Tower Crane Industry Awaits a Big Lift; Five Years After Commercial Construction Market’s Collapse, Utilization Rates and Sales Remain Soft

Updated July 25, 2013, 8:13 p.m. ET

Crane Industry Awaits a Big Lift

Five Years After Commercial Construction Market’s Collapse, Utilization Rates and Sales Remain Soft



For a glimpse of how the U.S. commercial construction market is faring, Morrow Equipment Co. is worth a good look. Five years after the construction market collapsed, about 250 cranes—or half of Morrow’s fleet—remain idle. The market “is improving this year, but is still at a very low rate compared with where it used to be in the boom time,” said Christian Chalupny, president of Morrow, which is the nation’s largest supplier of rented tower cranes based on fleet size.The utilization rate for Morrow’s 500 tower cranes is running between 50% and 55%, well below the 80% that Morrow experienced in 2008. Monthly rental rates aren’t yet at levels needed to consider expanding fleets or buying replacements. The company bought 150 cranes from 2004 to 2008, and hardly any in the four years that followed. This year, it purchased 10 tower cranes designed for use in cramped urban construction sites.

The Salem, Ore., company’s cranes are mostly scattered throughout the U.S., ready for quick deployments to job sites where the tower cranes are assembled. About 20% are in Australia, New Zealand, Brazil and other countries.

The crane count in city skylines can indicate how the local and regional economy is performing, because they are used to build everything from skyscrapers to shopping malls and chemical plants. After an optimistic start to this year, crane manufacturers have turned gloomier.

Cranes 512093.BY -5.44% are actually a bit softer than we anticipated coming into the year,” said Ron DeFeo, chief executive of Terex Corp., TEX -1.08% during a conference call Thursday on the Westport, Conn.-based crane maker’s second-quarter earnings. “We’ve seen improvement, but it’s not a recovery.”

Terex reported that its crane revenue rose 3% in the quarter from a year earlier to $521 million, but its operating income from cranes plunged 54% to $23 million, as lower-margin cranes accounted for much of the quarter’s sales.

The $20 billion-a-year global crane market typically takes longer to recover than other types of construction machinery, but this time around the recovery is even slower. “Under normal times, we would have expected that the crane market would be booming along by now,” said Charles Yengst, president of machinery-market forecaster Yengst Associates Inc. “But it’s not happening.”

World-wide sales of motorized mobile cranes, which can be driven around a job site, reached 32,500 last year, down 16% from the 2008 peak of 38,500, according to industry consultant Chortsey Barr Associates.

About 65%, or 21,000, of the cranes sold in 2012 were in China. Most were made by Chinese construction-machinery makers, such as Sany Heavy Industry Co.,600031.SH -0.57% XCMG Construction Machinery Co. 000425.SZ -1.05% andZoomlion Heavy Industry Science & Technology Co. 1157.HK -0.35%

North American sales of mobile cranes rose 40% last year to 1,860 units, but despite the surge, crane sales remain at less than half the 2008 volume.

Some analysts now expect crane sales this year to decline from 2012, and wonder whether the 2008 peak was an aberration caused by a construction industry that had become overheated with debt leveraging.

“Everyone is measuring to that [2008] peak, but you’re chasing a target that was artificial,” said Joel Tiss, an analyst for BMO Capital Markets.

Other factors have been holding down the construction projects that typically drive crane demand. Efforts to control health-care spending have curbed hospital construction. A reluctance to raise taxes is keeping a lid on spending for infrastructure, schools and other public buildings. High-rise condominium projects, a staple of the construction industry in Florida, Nevada and California before the recession, have been slow in returning.

Only the energy sector has shown a robust need for cranes in recent years, driven by expanded drilling for natural gas and oil as well as the construction of wind turbines.

In the U.S., the architectural billings index—a gauge of commercial and industrial construction spending—has been hovering near the threshold between contraction and expansion. The overall index remained positive in June after contracting as recently as April.

“We hear from architectural firms about projects that were mothballed two or three years ago that are seeing the light of day now,” said Kermit Baker, chief economist for the American Institute of Architects. “But it’s still difficult to get project financing. A lot of lenders don’t want to hold construction and real-estate loans now.”

The AIA forecasts that spending on nonresidential construction in 2013 will increase 2.3%, despite essentially no growth in the first half of the year.

Morrow’s Mr. Chalupny said some of the high-rise construction that drove the crane market before 2008 is gradually returning. He said Morrow cranes have returned to an ambitious retail, office and condominium development in Atlanta’s Buckhead district after construction had stalled.

Cranes can remain in service for as long as 30 years, making new sales difficult without an expanding market. Mr. Chalupny estimated that several hundred tower cranes in the U.S. have been scrapped or sold to overseas crane operators since 2008.

Contractors often rent cranes for specific jobs. At Essex Crane Rental Corp. in Buffalo Grove, Ill., fleet-utilization rates for most types of cranes are reaching the point where the company is able to extract higher rental fees on its cranes, but Essex isn’t ready to expand its fleet.

“It would be a difficult time for us to buy,” said its CEO, Ronald Schad. “The economy has to be going with enough vigor that people are making longer-term investments.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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