Earthmoving industry outlook 2019/2020

Posted: 19th Jun

With record funding pledged for infrastructure investment around Australia, the earthmoving equipment market is set to continue to enjoy strong demand. But as the infrastructure boom shows early signs of slowing, there are still challenges ahead for the construction and earthmoving space. Here, we have a look at the sector’s current trends and future opportunities over the next 12 months.

In February 2019, Infrastructure Australia identified a record $58 billion pipeline of 121 projects as priority initiatives. In April, the Federal Government announced $100 billion worth of infrastructure investments. And in May, Australia re-elected the Liberal–National Coalition, holding them to that commitment.

The infrastructure boom that has defined the past decade seems to be forging ahead, keeping demand healthy for earthmoving machines on all kinds of construction, upgrade and maintenance projects. But how will this boom play out in the year to come? And most importantly, can this growth last?

Investment in major projects keeping the sector busy

First sods are being turned all over the country. The following are just some of the projects currently in the design, early investigation or construction phases:

NSW
  • Sydney Metro Northwest and City and Southwest
  • Western Sydney Airport and rail link
VIC
  • Melbourne Metro Tunnel
  • North-East Link
  • Regional Rail Revival
  • Melbourne Airport Rail Link
QLD
  • Cross-River Rail
  • Major highway upgrades and duplications, such as the Bruce and Warrego highways
WA
  • $4.2 billion for road upgrades and construction in May State Budget
  • Perth METRONET

In addition, construction forges ahead on Inland Rail across Queensland, NSW and Victoria. South Australia has commenced planning an overhaul of its entire road network, and the re-election of the Liberal–National Coalition means that technical investigations for key Budget commitments, such as the Melbourne-Geelong Fast Rail Link, may soon be underway.

It’s no secret these massive projects require serious machinery. The Western Sydney Airport bulk earthworks will involve the excavation of 22 million cubic metres of earth, and a similar amount of embankment construction.

Vying for large civil construction contracts, many private firms will increase spending on machinery and equipment for a competitive edge. Major transport infrastructure projects are also expected to generate spin-off projects for companies aimed at housing, utilities and smaller civil construction.

Graham Murphy, Director of Equipment Sales – Corporate Accounts at Semco, said the various tunnel, rail, road and airport projects underway in Sydney are essential for distributors.

“The airport in particular is going to revolutionise the Western Sydney area,” Mr Murphy said.

Geotechnical drilling has also begun on the Melbourne Airport Rail Link, which is set to open up the city’s western suburbs, like Sunshine. With construction to start in 2022 and expected to take up to nine years, the sector can be confident the project will yield spin-off benefits for the coming decade.

“We can say for sure that if State and Federal Governments can manage to keep the infrastructure ball rolling along, we will all benefit,” Mr Murphy said.

Ensuring enough projects in the pipeline

Deloitte Access Economics’ (DAE) Investment Monitor Report, released in February, predicted that infrastructure spending would peak in the 2019 calendar year, followed by slower growth for the sector.

DAE noted several major projects (Sydney Metro Northwest and CBD light rail, Pacific Highway upgrades and NorthConnex) are scheduled to wrap up in 2019–2020, while others (WestConnex and Stage 1 of METRONET) are near the mid-point of their construction cycle.

DAE argued the factors that have supported the current surge in infrastructure spending are beginning to wane, with fewer assets left to privatise and a slowing housing market weighing on property tax collections.

It also found that the value of projects in its database fell by almost one per cent from the previous quarter, placing this value at a near decade low.

However, the analysis excluded new projects that may enter the Investment Monitor database in the coming years, any upward cost revisions, changes in scope of projects or delays to development timelines.

Despite all this, in its assessment DAE found a number of factors that suggest a more hopeful outlook.

DAE found that state governments — particularly New South Wales and Victoria — are spending record amounts on infrastructure.

One challenge for policymakers now is to maintain a consistent pipeline of projects to ensure job stability and assist the industry in planning for the future.

A matter of scale

The outlook for businesses operating in a smaller civil construction context is generally positive.

Semco specialises in more compact construction equipment — the ‘toy department”, Mr Murphy jokes — with its largest excavator being the TB2150R Takeuchi.

“Whilst the high-rise and medium density industry has taken a hit lately, the greenfield subdivisions are still rolling along okay, so that’s a good thing for us,” said Mr Murphy.

“But whether that remains so over the next year or so depends upon so much. Interest rates, negative gearing, jobs and pay rises all influence the outcomes.”

The Housing Industry Association (HIA) found that while 2018 was a record year in new dwelling completions, the building cycle is moving into a modest slowdown. Though projects currently under construction are reaching completion, HIA expects fewer new projects in the pipeline behind them.

A bright future for technological innovation

“Technology is marching ahead very rapidly in every facet of industry, including ours,” Mr Murphy said.

“We will see some really impressive new innovations coming through, which have the potential to stimulate sales.”

Mr Murphy said that since 

everyone wants more productivity, lower fuel consumption, safer machinery and fewer emissions, manufacturers are busy responding to these drivers with  all sorts of innovations.

“Tiltrotators are a good example — 20 per cent more productivity, maybe more,” he said.

“Dry break coupler systems like EC-Oil is another. You can change tools on an excavator in seconds without leaving the operators seat. 2D and 3D grade control systems are yet another that is sweeping into vogue.”

The cost of labour is not getting any cheaper, even internationally, so all makers are designing machinery that requires less maintenance (longer service intervals).

Since machines are relatively inexpensive in relation to the big cost of manpower, Mr Murphy believes robotics will ultimately become commonplace.

“We are already seeing it in mining applications where robots work two or three shifts. But even in the smaller machinery I predict we will see more automation and even driverless machines. Electrical drivetrains are already making an impact.”

Source: Kim Ho - Infrastructure Magazine - https://infrastructuremagazine.com.au/2019/06/13/earthmoving-industry-outlook-2019-2020/?utm_source=Infrastructure+Magazine+-+Main+Subscriber+list&utm_campaign=dd436f08b6-EMAIL_CAMPAIGN_2019_02_11_12_57_COPY_01&utm_medium=email&utm_term=0_253907d75f-dd436f08b6-94216037&mc_cid=dd436f08b6&mc_eid=cea65b711e