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Aggregates Manager recently asked operators about their current mobile and stationary equipment and capital expenditure plans.
Aggregates Manager recently asked operators about their current mobile and stationary equipment and capital expenditure plans.
 










Is it time to upgrade your aggregate equipment?

As operators defer capital expenditures, iron continues to age. A recent US survey shows that operators are beginning to expand their capital expenditures.
Repair, rebuild or replace? It’s the conundrum facing many operators in the aggregate industry.

Over the past six years, the US Geological Survey reports, estimated production levels of crushed stone have dropped by more than 35 per cent, while sand and gravel production has decreased by slightly more than 40 per cent.

Lower production levels have eased hours of operation on equipment and many operators — faced with uncertain economic prospects — have deferred capital expenditure investments.

The result is an increase in the age of equipment operating in much of the aggregate industry.

In a recent survey, US publication Aggregates Manager asked operators about their current mobile and stationary equipment, plus their capital expenditure plans for the next 12 months (see Chart 1 for equipment replacement values of respondents’ existing fleets). A total of 110 operators completed the questionnaire.

THE BIG PICTURE
According to respondents, more than one in four (25.4 per cent) planned to increase their budget for capital expenditures in the next year.

Of those, 64.3 per cent anticipated an increase of one to 20 per cent, with 28.6 per cent expecting a 21 to 40 per cent jump in budgets. Conversely, 13.6 per cent of respondents projected a decrease in capital expenditure budgets, with most forecasting a one to 20 per cent drop.

Not surprisingly, equipment maintenance was the budget category most likely to experience an increase in spending. A total of 36.6 per cent of respondents expected to spend more over the next year to maintain their equipment, while just 2.2 per cent predicted their maintenance spending would decrease.

Anecdotally, as well as statistically, “maintenance, maintenance, maintenance” is the mantra of respondents. One described his greatest challenge as “major maintenance that has been deferred due to economic conditions, resulting in high capital maintenance requirements”.
To address the issue, his operation was applying maintenance items to plant costs and prioritising repairs.

Other common strategies described by respondents include rebuilding equipment at mid-life, rotating older equipment out of production and spending more time on preventative maintenance. Another respondent noted he was “keeping careful observation of high maintenance items and researching methods, practice and materials that will extend work life and operating cost of those items”.

In addition to maintenance investments, other equipment categories likely to see an increase in spending include crushers (34.6 per cent), wheel loaders (30.5 per cent), automation/technology (32.1 per cent) and conveyors (32.1 per cent). Categories in which respondents were likely to decrease capital expenditures included dredges (23.3 per cent), 15-tonne GVW haul trucks (16.7 per cent) and dozers (15.7 per cent).

It is also important to differentiate between day to day spending on consumable items such as tyres, belts and wear materials versus long term capital expenditures. When asked what percentage of capital expenditure they would spend on long term equipment purchases, 60 per cent of respondents said one to 20 per cent, 25.5 per cent said 21 to 40 per cent, 5.5 per cent said 41 to 60 per cent, 7.3 per cent said 61 to 80 per cent and 1.8 per cent said 81 to 100 per cent.

Over the next 12 months, nearly 23 per cent of these respondents said they expected to shift more of their equipment budgets toward long term equipment investments.

NEW VS USED
Although operators were considering ways to upgrade their iron, the solution was not necessarily as simple as purchasing new equipment. Historically, the financing of used equipment units has outpaced that of new units and this is especially true in recent years. Increasing the complexity of the procurement process are options such as equipment rentals or leases.

Chart 1. Replacement value of current equipment.
Chart 1. Replacement value of current equipment.
When asked about new equipment purchases planned for the next 12 months, respondents were most likely to purchase screen media (42.7 per cent), automation/technology (34.5 per cent), wheel loaders (29.1 per cent), screen boxes (22.7 per cent) and conveyors (22.7 per cent). The top two categories are intuitive new equipment purchases; screen media are consumable items, while automation is a rapidly evolving equipment category that many operators are using to help lower their personnel costs.

With features such as higher fuel efficiency, greater capacities and improved technology, new equipment purchases appear to have remained the preferred option for those with the financial resources to do so.

Some admitted, however, to being intimidated by the technology in the latest generation of machinery.

Buying plans for used equipment during the next year varied slightly. Respondents in this category were most likely to purchase conveyors (14.5 per cent), crushers (13.6 per cent), off-highway trucks (11.8 per cent), wheel loaders (11.8 per cent) and portable plants (10.9 per cent). Of these five types of equipment, only portable plants were more likely to be purchased used (10.9 per cent) rather than new (9.1 per cent).

When it came to equipment rental or lease, respondents were more likely to exercise these options for off-highway haul trucks (8.2 per cent), excavators (7.3 per cent) and portable plants (6.4 per cent). The responses may indicate the use of rentals and leases for short term contract jobs, such as road work.

In each equipment category, respondents were more likely to purchase new or used equipment than rent or lease it, although some said they were selling off high-hour machines and supplementing with leases in the short term. Others leased equipment and purchased low-hour units at the end of the lease as a strategy to help defray the cost of new equipment.


Operators were also asked whether the impact of engine emissions and Tier 4 Interim and Tier 4 Final rules would influence their equipment-buying decisions. Nearly one in five respondents planned to purchase earlier versions of equipment before new requirements took effect, while 10 per cent said they would wait to see how it performed in the field before investing in new engine technologies. The vast majority (68.2 per cent), however, said necessity, not engine technology, would drive their equipment procurement.

INFLUENTIAL FACTORS

Reliability was the single most important consideration for operators when buying equipment, respondents said.

Operators are most likely to increase spending in maintenance of existing equipment  during the next 12 months.
Operators are most likely to increase spending in maintenance of existing equipment during the next 12 months.
Nearly 93 per cent rated it as either “important” or “extremely important” when deciding what equipment they would buy. Coming in a close second, safety was the next most influential factor for purchase. A combined 89.1 per cent of respondents rated it as an “important” or “extremely important” part of the buying decision.

Other factors considered “extremely important” included parts availability (67.3 per cent), dealer service (63.6 per cent) and production capacity (57.3 per cent).

Factors considered “not important at all” were a surprise. Operator comfort (7.3 per cent), fuel efficiency (6.4 per cent), equipment manufacturer (5.5 per cent), warranty (5.5 per cent) and dealer service (5.5 per cent) were all listed among the factors having the least influence over purchasing decisions.

The feedback on fuel efficiency, in particular, was in contrast to anecdotal responses. When asked about their biggest equipment challenge, numerous respondents cited fuel efficiency. To cope, solutions included reviewing production capacity and right-sizing the machine to the application, researching fuel options, eliminating idling time and buying more fuel-efficient units.

WHAT’S NEXT?
Based on responses to this survey, it is clear that many operators are scrutinising all equipment-related spending and looking at ways to squeeze as much value as possible from their iron. For many, that means extending the number of hours on equipment and boosting in-house and dealer maintenance regimens.

As the age of equipment in the aggregate industry continues to grow, operators are keeping a close eye on the cost and analysing when it is a better bet to replace rather than repair or rebuild.

Therese Dunphy is the editor-in-chief of Aggregates Manager (US). This story originally appeared in the August 2012 issue of Aggregates Manager and is reprinted with kind permission.









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