Fleets Pause for Covid

Dec. 11, 2020

Last year, the industry began 2020 concerned about global trade. In 2021, it’s a global pandemic.

Responses to the coronavirus invasion deeply disrupted the economy, which had been humming along with increased employment and talk of finally addressing infrastructure spending. But even as construction was labeled an “essential” business, meaning companies could continue to work, the backlog for new construction work was slowing. Any project dependent upon government funding fell under a cloud as tax revenues dropped at the state and local levels, and the costs of responding to the pandemic increased.

See the industry report in the 2021 Annual Report & Forecast.

Responses to our survey came in just prior to the national elections, increasing, perhaps, the level of uncertainly among respondents but also causing more equipment managers to participate. About 400 equipment asset managers responded to this year’s questionnaire.

Respondents in the 2020 Annual Report & Forecast anticipated a “very good” year ahead of them. Forecasts were also high for contract volume increases, with a net of 47.4 percent (those expecting increases minus those expecting a decline in volume). These expectations were as much an indication of the state of the nation’s economy as they were a forecast for the construction industry.

Covid crushed those expectations.

Managers of the nation’s fleets of construction equipment said 2020 turned out as an “average” business year rather than the “very good” year they expected just 12 months earlier. The year was the worst business year for respondents since 2014, the last year labeled as “average” or lower.

Respondents engaged in highway/heavy construction rated 2020 as “average;” those in general building rated it as “good.” Although the sample size was small, fleets involved in material production rated the year as “off.” Managers of the nation’s largest fleets, with estimated replacement values (ERV) larger than $10 million, also broke with the group and rated 2020 as “good.” These numbers perhaps reflect the ability of large fleets to weather the disruptions as well as the strength of the general building markets.

Large fleets look at 2021 to be on pace with 2020, and smaller and mid-sized fleets expect the year to bounce back. For fleets less than $10 million ERV, the outlook ranges from “good” to “very good.” Aggregated responses for all fleet sizes and vocations reflect an expectation that 2021 will be a “good” business year. Expectations fall short of the “very good” and “excellent” business years reported in 2017-2019, indicating that the pandemic has taken substantial air out of the industry. The survey closed right before the national elections, so some of the caution may be a result of not knowing what changes loom for the economic landscape as well as the mood in Washington for more pandemic-related funding and movement on infrastructure investment.

Contract volume trends reflect this, with 42.5 percent of respondents saying their revenue for 2020 was less than in 2019. About 30 percent said it had increased, leaving a net of -12.1 percent for the year. The expectation for 2020 was a net of 47.4 percent, a mark missed by a mile. Only the largest fleets reported a net for 2020 in the positive range for revenue growth.

Forecasts for 2021 are positive, however, with increases in contract volume expected across all fleet sizes. Overall, the net for 2021 is 22.6 percent with about 44 percent of all fleet managers expecting contract volume to increase in 2021 compared to 2020. One-third expect it to be the same as in 2020. The forecast is the lowest since 2014, although the same concerns driving business outlook certainly would suggest caution when it comes to volume projections.

Fleets rate their dealers' capabilities on technology.

Expectations for bid pricing in 2021 remain similar to what fleet managers forecast for 2020. About 62 percent of respondents expect bid pricing to increase this year, leaving a net of 51.6 percent. Last year, the net was 55.6 percent, which was a three-year low. Material prices are expected to increase in 2021, with a net of 73.6 percent. This is up slightly from last year’s expectations, with a net of 63.7 percent.

Despite the pandemic, fleet trends remain in positive territory. Of course, fleet expansions fell short of expectations, recording a net similar to 2014. The net for 2020 was 16.1 percent, about half of what was forecast for the year: a net of 30.5 percent. Expectations for 2021 are up slightly, with a net of 19.1 percent. Slightly less than two-thirds of respondents said the number of machines in their fleets remained the same in 2020 compared to 2019, and the same percentage say it will stay the same in 2021.

Managers for large fleets, with ERV greater than $10 million, were more positive. The net for 2020 fleet expansions was 25.0 percent (versus 16.1 for all fleets), and the expectation for 2021 is a net of 28.6 percent (versus 19.1 percent for all fleets). Fleet replacement rates were also higher among managers of large fleets. In 2020, that rate was 10.1 percent, compared to 9.3 percent for all fleets. The smallest fleets, those with ERV less than $500,000, reported a replacement rate of 7.5 percent in 2020 and expect to replace 9.1 percent in 2021.

As an aggregate, however fleets reported a replacement rate of 9.3 percent: considered a healthy number, although slightly off the 10.1 percent forecast for the year. Fleet managers forecast a similar rate of replacement for 2021, 9.3 percent.

The pandemic put a pause—or at least a pump on the brakes—on fleet plans. The danger, of course, is that delayed replacement threatens overall fleet health. Based on responses at the end of 2020, fleet managers should be positioned to absorb a short delay. More than half, 52.7 percent, of respondents said their fleet is in “excellent” or “very good” condition. This is up from 48.5 percent in 2019 and 43.5 percent in 2018. Large fleets, with ERV greater than $10 million, reported more positive fleet health, with 67.8 percent reporting fleet condition as “excellent” or “very good.”

On the other end of the scale, 9.3 percent of respondents described the condition of their fleet as “fair” or “poor.” Only 4.8 percent of large fleets said the same.

Equipment acquisition and labor

One in five (19.3 percent) fleet managers said rising acquisition costs are not affecting their acquisition plans. Others are adjusting plans in order to manage for increases. About a quarter, 23.6 percent, said they will buy fewer machines, and 15.3 percent will buy used rather than new. One in five, 21.4 percent, of large fleets will increase their new-equipment budget, compared to 12.3 percent of all fleets able to increase budgets.

Acquisition strategies remain similar to previous years, with the exception of those fleets using outright purchase. In 2020, 47.6 percent said they purchase major machines (more than $25,000) outright, compared to 38.2 percent in 2019. More than one-third (39.3 percent) purchase by financing equipment, 16.2 use rental/purchase agreements, 10.5 use lease/purchase agreements, and 9.2 lease.

Short-term rental is an acquisition strategy used by 13.9 percent of respondents. About one-quarter (26.8 percent) of respondents increased their use of short-term rental in 2020, compared to 2019, and 16.3 percent decreased their use. For the majority (57 percent), however, use of short-term rental remained constant last year.

Not surprising, respondents cited changes in workforce in 2020. Steady increases of the past five years were replaced by decreases, no doubt related to the pandemic. Last year, 21.5 percent of fleets increased their workforce compared to 2019, and 28.5 percent decreased it. Half of respondents said they were able to hold steady. In the service and maintenance area, the numbers were not as stark, with 61.5 percent reporting no change in the number of workers, and 20.5 percent decreasing the number of employees in this key area of fleet management.