Earthmoving under the auction hammer

In the current global economic climate, the quarry industry is still keeping its cards close to its chest. Operations are exploring ways of prolonging the life of their yellow iron and other plant and equipment or hiring other plant rather than purchasing new equipment outright. 

Another option has been the unreserved auction process, whereby operators bid on unused or second hand equipment with low hours of usage, put them to work on projects and, once the jobs are completed, put them back up for auction.

?It?s the owner?s belief that it?s the true market, it?s what the value of the equipment is on the day,? summed up Rob Mackay, the president of global industrial auctioneer Ritchie Bros Auctioneers.

For the past 55 years, Ritchie Bros has been one of the world?s largest sellers of used equipment for the construction, transportation, agricultural, mining and forestry industries. The company manages more than 40 auction sites (both permanent and leased) in 25 countries, spanning North America, South America, Europe, the Middle East and Asia, including Japan, Singapore, and China. Ritchie Bros? average sales per auction are $US16 million across 1300 lots, with an average 1760 bidders (either physically present at the auction site or on the internet) and 190 sellers per auction.

{{image2-a:r-w:200}}In Australia, Ritchie Bros manages permanent facilities in Brisbane and Geelong and has run regional auctions in Sydney, Darwin, Adelaide, Perth and Bunbury. In Australia in 2012, Ritchie Bros conducted $269 million of sales for more than 2800 buyers and received interest from more than 10,800 bidders worldwide.

The Geelong site had its grand opening in March this year. It spans 40 acres and features a 2489m2 auction building with a 670 seat main theatre, overlooking a ramp upon which vehicles and other equipment are demonstrated to customers. There is also a 500 seat virtual ramp theatre, where auction items are shown on a giant plasma 

screen as they are streamed online to overseas bidders.

At the grand opening, more than 1440 bidders from 30 countries registered on-site or online to participate in the unreserved public auction. The auction featured more than 950 items of heavy equipment and transportation from more than 115 sellers, including earthmoving equipment, mobile crushing and screening plant, on-highway trucks, off-highway trucks, trailers, crane trucks and utilities. 

Components and spare parts were also sold, including buckets, rippers, hydraulic hammers, blades, cutting edge attachments, track chains, drum rollers, sprockets and blocks.

While there are other auctioneers worldwide that supply quarrying, mining and construction customers with plant and equipment, Ritchie Bros prides itself on running unreserved auctions. 

This goes back to the company?s origins in Canada in 1958. Back then, both buyers and consignors viewed equipment auctions with suspicion. Buyers assumed that owners were bidding up the price of their equipment and consignors had been burnt after losing substantial sums to unscrupulous auction companies. 

The Ritchie family vowed from the outset that they would prohibit owner buybacks and, at risk to their own business, guaranteed minimum sale proceeds for their consignors. This approach paid off and Ritchie Bros today is highly respected for running uncompromised auctions.

?Unreserved auctions have been the backbone of the company from day one,? president Rob Mackay explained. ?We are adamant in our policing of unreserved bids. If we catch a consignor bidding on his or her own equipment, we will collapse the sale, we will resell the item, the consignor will be penalised for it and they will never do business with us again.

?Our reputation is rock solid ? it?s all we have as a company. If our reputation is tarnished and there are questions about it, our buyers would become uncertain and uncomfortable about bidding, and we can never have that.?

At the conclusion of the sale, Ritchie Bros will collect a commission rate of 10 to 15 per cent, depending on the value of the business transaction. Mackay explained that consignments can be arranged in three ways: a straight commission, a guarantee basis or an outright purchase. 

Mackay described the first option as a ?straight commission consignment?. With the second option, if the client is risk averse and has a package of equipment, Ritchie Bros staff may quote a minimum guaranteed sale (eg if the value of the equipment is $1 million, Ritchie Bros might guarantee that the client receives a minimum return of $950,000). 

However, if the equipment sells for significantly less, the consignor will get ?the guarantee less the commission and Ritchie Bros will be out of pocket?. In the event that a consignor is retiring from the business and is unconcerned about the final sale, Ritchie Bros could buy the stock outright ahead of the auction.

As part of its vow to run professional auctions, Ritchie Bros says that it is also very diligent about the plant and equipment under its wing. In 2012, Ritchie Bros began conducting detailed equipment inspections upon receiving vehicles and other machinery in order to provide as much information as possible about the condition of the items before the auction. 

While this does not extend to full mechanical testing, Ritchie Bros meticulously records all data about the history and past performance of a machine, including meter readings, and endeavours to provide as much visual information as possible to keep potential buyers informed before the sale.

?We function test every single piece to make sure that it does work and is safe,? Richard Tucker, Ritchie Bros? manager of regional operations in Australia, explained. 

?If there is something wrong with the brakes, for instance, then the consignor has to get it fixed. We have detailed equipment information (DEI) staff at Geelong. They?re permanent staff and when the equipment comes in, they inspect it. All of our staff have gone through training for certificates to drive the machines around. We provide 40 to 50 high resolution photos of each piece of machinery to go on the website so that we offer as much information as we can about that machine to our clients.?

Tucker is overseeing the establishment of a refurbishment centre at the Geelong site that will have lanes for the washing and detailing of local machines. There is also a ?specialised quarantine approval premises? for machines that are imported into the country.

?Every single machine that comes in from overseas has to go through one of these special wash pads,? Tucker explained. ?We have one on our site at Brisbane and we?re building one [at Geelong], so that every machine can be inspected and everything is cleaned properly when it enters the country.?

{{image3-a:l-w:200}}The consignor pays for the washing, refurbishment and inspections by the Ritchie Bros DEI team. Tucker added that the refurbishment work also includes repainting. He explained that while the Ritchie Bros Brisbane auction site has a paint and sandblasting facility, work at the Geelong site will be outsourced to an off-site contractor for the foreseeable future.

While Ritchie Bros does as much as it can to protect the integrity of the auction process and to ensure the equipment is as shipshape as possible before bidding begins, the company also encourages its customers to do their own due diligence.

?For the most part, we bring the equipment to our auction sites where we have care, control and custody of it,? Mackay explained. ?It allows all the bidders to come and compare. So if they want to buy a 20 tonne excavator and there?s 20 of them in a row, they can look at each one and compare the ones they think are the best. 

Accordingly, if there are five that are being sold somewhere off-site, then typically if the buyer hasn?t been able to look at them, he can only buy them based on the information that we have. The equipment gets better traction and better exposure if it is sitting in our yards.?

Mackay conceded that there is a level of ?buyer beware? in every purchase, which is why he encourages all customers to inspect the equipment in the yard. ?We want people to come and inspect it, test it, drive it. If you?re a consignor and you want the best money for it, we want you to bring the work orders you have so that you can proudly say, ?Look at this machine, I?ve babied this thing its whole life, it?s had an oil change every 500 hours, it?s a very good machine?.?

Mackay added that Ritchie Bros today provides its customers with a ?global marketplace. We have buyers and sellers, bidders from all over the world at virtually every auction sale. Whether they bid in person or online, it?s definitely a global world. Construction equipment is very mobile and it will find its way to the highest demand area?.

It was therefore inevitable that, given the global demand, the company would branch into online sales. The rbauction.com website was conceived in the late 1990s and online bidding was introduced in 2002. A revamp of the site occurred in April 2010. It is available to prospective bidders in 21 different languages and visited by more than five million people every year.

?Through rbauction.com today, you can watch everything on multiple screens,? Mackay explained. 

?If you want to bid, you have to have a pre-authorised ability to bid. So, for every auction, if it?s in Dubai, you can watch the sale in China online. And some days we have four auctions going so you can watch and participate in four sales at the same time. You can open them up along your screen and flip back and forth between different auctions.?

Mackay said that when Ritchie Bros launched the online side of the business, he certainly did not expect the ?traction that it has today. But a number of things have happened. One, there is more information available. Two, people are busier and for successful contractors who don?t want to sit at an auction site all day, they will send a mechanic there to inspect it while they stay back in their office working and bid from their desks.?

Mackay added that with the introduction of online bidding, there were customers who were apprehensive about how it would affect the integrity of the auction process. 

?We log all of the bids and if a customer on the ground has an issue, we will print the log off and show him each buyer, when that person hit the button and how much he bid, and then we?ll take the customer over to the computer and say, ?Buyer 148 is from this company. Sir, would you like me to phone him and you can talk to him?? Eventually you can convince some sceptics.?

Even with internet bidding, Ritchie Bros expects that buyers will do their due diligence on any machine up for auction in Australia. ?People will either look at equipment or send a mechanic to look at it,? Mackay explained. ?For most big assets that sell, you can go online and look at a DEI and there?s 40 to 50 pictures. So the buyer goes online, looks at all the pictures and determines if it?s worth having a go at it. They may also know someone down here and ask that person to look at the equipment on their behalf. There are some people I?ve met who are inspecting equipment for up to 20 different clients.?

Two of Ritchie Bros? customers at the Geelong auction have strong links with the quarry industry. The first is Tasmanian family company Hazell Bros, which has interests in a broad range of civil construction fields throughout Australia, including road, bridge, water and energy infrastructure, bulk earthmoving, and demolition. It runs two quarries in Tasmania, including the Long Hill Quarry in the state?s northwest and Leslie Vale Quarry in the south. Leslie Vale produces more than 700,000 tonnes of aggregate per year for the southern Tasmanian aggregate market.

{{image4-a:R-w:200}}At the March auction event at Geelong, Hazell Bros, which has bought and sold equipment at Ritchie Bros for eight years, sold more than 25 heavy equipment items for close to $1 million, including a selection of wheel loaders, prime movers and concrete trucks. Robert Hazell, the director of Hazell Bros, explained that the company first became involved with Ritchie Bros auctions when it sold surplus equipment from a completed project in 2005.

?Whenever we finish jobs or have gear nearing the end of its life, we will put some gear in the auction,? Hazell said. ?The advantage of selling with Ritchie Bros is that you not only sell to the local market, you sell to all of Australia and beyond.?

Hazell estimated that over the life of his relationship with Ritchie Bros, his company would have purchased as much plant and equipment through the auctions as it had sold. He said he had developed a strong rapport with representatives Warwick Mackrell, Ritchie Bros? vice president of sales for Australia, and Finlay Massey, the regional sales manager for Southern Australia and New Zealand.

?I trust Finlay and Warwick because you take a risk when you put hundreds of thousands of dollars of gear out there and it is unreserved,? Hazell said. ?You have to have faith in what is going on. If I have a problem, I can ring them up and talk to them, not just about the auctions but other issues. These guys know the prices of gear within Australia and worldwide better than most people because they just do it all the time.?

Hazell said for some contracts around Australia his company will still buy equipment new but that it is often more convenient to buy unused equipment with low hours that is specific to a given job than to hire equipment over long periods. ?It depends on the term,? Hazell commented. ?If you?re only going to want it for one to two months, then you?d just hire it. But if you want it for six months or more, you?re much more likely to buy it. It?s not uncommon for us to buy something for a project for 12 months to two years and once the project is finished and we don?t have a job for it to put it back up for auction.?

The other customer with strong quarrying links is Hoare Bros, another family business based in Geelong, which specialises in civil construction, earthmoving, heavy haulage transport and plant and equipment hire (wet and dry hire). The company has been operating since 1951 and manages a new hard rock quarry only 15 minutes away from Ritchie Bros? Geelong auction site.

While Hoare Bros has been a Ritchie Bros customer for more than 20 years, pre-dating the auctioneer?s foray into the Australian market, the relationship between the two companies has in that time become a symbiotic one. 

The land on which the Geelong facility is now based once belonged to the Hoare family and it was proprietor Peter Hoare who sold a subdivision to Ritchie Bros so it could establish a permanent site at Geelong. On the day of the grand opening, the main auction theatre was named in Peter Hoare?s honour.

Matthew Hoare, the managing director of Hoare Bros, purchased an unused mobile jaw crusher, two unused mobile screens and a second hand impact crusher on the day, while also selling three wheel loaders and an excavator from his own fleet.

?What I find impressive is the ability that Ritchie Bros gives me to find equipment that I need at an auction that?s in the same location where my business is based,? Hoare explained. ?They can source equipment from overseas and bring it to Geelong for a Geelong customer to be used in Geelong.?

Hoare also explained that he enjoys, thanks to the online bidding capacity, not having to be physically present at the auction. ?Generally I send my brother Anthony to the auction and I usually sit at the office and watch online while I?m talking to him on the telephone,? he said. ?The beauty is it?s instantaneous. I can be 2000km away and watch exactly what my brother is seeing on the lot and where his bid is currently sitting.?

What is also significant to Hoare is that he can buy and sell equipment with minimal disruption and fuss to his business. ?The good thing about auctions like this is that up until last week, you could be using a certain piece of equipment, then you can bring it in on Saturday or Monday, it?s sold Tuesday, you can buy a brand new one or a replacement one today and drive it out as soon as you pay for the new machine, whether it be today or tomorrow. So you might lose one day within your business. That?s just incredible, that you can only lose a day?s disruption to your business to buy a replacement machine.?

Hoare argued that if he had to rely on a dealership to obtain some of his machinery, it would be an impediment to the business. ?There was a 320D wheel loader that was on the lot today,? he said by way of example. ?I know that if I want to buy a 320D, I probably can?t get that until October from a dealer. So that?s probably six months that I?d have to wait for a machine to come in from overseas. On the other hand, the equipment that we purchase here today, within days it will be on the work site.?

Hoare was not unduly concerned that by buying through an auctioneer he would potentially be missing out on the aftermarket service and maintenance benefits available from buying direct through the supplier. 

?That doesn?t matter. We would still go back to the dealership, the engine supplier, the bearing supplier or the manufacturer to acquire any parts that we would require. Any machine that we?ve bought at auction ? whether it be a Volvo, a Cat, a Komatsu, any manufacturer ? we can go straight to the dealer of that line of plant here in Australia and source parts. We?ve never, ever used non-genuine parts on our machinery. We?re also confident with our own maintenance service. We partner with mechanics, fitters, turners, bolt makers, electrical engineers, we have a full fleet of in-house maintenance.?

Mackay and Tucker also added that as the high Australian dollar weakens, they expect more imported products will enter the country. ?In the last year and a half, we?ve seen a lot of equipment come into Australia from brokers and dealers that are buying it around the world and they are playing price arbitrage,? 

Mackay said. 

?There are brokers and dealers playing in that market every day and they?re all looking to buy cheap in one market and sell it high in another.?

Tucker added this was particularly the case for mobile aggregate equipment, which has not traditionally been a big market for Ritchie Bros. 

?At present, the Australian dollar is allowing people from Europe to import products. We?re selling some of the new mobile aggregate gear from those parties but we?re also selling some of the older gear as well. The mobile crushing and screening market is a developing one for us. We don?t target aggregate gear but we will accept it for auction. We also don?t have any immediate plans to sell such plant and equipment in Australia into the aggregate market.?

Mackay echoed Hoare?s sentiments when he concluded that someone will always be prepared to pay more than the market value for some equipment. ?It?s supply and demand,? Mackay said. 

?If I have a production piece of equipment and I have a job that that machine could be on tomorrow morning, earning me money, and my other alternative is to wait three months for a new one, well, if I take the market price for that as $180,000, I might pay $220,000 because it?s working for me. And in three months, it?ll pay back, so really it?s a function of the market value, based on the needs of the buyer.? ?