Record-breaking year for equipment sales

The global equipment market reached a new high in 2021, and demand is expected to remain strong as fulfillment of backlogs continues. However, it is unclear what impact the war in Ukraine will have on inflationary pressures. This is according to the team at Off-Highway Research.

The rebound in sales of construction equipment, which began in the second half of 2020, continued almost unabated last year. As a result, a record of nearly 1.2 million pieces of construction equipment were sold around the world in 2021 – a 9% rise on the figure in 2020, which was impacted by the Covid pandemic.

The only major market to fall last year was China. After aggressive stimulus spending was put in place in March and April 2020, the market grew 30% that year to levels not seen since the (also stimulus-driven) boom of 2010-2011. However, by the second quarter of 2021 that impetus was spent, and sales in China started to decline sharply. The overall result was a 6% fall in equipment sales in China in 2021.

However, most other markets in the world had good years in 2021. The most striking improvements were in Europe and North America, which were up 22% and 19% respectively, while sales in India increased by 10%. Japan – normally a flat market – saw a modest rise of 1%.

Sales in other countries increased by 24%.

What caused growth in equipment sales?

There were three main reasons for the growth in sales of equipment in 2021. The first reason is that interest rates were very low around the world starting from the beginning of the pandemic. This encouraged more people to build homes, either by developers or by homeowners themselves. Office-based work moved to home working for many people, so they needed different equipment for their homes.

Government stimulus spending and other infrastructure investment by governments around the world has led to increased activity in the construction and rental industries. It is still debated how much of this increase is from genuinely new projects, and how much from projects that would have been carried out anyway, but the mere announcement of plans has been enough to reassure contractors and rental companies that business will be good in the future. This renewed confidence has led these companies to invest in new equipment.

The third factor driving trucking industry growth is high commodity prices. These prices have been pushed to even greater levels by the economic fallout from Russa’s invasion of Ukraine. This encourages producers of commodities to invest in their fleets – either to renew aging machines or to increase production and benefit from the higher prices for the materials they produce.

Demand for equipment was so high that the industry couldn't keep up. In the second half of 2020, production of construction equipment was slow to restart because suppliers were having trouble getting enough parts. This was a problem that affected almost all manufactured goods.

These problems were caused by issues in the global shipping, transportation and logistics segment. There was a lack of port capacity in many parts of the world due to lockdowns and people being sick from Covid-related illness. Additionally, several countries in the world have experienced bottlenecks as basic as not having enough truck drivers. This resulted in shipping delays, and a scarcity of shipping capacity which pushed prices sharply upwards.

The problem is twofold. Manufacturers rely on transportation networks to deliver them the components they need to build products. They then need those same networks to get products to customers.

This had a big impact on a lot of different types of products. The construction equipment segment was no exception. It now takes a long time to get new machines, and prices are going up because manufacturers are passing on their increased costs to customers.

High equipment sales are expected in the European market

After the big increase in sales in China in 2020 and 2021, the market will fall back over the course of 2022 and 2023 to more normal levels of around 300,000 units per year. This is a steep fall from 2020’s high of 412,000 unit sales, but it is still normal.

In 2021, the rebound in Europe was much stronger than expected. The industry was caught off guard by the lack of inventory (having sold this when the pandemic struck in 2020), combined with the delays and difficulties in sourcing an adequate supply of new machines.

In 2021, the number of machines sold in Europe was the second highest on record. The only year that had more sales was 2007, which was during the boom of the 2000s.

Many distributors and manufacturers believe that they could have sold more machines if they had more machines to sell. They are already sold out for 2022. This has informed Off-Highway Research's forecast for modest growth in 2022 up to the limit of how many machines can be made which is around 205,000 units. The European market is expected to fall back after that but, with extensive stimulus plans in place in the region on top of an already healthy pipeline of infrastructure work, sales are expected to stay at a high level.

There are a number of positive indicators for the North American construction industry

In 2020, the equipment volume in North America declined a little bit, but it increased to a record high in 2021 because of the good residential building market. In 2022, there might be some slowdown in residential activity, but President Biden's $1.2 trillion infrastructure bill will make the construction industry stronger.

The bill will give contractors and rental companies a better idea of what work is coming up, which will make them more likely to invest in new machines. Construction equipment sales are expected to go up over the next two years, reaching new record levels as a result.

However, there are some challenges on the horizon that could impact infrastructure development in India. Infrastructure projects have long gestation periods, and apart from planning and execution issues, legal and procedural problems may arise during the construction phase.

The Indian construction equipment market is expected to grow in the next five years. However, there might be a disruption in 2024 because of a general election. In Japan, the highest number of machines sold will probably be in 2021. But it is important to note that the Japanese equipment market does not have the same cycles as most other markets. The demand usually only changes by a few percentage points each year.

This is the outlook for Japan going into the mid-2020s. Equipment sales will stay around 63,000-65,000 units each year.

The prices of commodities are important for economic growth

The boom in commodity prices was the main driver of growth in 2021. Many countries saw the highest sales since the early 2010s. The biggest emerging markets tend to be producers of commodities. Equipment sales rise and fall depending on demand for materials and pricing.

When prices for commodities are high, producing companies have more money to spend on renewing or expanding their fleets. In many countries, the major producers are state-owned. This means that high commodity prices are essential for investment in order to balance public finances. When commodity prices fall, equipment sales usually fall too. These cycles are among the more volatile seen around the world.

Some markets will grow next year, but the growth won't be enough to make up for the decrease in demand from China. The world's largest market for equipment sales. This means that global construction equipment sales will fall 5% this year, and there will be a similar decline in 2023. However, it is worth noting that after 2021's record high, 2022 would still be the second best year on record.

The sales of larger equipment have increased

The forecast predicts that equipment sales will stay high until 2022. This is based on the idea that residential markets will be strong, partly because of low interest rates, and that there will be a lot of stimulus spending around the world.

But there are risks to this forecast. Inflation has been a problem throughout 2021 and it seems like it might be here to stay. Central banks around the world have started to raise interest rates as a result, and they plan to continue doing this throughout 2022.

Interest rates have been low for a long time. This is because of the global financial crisis in 2008. The events of the last year show that this might be changing soon. Inflation and scarcity are now serious problems. This means that the era of cheap money is ending.

The invasion of Ukraine by Russia has caused a lot of problems. One of these is the economic sanctions against Russia. These sanctions are designed to stop Russia from funding its aggression. Unfortunately, one side effect of this is that the high prices for commodities have gotten even higher. This is because Russia is a significant producer of oil, gas, metals, and grain, among other things.

The good news is that this situation has encouraged other commodities producers to increase their production. This will help to lessen the crisis and they can benefit from selling at higher prices. The bad news is that the increased inflationary pressures are a bigger problem than the upside of this unlooked-for commodities boom.

Another threat is the high population of young construction equipment machines which are now active around the world.

The number of units sold in a year is estimated to exceed one million

In the past, there have only been two times when global equipment sales reached more than one million units. The first time was right before the global financial crisis when the market got too hot. The second time was in the early 2010s, when stimulus in China caused equipment sales to increase. However, both times only lasted for one year – 2007 and 2010.

Most industry analysts believe that the sales of construction equipment will continue to grow in 2022. However, if there is a slowdown in sales, it could be due to the large number of young machines in fleets around the world. This would make it harder for the industry to sell new machines, leading to a further slowdown in sales.

What will happen next is still unknown. This is because it depends on the policy response of governments around the world to the most serious inflationary spike in 30 years. This is a problem that none of this generation of policy makers have faced before. We also do not know what will happen because of the most egregious act of naked aggression seen in Europe since 1939. Forecasting is always difficult, but it is even more challenging when we are in uncharted territory.

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