Post-Katrina equipment demand may affect lead times

While there’s no doubt the equipment needs in the central Gulf Coast will be massive in the coming months, it still remains to be seen if this demand will create a vacuum that makes meeting needs in other areas of the country problematic.

“We were in the middle of the peak construction season, so there already was a vibrant demand for new and used equipment,” says Gerry Plescia, president, Hertz Equipment Rental, which bought between $10 to $20 million in equipment to meet the company’s needs after Katrina. “This began as an early hurricane season, so a lot of our pumps stayed on rent as customers anticipated the storms.”

Construction equipment manufacturers, dealers and rental companies played immediate backup to the storm’s first responders. More than 250 United Auto Workers at the John Deere Dubuque Works volunteered their personal time to build backhoes and skid steers for relief organizations. Caterpillar announced it would use “the strength of its global production operations” to divert any products that may be needed in the months ahead. Ingersoll-Rand pulled rental inventory out of its company-owned stores.

Thomas Equipment entered into a strategic initiative with United Rentals to expedite the delivery of truckloads of skid steers and attachments to UR locations in the area. Case Construction Equipment asked its dealers to send available inventory, machines that will be replaced with later production.

“Our dealers have really jumped through the hoops to support the dealers in the area,” says Del Keffer, Volvo regional vice president.

Will the industry be required to ramp up production?
The first machines to go into the area were generators, pumps and light towers. After shipping “hundreds” of these items to dealers near the area, Wacker also increased production, according to Dave Christifulli, vice president sales and product support. He indicated the firm would keep up this pace “as long as necessary.”

Multiquip sent all the generators, light towers, saws and pressure washers it had on hand to the area, according to Roger Euliss, president. Prompt delivery was an early issue. “It was important to deliver to the hurricane zone now,” Euliss says. “We’re running low on popular items but still have inventory available on some models.”

But will manufacturers be forced to ramp up production in the long term? Most say it’s still too early to know. Case’s 2006 plans called for a 5 percent increase in the production of some products, “and we have the capacity, if needed, to produce up to 20 percent more in the core products we domestically produce,” says Jim McCullough, president, CNH Construction – North America. “But we haven’t seen an overwhelming demand at this point, and we still have more than three month’s supply in our small utility machines.”

Komatsu has indicated Katrina-related equipment supply requirements may be a factor leading to increased production next year.

Production can’t turn on a dime, however. “It’s hard to ramp up quickly when you have long lead items on things like oil coolers and radiators,” says David Rowles, president of utility equipment, Ingersoll-Rand. “Increasing production is sometimes easier said than done,” adds Euliss, “since you can’t always quickly get engines or hydraulic components.”

Another concern is what happens to any Katrina-related inventory when the unprecedented rebuilding effort dies down. “We’ll be paying attention to where all this equipment goes when it’s over,” says Scott Brower, vice president, marketing and market development, JLG. “Oversupply is not good for anyone.”

In addition to the equipment they are selling and renting, several companies have donated machines to the cleanup.

What about prices?
This was already a healthy year for equipment manufacturers. Caterpillar, for example, announced last month its North American machine sales rose 15 percent during the first three quarters of 2005.

And prices were on the upswing before Katrina entered the picture. Case had announced a 3 to 5 percent increase this spring, and Deere said they would raise prices 4 percent across the board. Last month, Caterpillar announced price increases ranging 1 to 5 percent starting in January, and Ingersoll-Rand says they’re looking at similar increases.

What needs to be avoided at all costs, say several, is any perception the industry is profiting from so much woe. “There’s a lot of sensitivity about not raising prices because of Katrina,” McCullough says.

Michael Kneeland, vice president of operations for United Rentals, is emphatic: “You just cannot exceed your standard rate in those markets. In some cases we’ve even lowered our rates.”

“We’re not in business to punish our customers for short-term dislocation,” Brower says. “Our prices are related to the broader business cycle. You’re not going to see any manufacturer take advantage of this.”