2008 Industry Giants: Contractors Shift to Fleet Maintenance Mode

By Larry Stewart, Executive Editor | September 28, 2010

The percentage of firms spending more on maintenance and repair have declined as expected when work volume is falling, but maintenance spending has lost much less ground than fleet replacement. Giants such as Iowa's mass earthmover, McAninch, are shifting to maintenance mode.

Twenty-four percent of Giant miners – usually accurate forecasters – were surprised by unexpected volume growth last year. And if the globe's developing economies continue to grow despite Western stagnation, some miners will again pound the haul roads more than expected.

Process innovations such as this remote-controlled Bobcat unloading cement barges at Holcim's New Orleans terminal may be the key to many materials-producing Giants' survival if their projections for the coming months are accurate.


Percentage of Giant firms expecting increased work volume

Recessional housing construction in 2007 sparked work slowdowns for 21 percent of Giants — only 15 percent were expecting it. Spreading economic malaise early this year combined with daily reminders at the fuel pumps of rising commodities and materials prices to breed unprecedented pessimism about 2008 work volume. Thirty-eight percent of highway-and-heavy contractors and 58 percent of materials-producing Giants expect work volume to fall.


Percentage of Giant firms forecasting booming business

The 22 percent of Giant firms expecting very good or excellent business this year approximates outlooks during the slump of 2002 and 2003. The closest we've been to 38 percent of Giants forecasting fair to poor business was in '02 and '03. Only 19 percent of highway-and-heavy contractors expect booming business in 2008, and no Giant materials producers expect excellent results. Giant general builders are much more upbeat.

Percent of Giants expecting increased and decreased fleet replacement

Despite actual spending that has outstripped forecasts each year in 2005, 2006, and 2007 (by as much as 14 percent in '06), the portion of Giant equipment professionals that anticipate spending more on equipment in 2008 plunged 10 points to 31 percent. Nearly as many (30 percent) expect fleet spending to decrease. Just 25 percent of Giant contractors expect to spend more this year on equipment, and 36 percent forecast fleet spending to fall.


About CE Giants

The Construction Equipment Giants list represents as closely as possible all firms that own fleets with replacement values of $25 million or more. Equipment-replacement values are compiled by Construction Equipment magazine using information provided by the individual companies. When figures are not provided (identified with an asterisk), Construction Equipment estimated fleet value. 

Construction Equipment's Giants reported an overall business outlook that reflects the desperation of economic news dominating North America when Giants surveys were on their desks in late spring. Oil rising to $133 per barrel and diesel fuel escalating to $4.75 per gallon were pushing the prices of everything beyond bearing. A ton of steel rebar could cost more than $1,000, delivered. With consumer confidence shaken, loss of single-family housing starts accelerated after a disappointing 2007. Commercial-construction growth had begun to show signs of weakening.

More than half of CE Giants (firms that own more than $25 million worth of construction equipment) reported increased work volumes in 2007 — which is good but significantly less than 82 percent and 74 percent that actually worked more in 2006 and 2005 than the previous years. Only 15 percent of Giants forecast work volume to drop early in 2007, but when asked last May about how 2007 had actually gone, 21 percent of Giants recorded falling 2007 work volume.

Highway-and-heavy contractors, the predominant vocation on the Giants list, had taken a body blow. Twenty-three percent had seen 2007 work volume drop, while only 17 percent had expected it. The second largest Giant vocation — materials firms — had been blind-sided. Twenty-four percent forecast reduced work volume for 2007, but 58 percent of the largest quarries, cement and asphalt makers were stunned by falling revenue last year.

Beleaguered construction Giants, further depressed by this spring's relentless economic slide, sank the 2008 Giant forecast to unprecedented lows. Only 32 percent of Giants expect work volume to rise this year, and 37 percent of firms expect volume to remain the same as in 2007. Construction Equipment's Giants research has never seen as much as 31 percent of firms expecting work volume to drop in the past 15 years.

Giants seem to be remembering the slump early in this decade, with the 22 percent of firms expecting business to be very good or excellent this year approximating forecasts of 2002 and 2003. Likewise, the closest we've been to 38 percent of Giants forecasting fair to poor business was percentages in the mid-thirties in 2002 and 2003.

Highway-and-heavy contractors and materials firms set the tone. Just 22 percent of Giant highway-and-heavy contractors forecast work volume to increase this year, and 38 percent of them expect volume to fall. Only 8 percent of Giant materials firms expect to work more in 2008, and 58 percent of them are braced for reduced volume. These Giants' forecasts have never plumbed such depths.

Twenty-three percent of Giant contractors expect very good or excellent business in 2008, and 40 percent forecast a fair-to-poor 2008. Ominously, no Giant materials producers expect excellent business results this year, and 58 percent expect a bad year.

There's no way to paint 2008 in anything like rosy economic hues, but since oil prices finally stopped climing mid-summer and Washington delivered some important housing stimulus, there may be reason to hope that construction-dependent Giants overreacted in the spring's bunker mentality.

Moderating crude-oil prices (down $32 per barrel in mid-August to $113) dropped fuel prices and encouraged a rally in consumer confidence. And just as some predicted sharpening deceleration of single-family-housing construction in the last half of the year to dollar and unit volumes 30 percent below 2007's depressed levels, President Bush signed the American Housing Rescue Act into law July 30 to stimulate housing demand.

The Housing Rescue Act includes a refundable tax credit of up to $7,500 for first-time homebuyers, as well as provisions aimed at preventing some foreclosures and making housing more affordable. It's early to gauge how effective the legislation might be, but some homeowner/investors are likely to jump at housing bargains with any improvement in consumer confidence or other signs that we've reached the bottom of the housing market.

It should be noted that extraordinary conditions have masked the strength of non-residential construction, and Construction Equipment's general-builder Giants forecast the remainder of the year much more positively than heavy-construction Giants. Reed Construction Data (RCD), an operating division of the company that publishes Construction Equipment, Reed Business Information, reports nonresidential starts were down 6.2 percent between September and February compared to the same months in 2006 and 2007. But nonresidential starts were even with 2007 totals in March, April and May. Year-to-date value of construction starts, excluding residential contracts, through June 2008 totaled $139.4 billion, a 4.8-percent drop versus the first half of 2007. But starts in the month of June were 10.9 percent higher than in May.

June's $21.1 billion in non-residential building starts sets a new record for this sector, although the nearly 20-percent pace of construction-materials inflation means that inflation-adjusted starts have declined from the year ago peak. RCD warns that inflation-adjusted nonresidential starts June to August are likely to appear weak compared to the exaggerated peak in 2007.

Sixty-five percent of general-builder Giants forecast work volume to increase this year and 56 percent of them expect 2008 business to be excellent — the most encouraging projection of any Giant vocation. General builders' volume-growth predictions have declined gradually over the past five years, but their business-quality forecast has remained consistently strong.

The percentage of Giant firms that decreased equipment spending almost tripled from 2006 to 2007, and this year's forecast of fleet-spending increases is lower than it has been in 15 years. Just 25 percent of Giant contractors expect to spend more this year on equipment, and 36 percent expect to spend less. Not surprisingly, materials-producer Giants are more pessimistic about fleet-replacement budgets than any other Giant vocation. Only 12 percent plan to spend more on equipment this year, while 56 percent expect to cut equipment spending.

Percentages of Giants increasing spending on rental equipment over the past three years have declined just as steeply. Firms spending more on maintenance and repair have declined as you would expect with reduced work volume, but maintenance spending has lost much less ground than fleet-replacement spending. Giants are moving into maintenance mode as their replacement budgets have been cut.

Nevertheless, half of Giant miners, 38 percent of utility firms, and 36 percent of rental firms expect to spend more on new fleet this year than in 2007. Mining and utility Giants' business results in 2007 were better than forecast, and much better than other vocations'.

More Giant miners (44 percent) are expecting an increase in work volume this year than in 2007, but a hefty 30 percent is bracing for a fall. These usually accurate forecasters may be in for another surprise, though. Only 39 percent of Giant miners forecast growing work volume in 2007, yet 63 percent of them reported actual increases when asked about 2007 in this year's survey.

Global mineral and energy demand is being maintained by consumption in what some analysts are referring to as the BRIC countries — Brazil, Russia, India, and China. Developing economies' growth despite economic slowdown in the industrialized West could mark a change in global economics. Since industrialization, the BRIC and other developing economies have generally been coupled in a train pulled by the engines of North America and Europe. When western economies slowed, the BRIC economies slowed. Mining Giants' anticipation of reduced volumes this year is predicated on that history. If developing powerhouses such as Brazil, Russia, India and China continue to grow regardless of malaise here and in Europe, global mineral demand could sustain volumes for Giant miners.

The BRIC appetite for energy and construction materials is likely to keep fuel and steel prices high, as well. But the value of the U.S. dollar relative to foreign currency stabilized somewhat mid-summer, reducing oil speculation that had been helping drive fuel inflation. Stable energy costs should relieve a bit of inflationary pressure on all goods, but if BRIC economies continue to grow, fuel, food and commodity prices, if they stabilize, are likely to do so at high levels. For example, the steel industry isn't looking for any real drop in crucial rebar costs until 2009.

There are other challenges to face before the year's end. Falling user-fee revenues are expected to drop the Highway Trust Fund balance too low to fund authorized spending on the federal road program, SAFETEA-LU, in 2009. Without congressional innovation, the country would have to cut planned spending by 30 percent. At press time the House of Representatives had passed a measure that addresses the issue by moving $8 billion from the general fund into the highway trust fund, but the Senate continued to struggle for a solution that would satisfy conservative objection to what is thought to be further deficit spending. (Congress sent President Bush an $8 billion rescue package for the highway trust fund on September 11, 2008.)

The remainder of 2008 will be tough. How tough will be determined in part by the stamina of the BRIC economies and resolve in Washington to keep transportation funds moving into the economy.

Top Construction Giants
Company Fleet-Replacement Value (millions) Overall Giants Rank
* Construction Equipment estimate. 
Source: Construction Equipment Giants list, 2008
Kiewit $2,200 11
Great Lakes Dredge & Dock $1,065* 24
Quanta Services $1,000* 27
Granite Construction $875 30
Elmo Greer & Sons $475 49
Las Vegas Paving $433 58
Fluor Corp. $427* 60
Weeks Marine $402 62
Bechtel Corp. $400 63
Skanska USA $400 67
The Walsh Group $400 68

Top 10 Materials Giants
Company Fleet-Replacement Value (millions) Overall Giants Rank
* Construction Equipment estimate. Source: 
Construction Equipment Giants list, 2008
Martin Marietta Aggregates $2,861 5
Lehigh Heidelberg Cement Group $2,850* 6
Lafarge North America $2,638* 7
Vulcan Materials Co. $2,397* 9
Oldcastle Materials $2,192* 12
Cemex North America $1,675* 15
MDU Resources $1,200 21
Holcim US $874* 31
Buzzi Unicem USA $469* 54
Titan America $300 95*

Top 10 Rental Giants
Company Fleet-Replacement Value (millions) Overall Giants Rank
* Construction Equipment estimate. 
Source: Construction Equipment Giants list, 2008
The Cat Rental Store $5,500* 1
United Rentals $4,200 2
Hertz Equipment Rental Corp. (HERC) $3,000 4
Sunbelt Rentals $2,314 10
RSC Equipment Rental $1,696* 14
GE Commercial Finance $1,200 20
NES Rentals $1,000 26
Maxim Crane Works $840 33
H & E Equipment Services $799 34
All Erection & Crane Rental $596 41*

Top 10 Mining Giants
Company Feet-Replacement Value (millions) Overall Giants Rank
* Construction Equipment estimate. 
Source: Construction Equipment Giants list, 2008
Rio Tinto America $2,467* 8
Arch Coal Inc. $1,730* 13
FCX $1,430* 16
Drummond Co. $1,300 17
Vale Inco $1,210* 19
BHP Billiton $1,191* 22
Peabody Energy Corp. $1,103* 23
Suncor Energy Inc. $1,035* 25
North American Coal $980* 28
Newmont Mining Corp. $900* 29

Top 10 Government Giants
* Construction Equipment estimate. 
Source: Construction Equipment Giants list, 2008
Company Fleet-ReplacementValue (millions) Overall Giants Rank
U.S. Army Engineers $3,267 3
Texas Department of Transportation $600 39
Virginia Department of Transportation $550 43
New York Department of Transport $400 65
U.S. Army Corps of Engineers $375 72
North Carolina Department of Transportation $350 79
Pennsylvania Department of Transportation $300 89
South Carolina Department of Transportation $300 90
Tennessee Department of Transportation $250 106
Minnesota Department of Transportation $220 120

Top 10 Utility Giants
Company Fleet-Replacement Value (millions) Overall Giants Rank
* Construction Equipment estimate. 
Source: Construction Equipment Giants list, 2008
Southern Company $463* 53
Exelon Corp. $462* 54
Verizon Communications $450* 56
Qwest $400* 66
Florida Power & Light $398* 69
MidAmerican Energy Holding Co. $364* 74
Los Angeles Department of Water & Power $305 85
Tennessee Valley Authority $300 92
Dominion $296* 96
Entergy Corp. $291* 97