WHAT NEXT FOR THE US?

INFLATION, ELECTRIFICATION AND DIGITALISATION.

A New Conexpo Report Highlights How The Us Is Changing And We Can All Learn From It

Like other markets, the US has not been immune to the after-effects of the COVID pandemic. Next month’s CONEXPO 2023 event has taken on extra meaning as a bellweather for the huge machinery market’s recovery as well as the US economy in general.

Inflation continued to rear its ugly head in 2022, challenging contractor profitability and threatening pending projects from moving forward. The Association of General Contractors (AGC) reported in early December that overall costs for construction are “still rising at painfully high rates.” Products used in highway and heavy construction experienced double-digit price increases from November 2021 to last month. The index for liquid asphalt, used in paving projects, jumped 19.8%, while the index for concrete products climbed 14.3%. The producer price index for diesel fuel leaped by 59.6% despite a one-month decline of 3.4% in November. Through December 9, the producer price index for construction machinery has risen 10%, on top of an 8% increase in 2021.

Inflation is also undermining the $1.2 trillion Infrastructure Investment and Jobs Act. “When prices are higher, less ‘real work’ gets done,” says Dodge Construction chief economist Richard Branch. “Projects will move ahead but not as previously planned.”

CBRE’s latest Construction Cost Index forecasts a 14.1% year-over-year increase in construction costs by year-end 2022. However, there are signs we could be seeing the light at the end of the tunnel. CBRE expects construction cost increases to stabilize in the 2%-4% range in 2023 and 2024, on par with historical averages. “We’re starting to see price growth slow down,” says Branch. Right behind rising construction costs comes the rising interest rate trend. Nowhere has the impact of interest rates been more significant than in the housing market. With higher mortgage rates and high home prices, home sales in the United States have declined for nine months in a row through October. “Single-family home sales lead the sector into decline,” says Branch. “We expect to hit bottom by late Q1 or Q2 in 2023.” Housing prices have been slow to decline, with most analysts attributing this to low inventory.

Labour shortages are nothing new to the construction industry, and according to Branch, labour has been a struggle for the industry since it began to recover from the Great Recession. “Demand for workers will stay high, despite housing declines,” says Branch. A massive wave of retirements among baby boomers continues to generate demand for replacement workers. An AGC study conducted in July/August 2022 among construction firms revealed that 93% of respondents had open positions for craft workers, while 71% have openings for salaried positions. Among the firms with openings, 91% report having a hard time filling some or all positions. More than three-quarters (77%) of respondents report that available candidates are not qualified to work in the industry for reasons such as a lack of skills or failure to pass a drug test.

The AGC study also revealed what construction firms are doing to improve the labor situation. More than half (51%) of firms—up from 37% in the 2021 survey—report they engaged with a career-building program, at high schools, colleges, or career and technical education programs. 39% report they added online strategies, like using Instagram Live, to connect better with younger applicants. Training is another tool being deployed by contractors. Forty-two percent of respondents to the AGC survey initiated or increased spending on training and professional development. More than two-thirds (69%) of the largest firms, those with annual revenue of more than $500 million, report doing this, compared with onethird of the firms with $50 million or less in revenue.

As long as the supply of labour remains tight, there will be pressure to increase wages. Among the contractors AGC surveyed in July/ August, 86% reported increasing base pay rates in the past 12 months, while 45% provided incentives or bonuses and 24% increased their portion of benefit contributions.

Construction is an industry well-known for its slow adoption of technology but in 2022 there were signs that’s changing – and labour shortages are a driving factor. “The pressure is on to do more with less,” says Branch. “One of the clear ways to do that is with technology.” According to Tech Crunch, venture capital (VC) funding in U.S. construction tech startups alone reportedly hit $1.3 billion in the first half of 2022, representing a 44% increase on the previous six months. In addition, a number of new funds and initiatives have emerged to support construction technology entrepreneurs. In the Associated Building Contractors 2022 Tech Report, case studies showcase how contractors are adopting robotics, drones for aerial imagery and 3D models, estimating software, augmented reality, virtual reality, and automated data capture.

The government is also providing incentives as it seeks to get more out of its infrastructure spending. The Federal Highway Administration is managing two programs that will provide $500 million to promote the use of digital technologies on government-funded projects. The Technology and Innovation Deployment Program (TIDP) covers research and development (R&D) and other efforts related to highways and transportation, while Advanced Digital Construction Management Systems (ADCMS) was created to advance technologies such as BIM, 2D, and 3D modelling. In its 2023 Industry Outlook for Engineering and Construction, Deloitte predicts that companies will likely increase the adoption of structured approaches to emerging technologies across the industry in 2023.

In April 2022, the US announced its goal to halve US greenhouse-gas emissions by 2030 and reach net-zero emissions by 2050. According to Architecture 2030, the built environment generates 40% of annual global CO2 emissions. A new target is embodied carbon emissions. While operational carbon emissions can be reduced through building energy upgrades and the use of renewable energy, embodied carbon emissions refer to the emissions associated with the production of building materials, from raw material extraction to the manufacturing of finished products, and it accounts for the vast majority of a building’s total embodied carbon. A new study from A/O PropTech, finds that Investment in lowcarbon building construction technology surpassed $2 billion in 2022 as the industry seeks ways to reduce its carbon footprint. Three strategies being pursued are designing for material efficiency, sourcing greener materials, and prefabrication and robotics.

On the machinery front, the conversion to renewable fuels has begun. According to a report by Research and Markets, the electric off-highway equipment market is estimated to grow from $9.2 billion in 2022 to $24.8 billion by 2027 at a CAGR of 22.0%. Lower owning and operating costs are making electric machines competitive with diesel. Advances in battery life mean buyers can expect to see a growing number of electric options across many machine categories and brands.

Sustainability in the construction industry is being advanced by the public and private sectors. Governments are adopting more clean-air regulations at local and regional levels and companies are adopting sustainability policies and asking partners to help them meet their targets.

Consequently, many manufacturers have already developed – or are in the process of developing – electric-powered construction equipment to meet increasing emissions regulations, provide efficiency improvements, and lower operating costs. All electric, electric/ hydraulic, and battery-operated versions rival their diesel and gas counterparts in performance, notes Joel Honeyman, VP of Global Innovation at Bobcat.

“People say electric machines are not going to perform as well as a diesel machine,” Honeyman observes. “That is simply not true. In many cases they can outperform them.”

“Many people are so used to what they have and are afraid of new technology. Some companies have been running diesel- and gas-powered equipment for 40, 50 years. Hydraulics have been on equipment for

80 years. Adjusting to an electric-powered machine is quite a paradigm shift.”

He addes: “We see electric-powered technologies and their applications spilling into our industry. Look at what is happening in the auto industry. Tesla has really driven the battery electric concept and an entire industry is shifting.”

According to Honeyman, green construction technology is only getting better and smarter with new machine and equipment applications and opportunities.

Among the many advantages of electrification, says Honeyman, are “noise and vibration reduction, instantaneous power, and software features that are otherwise unavailable with a diesel engine and hydraulics.”

Matt Sagaser, director of Innovation

Accelerated at Bobcat’s Acceleration Center will be joining Honeyman on stage during the Electrifying the Future: Get Plugged In lecture. Together, they will examine the advantages of electric construction equipment beyond just being “green.” They will also discuss what an all-electric platform allows construction equipment manufacturers to do.

Sagaser suggests that “the software features allow us to advance and accelerate the technology. We are doing it in a way that is more efficient and cost-effective, and beyond expectations from a power perspective. Overall, our electric innovations allow us to offer customers an experience they may not have previously imagined.

“We could have very easily removed the diesel engine and replaced it with a battery. Instead, our innovation team, which leads this project, wanted to see what other advantages we could achieve if we made it all electric and removed the hydraulics as well. That opened up a lot of possibilities.”

While software is shaping hardware in the US, a digital sales revolution is well-underway. In 2021 online sales of automobiles reached 30% of the market, their highest level. In July 2022, Ford announced it would move sales of its electric vehicles online at a fixed price, following Volvo and Tesla. “Whatever happens in the auto industry, is coming to construction equipment dealerships,” says Garry Bartecki, CFO of a Top 100 rental company and former CFO of the Associated Equipment Distributors (AED).

In a 2021 study from McKinsey & Company, sponsored by AED, more than 40% of off-highway dealers expect fully digital sales (including the actual purchase) for new equipment to increase from 7%29% and digital rentals to increase from 7%-33% within five years.

“We definitely see things moving in this direction,” says Jefferson Yin, director of New Business Models and Commercial Intelligence at Volvo CE. In 2020, the firm began allowing customers to pre-order new electric equipment online, and they recently launched an online configuration tool for those machines, which allows customers to “build and price” their ideal model.

“Because of how specific customer needs can be when buying construction machines, we get the requests at a corporate level and pass them along to the appropriate dealers for fine-tuning the commercial offer,” adds Yin.

“OEMs have always kept the major accounts,” adds Bob Henderson, VP of Associated Equipment Distributors. While he agrees online sales will accelerate, he believes dealers will remain an integral part of the channel and a strategic partner.

“Dealers have to engage in online sales, to meet customer demand for the right pricing, reliable and durable equipment, and a warranty,” says Henderson. “They need business systems to meet those demands, in partnership with the OEMs.”

“There will still be transportation, delivery, and service, but it will be much more efficient,” explains Steve Clegg, managing director and Owner of Winsby, Inc., a business development firm with many clients in the construction equipment industry.

“Even for machine maintenance, we have heard it directly from customers and have seen rental houses and smaller equipment distributors building up their e-commerce options,” says Yin. “Customers like the convenience of e-commerce, but at the same time, they still want real people –like those at their dealership – available to answer their questions and provide support and service both before and after they buy or rent a machine. Finding the right balance between online convenience with the personal customised approach is key for all manufacturers and dealers.”

“Dealers are behind the curve and contractors are ahead of the curve when it comes to utilising the Internet,” says Ron Slee, managing director Learning Without Scars, a training resource for dealers. The shift to e-commerce creates what he calls “the Amazon effect,” which means dealers will have to transition from selling things to selling services.

With brand differentiation waning in the heavy equipment market, Dale Hanna, CEO of Foresight Intelligence, a provider of business systems and telematics software, also believes the battle for customers will be based on customer experience. “Dealers need to adopt more technology to be able to serve more customers with the same amount of people or to attract better people,” he says. The McKinsey study also notes that despite anticipating a substantial increase in fully digital sales, only 14% of respondents listed digital sales among their biggest opportunities in the future of selling. The authors believe dealers are still grappling with that new model and see other opportunities as more lucrative. While the electrification of equipment is in its early stages, Grand View Research reports that the global off-highway electric vehicle market size is expected to reach $42.70 billion by 2030. Growth will be driven by lower operating costs as well as improved battery technology and lower costs for batteries. “You are going to see the whole industry switch to battery-operated or hybrid machines,” says Clegg. “The amount of parts drops by about 90%, so if your operating costs for a skid-steer were $20 an hour, that drops to $3 per hour.”

Dealers make their money on parts and services, and a high absorption rate (+85%) is a key focus. This metric is an indication of how well the margin from parts and services covers all the expenses of the dealership.

“Electric machines will cut the maintenance costs, so the dealers will make less money and the OEMS will make less money,” says AED’s Bartecki. “It’s a whole new ball game.”

To make up for the difference, dealerships will have to focus on new revenue sources. “I would recommend they move into supporting and servicing batteries, providing services such as recharging vehicles, tires, wear parts, and repair,” says Clegg. “They can also expand into different lines of equipment.”

According to Lars Arnold, Electromobility product manager for Volvo CE, the firm is working closely with dealers on sales and service training. It has added electromobility training at its Hayward Training Center and has plans to include it at its new training center at the Shippensburg headquarters.

Autonomous machines are another potential revenue stream for dealers. “Autonomous machines, by their very nature, will require a higher level of technology and expertise,” says Hanna. “Is the dealer going to do more, or is the manufacturer?”

Telematics could greatly reduce owning and operating costs. The challenge has been getting equipment owners on board. “Across the industry, adoption of telematics is definitely under 50%, and maybe only 30%,” says Henderson.

Bobcat Compact Loader Inventors Inducted Into Hall Of Fame

T2023 inductees for the National Inventors Hall of Fame (NIHF) in the USA. Cyril and Louis Keller built their first three-wheeled loader with two drive wheels in front and a caster wheel in the rear – the predecessor to the modern skid-steer loader in 1957. In the 1950s, brothers Cyril and Louis operated a small machinist-blacksmith shop in Minnesota together, building and repairing machinery for local farmers.

the world’s first true skid-steer loader. ‘Skid-steer’ describes the unique steering system, which enables the machine to turn within its own length. The Bobcat brand name was established because of the machine’s toughness, quickness and agility.

“The Bobcat loader has positively impacted the lives of thousands of employees who have worked for the company, dealers who sell the machines, and customers who use the equipment every day to build their livelihood,” said Joe Keller, son of Louis. “While we may not always realise its impact, it is an integral part of our everyday life — from supporting farms that result in food on our tables to hauling materials around jobsites.”

The idea for a new form of loader came after a farmer approached them with a need for a selfpropelled loader light enough to be lifted to the second floor of a turkey barn and small enough to clean around the barn’s upright poles. The loader came to the attention of Melroe Manufacturing Company (now Bobcat), which invited the Kellers to demonstrate their invention in their booth at the Minnesota State Fair in 1958. After a successful demonstration at the fair, the Melroe Manufacturing Company was awarded exclusive manufacturing rights to the machine on a royalty basis and hired the Keller brothers to refine the design and put the machine into production. To improve on the design of the loader, a second set of drive wheels was added to the back of the loader in 1960. With this 4WD, the M400 became

The Kellers built their first three-wheeled loader and the predecessor to the modern skid-steer loader in 1957

As Bobcat celebrates 65 years since the invention of the machine that created the compact equipment industry, it has continued to forge the future of the industry through innovation and forward-thinking. Bobcat now offers more than 100 products in the compact, grounds maintenance and industrial equipment industries, and produces more than 150 families of attachments. Acknowledging the award on behalf of his father and uncle, Joe Keller added:

“This recognition is a great honour to dad and Cyril’s families, but it is not just for us. It is a recognition for all of the early and current Bobcat employees who have helped bring our little ‘Keller loader’ to be the Bobcat machine it is today.”