Chile and Peru, the mining sector continues to be strong. In Brazil, the shipyard and construction sectors are the areas of growth,” says Timothy Morris, JLG Industries senior vice president sales, market development and customer support-Americas. “Mexico continues to be a strong market for construction related equipment,” Mr Morris adds.

Turning his attention to Brazil, where the manufacturer is celebrating its 15th anniversary in the market, Mr Morris, adds, “One of the main challenges we see in Brazil is the currency exchange rate. Because of the devaluation of the Brazilian currency, much of the equipment has become more expensive. Investments are being redirected to other countries.

“Another challenge is the cost of capital. The government has increased interest rates; therefore, the costs have increased, making capital harder to access.”

For South America, the dollar appreciated globally, not just in Brazil, so investments are returning to the USA and this impacts the overall industry. JLG has a financial specialist team ready to assist its customers and a full-service office to aid this situation.

According to Mr Cardoso, Colombia and Chile are growing markets for Genie and offer tremendous potential, mainly due to infrastructure investments. “I’d like to add that the safety culture has been changing in those markets and we might see considerable growth due to that as well. Argentina is another potential. A couple of years ago they closed the market to imported machines and it has generated a repressed demand for new equipment.”

Chile is giving some signs of recovery after two years of uncertainty with the new government, adds Mr Cardosa, “On the other hand, the commodity prices are putting some pressure on the economy - it’s the same situation with Colombia. “They have a lot of opportunities with infrastructure investments but due to the oil prices they are getting some pressure as well. Argentina is a big market ‘under a spell’, waiting to wake up. And the last part of the equation is the soft growth in China that is impacting all major countries in South America.”

Focused resources

Malcolm Early, vice president, marketing, Skyjack, agrees, “Over the last 12 to 18 months, the Brazilian market has shown a significant cooling off despite projects such as the FIFA World Cup and the Olympics. Although the Mexican market is somewhat behind in terms of sales, it has been in positive territory thanks to an increased manufacturing industry.”

Although the market is flatter at present, Skyjack has strengthened its presence in Brazil in the past couple of years. “We have focused resources here and built a strong sales network and we have been very pleased with the response from customers.”

The market slowdown in South America, along with foreign exchange issues has somewhat caused a “double whammy”, says Mr Early, “Although Skyjack cannot hide from the slowdown, we continue to enjoy good market share in scissor product and that has to be positive.” Are manufacturers likely to design specific machines for the South American market, like we see in Asia? As is its policy worldwide, Skyjack’s response to this is a confident no.

“The main issues we have focused on are both the results of geographic distance,” says Mr Early. “Like all rental industries the market demands products that are simply designed and easy to work on, Skyjack has that DNA. If a product does need repairs the availability and commonality of parts is particularly important. That is why Skyjack designs AWPs with commonality of parts in mind, which enables industry-leading parts stock and parts delivery times.”

As Mr Riga explains the market is driven by the articulating boom and electric and diesel scissor product mix. South America’s young AWP market, now 10-15 years old, is well behind North America and Europe, and this explains the concentration in these two product families, says Mr Riga. Although there are inevitably exceptions to the rule. “If we analyse the region in detail we face different scenarios from country-to-country. For example, Brazil has a good balance of product mix, except for telescopic booms, while, in Peru we see a market mainly focussed on big booms.”

If we analyse these countries further, Mr Morris says in Peru and Chile, for example, the economy is driven by the mining industry; therefore, the most popular models are those with exceptional reach, usually 60 ft and higher. “This includes the telehandlers RS series. The new JLG RS telehandler was designed specifically based on feedback from customers throughout Latin America who requested a machine that was simple to use with a comfortable cab, a single joystick control and enhanced visibility from the cabin. Customers wanted a machine with straightforward service and low maintenance requirements, making it an attractive addition to any rental fleet.”

Regional differences

Whereas in Brazil, confirms Mr Morris, the most popular equipment includes electric scissors that reach heights of 32 ft, and 45 ft working height articulating booms. “However, ultra-booms are becoming more popular because of the maturity of the market.”

According to Snorkel, its A46JRT diesel articulated boom lift is one of its most popular products in the region. “It is a versatile lift, which is compact enough for use in outdoor maintenance applications but is also robust and can handle the demands of the rental industry as well as tough construction sites.”

Telescopic booms are popular in the mining sector in Latin America, “Thanks to their heavy duty steel construction and simple, hydraulic-based design, these lifts perform well in tough conditions, and are easy to maintain.”

From a Genie perspective, Mr Cardoso observes that South America is closer to the European market where the job sites are confined and articulated booms are more popular, compared to the USA. “We have one particular operation that is different in other regions. In mining for instance in Chile, the machines have to work at high altitudes and with very low temperatures and some engines are not designed to work under these conditions. So in this case, we have worked with our customers and developed a special kit for our machines to meet the needs of this kind of operation.”

The rule of thumb, among the manufacturers is to hold off plans for further facilities or major investment in South America. Terex has two facilities in the region, one located in Betim, Mina Gerais where it produces utility machines and another located in Cotia, Sao Paulo where overhead cranes are produced. In 2013 Terex opened a parts centre in Jundiai, Sao Paulo and in 2012 opened a PDI and machine distribution centre in Vitoria. However, the manufacturer is in the final stages of opening a Terex office in Santiago, Chile to improve customer support.

Skyjack has a sales and service operation in Indaiatuba in the state of São Paulo in Brazil. Elsewhere across South America, the company works through a dealer network. For the foreseeable future that will remain the case – at least until the Brazilian economy strengthens, explains Mr Early.

Snorkel has appointed a strong network of independent distributors in Latin America. These distributors hold stock of Snorkel lifts and parts and are highly trained to support Snorkel lifts in the field.

JLG entered the Latin American market in 1997 when it began to sell aerial work platforms in Brazil where it has a full-service office including eight staff in the technical service, aftermarket parts, training and new product/service information. It also has a string of distributors in the country.

For Mexico, Central America, South America, and the Caribbean, JLG has a team of district service managers that support those areas. “We are invested in Latin America and have plans to continue to deliver innovations to the industry,” adds Mr Morris.

Manitou has three branches in South America: one subsidiary in Sao Paulo, Brazil, an office in Santiago, Chile, plus another office in Miami, USA, for Central America.

Today Haulotte has four subsidiaries in the region, located in Argentina, Brazil, Chile and Mexico, as well as seven country dealers and seven commercial agreements. On top of that there are 30 authorised service providers. “Haulotte’s goal is to have a fully satisfied customer; we analyse market by market constantly to evaluate where is strategically important to be present with a direct subsidiary, a country dealer or a commercial agreement,” concludes Mr Riga.

Big trucks

The manufacturers of big truck mounted platforms have not had much of a presence in South America tarditionally, although that is set to change.

While Bronto Skylift has many firefighting units in the continent, with more than 60 in Brazil alone, the demand for platforms used outside of that application for general access has been minimal. “It has always been quite a difficult area and culture for big access applications but now we are looking and putting effort into this part of the world also for the access business,” said a company spokesperson.

The manufacturer has its first big unit, a 90 m working height S 90 HLA on a Volvo 8x6 chassis, going to Chile soon. “This is the first of this kind of big unit in the whole of South America,” said a company spokesperson.

The customer is Grupo Vertikal S.p.A. which will offer the unit for rent, basically for maintenance support on existing and new wind farm projects and also on industrial and mining construction sites. Also, it will be looking at potential projects in neighbouring countries Peru, Argentina and Uruguay.

Another example is Ruthmann, which is targeting South America as one of its next growth markets. It wants to develop the market by cooperating with one or more existing regional companies that has sales and service structures in place. According to a company spokesman, working with existing players in the market is imperative in understanding differences in prices, competitors, languages, business cultures and customers behaviour. “Also, and most importantly, is to have a fast and competitive after sales service in place, this means having educated regional acting employees, regional availability of spare parts and short distances to the job sites, etc.”

This can happen said the manufacturer through used or new sales - a 47 m Ruthmann was sold to Chile this year.

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