Materials producers continued to flounder in 2007, mining and energy fleets missed forecast, and utility fleets stayed strong. All three vocations tracked by Construction Equipment expect 2008 to be slower than 2007, but those actual ratings will stay diverse.
Here's how each of these nonconstruction vocations report on their fleets.
After finishing the 1990s with three consecutive “very good” years, materials producers have seen anything but since then. Last year fell short of the expected “average” year, instead coming in as “off.” The outlook for this year is also “off.”
The decline is evident in the work volume trends, both the numbers for 2007 and expectations for next year. About 21 percent of materials producers said volume increased last year, offset by 48 percent who reported volume decreased, leaving a net of -27. This is the first negative net reported since 2003, and the lowest in more than a decade. In addition, it was far below the net of 8 projected for 2007.
Materials producers do not expect much of a bounce-back this year, either. Although the number expecting increased volume remains at 21 percent, there are still 31 percent expecting volume to decrease in 2008, leaving a net of -10. Competition is “intense” or “very competitive” for 80 percent of materials producers.
Fleet size continues to grow, with results last year above expectations. One-third of the fleets expanded in 2007, and 9 percent decreased fleet size for a net of 24. The forecast net for last year was 18. The outlook for 2008 fleet expansion is a net of 8: 15 percent expect to increase fleet size minus the 7 percent who forecast decreased fleet size.
The replacement rate, on the other hand, has shown dramatic reductions over the past several years. Although the 2007 rate of 6.2 percent was below the 6.8 percent forecast, it is the lowest rate of machine replacement reported since 2001. This year's forecast rate is even lower, with materials producers expecting to replace only 5.2 percent of their machines.
These data are indicators of overall fleet condition. Only 7 percent report it as being “excellent,” with an additional 38 percent reporting their fleets in “very good” condition.
Mining and energy fleets expected 2007 to continue in the “very good” range in which they had operated for three consecutive years. Reality was a “good” year, and expectations for 2008 are in the same range. Northern Plains and Pacific regions counter that forecast, going with a “very good” outlook, but the Mid-South region expects 2008 to be “off.”
Work volume indicators plummeted in 2007, and the forecast for 2008 is more conservative than recent years, too. Measured in total machine hours, work for these fleets increased for 40 percent and decreased for 22 percent, for a net of 18. Forecast for 2007 was a net of 35. For 2008, 36 percent of mining and energy fleets expect increased work minus 12 percent that expect decreased work, for a net of 24. Markets are competitive for these fleets, with 72 percent describing it as “intense” or “very competitive.”
Fleet trends mirrored business trends for mining and energy fleets. Twenty-four percent increased fleet size in 2007, and 6 percent decreased the number of machines, leaving a net of 18, half of the projected net of 36. This year, fleets are expected to increase by 25 percent and decrease by 5 percent, for an anticipated net of 20.
More worrisome is the trend in fleet replacement rates. Late in 2006, mining and energy fleets reported that they would replace nearly 11 percent of their machines in 2007. The reality was a replacement rate of only 6.3 percent. This follows a 10-year high of 10 percent replacement in 2006, but managers are still projecting to replace 11 percent in 2008.
Fleet condition improved over 2006, when 48 percent of mining and energy fleets reported their fleets being in either “excellent” or “very good” shape. In 2007, 6 percent described fleet condition as “excellent” and 49 percent called it “very good,” for a total of 55 percent.
Fleets in this vocation have posted three straight years of “very good” business, and the outlook for 2008 dips into the “good” range. Five of nine regions reported “very good” in 2007, and that slides to four of nine for this year. All other regions estimate 2008 to be “good.”
Work volume, measured in total machine hours, declined in 2007 compared to 2006 and came in below forecasts. Forty-one percent of utilities fleets saw machine hours increase minus 21 percent that saw it decrease for a net of 20. Fleets expected that net to be 32 last year. For 2008, 38 percent expect work to increase, but only 12 percent expect it to decrease for a net of 26. Utilities markets are “intensely” competitive for 5 percent of fleets and “very” competitive for another 42 percent.
Some 31 percent of utilities managers said their fleet size had increased in 2007. Subtracting the 3 percent whose fleets decreased in size, the net of 28 was above the projected net of 22 forecast for 2007. A similar forecast for 2008, a net of 24, results from deducting the 3 percent that anticipate a smaller fleet this year from the 27 percent that expect to grow their fleet size.
Replacement rates are also strong in the utilities vocation. In 2006, these managers suggested that they would replace 9.9 percent of their fleets in 2007 and instead replaced 10.5 percent. The trend will continue, with the replacement rate in 2008 forecast for 10.6 percent.
Overall fleet condition is “excellent” or “very good” for 57 percent of utilities, up from 54 percent in 2006.