How The Heavy Equipment Shortage is Affecting the Construction Industry
It's no secret that there have been many challenges for the construction industry since the start of the pandemic and almost none have been bigger than the supply chain issues. But with the housing market preparing for full-scale development again, larger projects being planned, the implementation of the Infrastructure Investment and Jobs Act, and construction employment rates slowly getting back to pre-COVID figures, the construction industry looks primed for growth and normalization again.
And while all the signs that the industry is ramping up again are certainly exciting, there are still some supply chain trends that could be concerning. Whether it's with materials or heavy equipment, data and trends are suggesting that the supply chain issue could carry over into 2023.
We're going to cover what that means for heavy equipment supply including:
Let's get into it.
What's Behind the Heavy Equipment Shortage
It's easy to simplify that the problem lies solely at the hands of the pandemic but that only tells part of the story. That's certainly what has exacerbated a majority of the issues, but those underlying conditions have continued even as life has started to normalize. Labor challenges, shipping prices, higher steel and material prices, and electronic component shortages are just a few of the issues that have affected manufacturers in virtually every industry. Together, this has combined to create a slow rebounding effect for heavy equipment manufacturing making it difficult to get ahold of new products and machinery in good time.
This is a major problem, especially considering that, naturally, the demand for heavy equipment has gone up as development has started to normalize and even accelerate in some regions of North America. According to the Association of Equipment Manufacturers, 95% of its members are experiencing supply chain issues within their business. And many suppliers and heavy equipment OEMs have stated that they could be selling more equipment if only they had more available.
According to the AEM, the demand for construction equipment is only expected to grow over the next few years as many fleet owners, rental companies, suppliers and contractors are looking to replace their aging equipment. And as other material costs are still affected by the pandemic and supply chain issues in their own markets, managing your equipment budget will become even more significant and important for project managers and construction owners. There is hope that the shipping prices and material shortages will normalize soon, but these trends are often unpredictable.
With demand for machinery increasing, and suppliers and OEMs continuing to face challenges, you might be asking yourself what this means for equipment ownership. And the trends are quite similar.
Owning or Renting Equipment During the Shortage
There's no easy answer to this question as it really comes down to preference. However, there are some different thought processes and approaches you could apply based on the data and numbers that are out there at this time. We're going to cover the trends that are happening in the ownership market, then dive into the rental market.
Should I Be Buying Heavy Equipment?
This really all depends on how much equipment you need, the scale of the projects that you're completing, whether you prefer new or used equipment, and whether you work in a niche market or not. As mentioned above, the demand for new heavy equipment is high, but OEMs aren't manufacturing enough to keep up with demand and suppliers are selling out their inventory whenever they receive it. Because of this, purchase orders for new equipment aren't being fulfilled fast enough. This is causing projects to slow down and long waitlists for pieces of equipment.
As such, most contractors are finding purchasable equipment any way they can whether that's new or used equipment. And with equipment availability and stock under so much constraint right now, many contractors are forced to hold onto their inventory for longer periods of time. While there is nothing wrong with this, it does typically create a trick-down effect meaning that used or new equipment is entering the rental market more slowly, causing those who rely on renting equipment to have their own set of problems. It also can add more costs to your own maintenance and equipment quality.
And if you are attempting to purchase equipment right now, you're probably noticing increases and fluctuations in pricing. This is due to both the lack of supply and the increase in the cost to manufacture a lot of the equipment and attachments as steel prices have increased and electrical components are facing manufacturing and distribution challenges.
Whether you prefer to rent to buy is up to you, but depending on the location that you're working in, the job that you've been assigned, or the wait time to receive your orders, renting might be the best option right now.
Should I Be Renting Heavy Equipment?
As mentioned above, the shortage is requiring suppliers and heavy equipment fleet owners to hold onto their equipment longer. This wasn't necessarily a huge concern at the start of the shortage as the rental markets faired pretty well, but has become more of a pressing issue in the last few months. As owners hold onto their equipment longer, this inevitably leads to means less machinery entering the rental market, causing a trickle-down effect on equipment availability and access. And just as owners are holding onto their inventory longer, rental companies have to do the same with their fleets, while also investing more in maintenance.
What we've seen is that rental companies typically hold onto their fleets between three to four years before turning them over for newer machines. But that's just not possible right now. With owners keeping machines out of the rental market, rental houses are forced to get the most hours out of the equipment they have access to. What this has caused is incredibly high utilization rates for rental equipment but also an increase in the wear and tear of their inventory, affecting the cost to maintain their equipment's safety.
High utilization rates are good as it means renters and contracts are using the equipment effectively, but the circumstances that are surrounding it aren't great for long-term results.
What This Means for Rental Companies and Contractors
As mentioned above, rental companies and suppliers are being forced to hold onto the equipment they have longer which can increase the maintenance costs quite a bit. But beyond that, it also means that they need to look to utilize that equipment more. For rental houses, that might mean prioritizing longer rental contracts so that there are fewer transport costs or risks of having it sit on your lot for unnecessary periods of time. Having inventory come in and off the lot during high demand might seem like a better option, but so is financial security.
It also might change the way you organize the maintenance scheduling of your equipment. As machinery naturally gets older and worked harder, the wear and tear on the equipment will change meaning that you should be investing ample time and resources into the repair and upkeep of your equipment. Especially as you are renting out the equipment to customers and contractors who are relying upon quality equipment.
For contractors and construction companies, especially those who own their own fleet, they will have similar concerns around the maintenance and upkeep of the machine. However, just as rental companies will want to utilize their equipment by keeping it in circulation as much as possible, contractors and site leaders will be wanting to make sure that they are getting the most out of the equipment rentals and fleet that they have.
As rental prices fluctuate due to demand and supply, having equipment just sit idly on the job site is not ideal for the bottom line, even during the best of times. Getting the most out of your equipment is always one of the most important goals for construction workers and it's even more relevant right now.
The Shortage Moving Forward
As mentioned, there is hope that the shortage will affect the industry less in 2023. However, with purchase orders not being fulfilled for several months, overall inventory in short supply, and the cost of equipment going up, it's better to have a long-term approach to how you go about managing equipment rentals or ownership.
At DOZR, we're making the heavy equipment rental process easier for contractors as we've become the largest online equipment rental marketplace with over 15,000 suppliers across North America. If you're wanting to rent equipment, there's no better place to find it than on the DOZR Marketplace. Search now for equipment and attachments.