With a reduced supply and high demand, contractors have been put in a sticky situation when it comes to equipment acquisition. And unfortunately, when a specific piece of equipment is required to meet project demands, it's typically needed in short order. This can leave contractors frustrated by the limited options available and the strain put on margins.
Raffi Aharonian, managing director of Rouse Appraisals, a Ritchie Bros company.Rouse Appraisals
“It’s an unusually interesting time for the market with the way supply and demand are driving pricing,” says Aharonian. “If you have extra equipment, there’s no better time to sell it than now.”
Here’s our interview:
Equipment World: The pandemic caused Ritchie Bros to pivot to online-only auctions. What impact did that have on your company and how is that approach continuing to evolve?
Aharonian: At the onset of the pandemic, in March 2020, Ritchie Bros already had a very strong online auction experience. It was easy for us to switch to online-only, in an effort to be mindful of the safety of those who would normally gather in person on the day of the auction. While we did transition online, the yards were still open for people to visit in the week or weeks leading up to the auction so that they could actually look at the equipment, inspect it themselves, operate it and record the lots that they might be interested in.
Certain live events have taken place in person over the past six to 12 months, and notably, the landmark Orlando auction event that's later this month is due to take place as a live event as it has in prior years. That’s an exciting development for a lot of people.
EW: How is the supply chain impacting the current market for equipment?
Aharonian: It’s evident through all of the conversations we have with customers, be it rental companies, OEM dealers and even contractors, that it's harder to get equipment. They have customers that need work done, and they can't necessarily meet that demand.
At the same time, we also saw OEM dealers and rental companies who would normally cycle out of their older equipment, start selling less of it just so they have available equipment in their fleet. The downstream effect of that is you see that the number of units available for sale at any one of the auctions year-over-year has started to decline throughout 2021 and 2022. It’s well below the watermark of 2019 in terms of volumes.
Since the demand environment is quite healthy, that’s led to some pretty steep price increases over the last 12-18 months. On blend, you’re in the neighborhood of 10-12% price increases over that timeframe.
EW: Do you think that trend will continue through the rest of the year?
Aharonian: It’s hard to say because I think everybody is trying to predict what the future will look like. We know supplies will be short, but we also know that demand has been very strong. One way to look at this is even if supply shores up, you might still see fairly strong pricing. Even though we might reach a peak, it might not recede all the way back to pre-pandemic levels because demand continues to uphold very well. Even though there’s been a rapid rise, that doesn’t mean once supply hits that we’re going to suddenly hit the rapid decline back to where we were.
Where supply starts to loosen up a bit is as the manufacturers start reporting their production numbers and as rental companies and dealers start reporting on higher available inventory, I think that’s where we’ll see the supply side of the equation normalize. From there, one might expect that pricing might rationalize a bit as well.
EW: What tips do you have for contractors who are buying construction equipment in this supply-constrained market?
Aharonian: You might just have to bite the bullet, so to speak, and pay the higher price, especially if you have demand to fill. So maybe it’s a good problem to have, although not ideal.
Now, of course, there are a lot of different methods for purchasing equipment out in the open market. Ritchie Bros offers many options. The three that stand out are:
- The traditional auction channel, like the Orlando auction coming up.
- The Marketplace-E option, which is a little bit different purchasing method that doesn’t pin you against bidders or put you on a clock to win that bid. You might have an opportunity to do a little bit more investigative work with that seller to find out if that's the right piece of equipment given your needs, given its age and condition and whatnot.
- And then, of course, there's also the Richie List, which is more like a retail marketplace that offers different types of equipment and different quality of equipment from a different span of geographies or sellers as well.
I think the point there is, you might find that pricing is not in your favor. However, you could put in a little bit of extra effort and make sure you find the right piece of equipment for your fleet. Give yourself the benefit of a little bit of time, a little bit more research, and maybe you get something that de-risks that purchase that you might otherwise get at an auction if you're unsure of the condition or quality of the machine.
It takes a little bit of clever thinking. And like I said, it's not the perfect environment for buying equipment. But if you are a contractor who's on a tighter budget or who has to be more sensible with your spending, these are some options that might be available to you.
Another good thing to consider is if you’re looking to buy something, perhaps there’s some equipment in your fleet that you don’t foresee using in the future. You could use that to raise cash or free up some cash at a premium price and use the proceeds to buy the equipment you need. It’s a rebalancing exercise that might be healthy for contractors as well.
EW: Are there any other strategies contractors should consider?
Aharonian: In a time like this, if you're looking to buy equipment and prices are high, what else can you do? You can finance it. You’re putting up a little bit less up front – yeah, you're paying interest – but maybe it spreads your cash outflows out a little bit better.
Any of the potential buyers could tap into the Ritchie Bros. financial services to seek financing. We match approved buyers with a whole network of financing partners who can offer lease financing or term loan financing to serve the needs of that particular buyer. That's another place where buyers can manage that cash out a little bit more.
EW: So, for those looking to sell equipment, what types of valuation calculators are available? How do you know you’re setting a good price for your region?
Aharonian: Through some of our platforms, users can actually go and look up specific models and vintages of equipment and scour the database of recent sale comps to ascertain what's going on in the market for this type of equipment, and here's what I might get for it given my own characteristics - it's this old, it has this many hours on the engine, it's in this condition, etc. You start to zero in on a number that they can pick out and we'll also recommend a number for them.
The other thing that's often handy is that any one of these customers can talk to their local territory manager and that territory manager can coach them through the different price points that might be achieved if they were to go, for example, to an unreserved auction. Or let's say they did want to channel their sale through that Marketplace-E offering, our teams will offer them the pricing guidance on there as well, along with estimated time to sell as they price it in that channel.
And the point of that is, we're arming our customers with what we believe to be good pricing guidance based on the market characteristics that we see and we're helping them to be strategic about it. There are a lot of those good options available to any customer who's looking to get more information and be thoughtful about how they might go to market for selling some of their gear.
