A Deep Dive into Construction Equipment Prices: 2020 to Present
The construction industry, like many others, has seen fluctuating costs in recent years due to a variety of factors. From the COVID-19 pandemic to supply chain disruptions and inflation, the price of construction equipment has been anything but stable. Reliant Advantage looks at the trends, challenges, and factors influencing construction equipment prices from 2020 to the third quarter of 2024.
1. The Impact of the Pandemic (2020-2021)
When the COVID-19 pandemic hit in early 2020, the construction industry faced unprecedented challenges. Many projects were halted due to lockdowns, while equipment manufacturing slowed or stopped altogether, leading to a scarcity of equipment. This shortage drove prices higher as contractors scrambled to secure the machinery they needed.
Initial Drop in Demand: During the first half of 2020, construction activity declined, leading to a temporary drop in demand for equipment. Many manufacturers cut production, and dealers began offering discounts to move their inventory.
Supply Chain Disruptions: The pandemic severely impacted global supply chains. Equipment manufacturers relying on components from multiple countries experienced significant delays. This led to longer lead times and, eventually, price hikes in late 2020 as demand recovered faster than supply.
2020 Construction Machinery & Equipment PPI Index: Relatively Flat January to November then rose 1.69% in December 2020.
2. Supply Chain Bottlenecks and Rising Costs (2021)
By 2021, construction was ramping back up as infrastructure investments spurred economic recovery. However, the supply chain challenges that began in 2020 persisted, and in many cases, worsened.
Raw Material Shortages: The rising cost of raw materials—particularly steel, which is essential for most construction equipment—drove up the production costs for manufacturers, leading to increased equipment prices.
Shipping and Freight Costs: Global shipping costs surged due to container shortages, port backlogs, and rising fuel prices. These increases were passed on to buyers in the form of higher equipment prices and longer waiting times for new machines.
Inflation: As governments implemented stimulus measures to mitigate the economic fallout of the pandemic, inflation became a growing concern. Inflationary pressures, especially in 2021, contributed to the rising cost of new and used construction equipment.
2021 Construction Machinery & Equipment PPI Index: Increased 8.48% January – December 2021.
3. The Used Equipment Market Surge (2021-2022)
In 2021, many contractors turned to the used equipment market due to shortages of new machinery. As demand for used equipment surged, prices followed suit, often reaching record highs. Auction platforms reported increased activity, with buyers willing to pay a premium for reliable used machines that could be put to work immediately.
Increased Demand for Used Equipment: Construction firms unable to wait for new equipment began investing in used machinery. This surge in demand significantly boosted the value of second-hand equipment, narrowing the price gap between new and used models.
Auction Market Boom: Online and live auctions saw fierce competition for equipment. Many machines sold well above their estimated values, with buyers prioritizing immediate availability over cost.
2022 Construction Machinery & Equipment PPI Index: Increased 12.19% January – December 2022.
4. Sustained High Prices and Other Challenges (2023)
2023 brought several challenges and trends to complicate navigating the construction equipment market:
Continued Supply Chain Issues: While the worst of the supply chain bottlenecks had eased, some delays remained. Shipping costs stabilized, but were still higher than pre-pandemic levels, affect equipment prices.
Sustained High Prices for Used Equipment: The used equipment market remained strong, although prices started to stabilize. Contractors looking for lower costs still competed for well-maintained used machines, driving up their value.
Inflationary Pressures: Inflation continued to be a concern, especially in regions where central banks adjusted interest rates. Higher borrowing costs affected contractors' ability to invest in new equipment and slowed demand growth.
2023 Construction Machinery & Equipment PPI Index: Increased 4.45% January – December 2023.
5. Push for Electric and Sustainable Equipment and Borrowing Costs (2024)
Another significant factor influencing construction equipment prices in recent years has been the push toward sustainable and electric machinery. Governments around the world are encouraging green construction practices, and manufacturers have responded by developing more energy-efficient and environmentally friendly equipment.
Higher Initial Costs for Green Equipment: While electric and hybrid construction equipment offers long-term savings on fuel and maintenance, the upfront costs tend to be higher. This has pushed prices up for contractors aiming to meet new environmental standards or reduce their carbon footprint.
Subsidies and Incentives: Some governments have introduced subsidies for contractors investing in electric equipment, which has helped offset the higher purchase price. However, in regions without such incentives, these costs remain a barrier for widespread adoption.
Borrowing Costs: In September 2024, the Federal Reserve lowered interest rates by 50 basis points, easing monetary policy for the first time in four years. Fed Chairman Jerome Powell emphasized that inflation is “much closer” to its 2% target and the labor market is “less tight” than pre-pandemic in 2019. J.P. Morgan strategists believe that there will likely be two additional rate cuts in 2024, and expect the cuts to continue into 2025.
2024 Construction Machinery & Equipment PPI Index: Increased only 0.55% January – August 2024
Conclusion: What Lies Ahead?
Construction equipment prices have been on a rollercoaster ride since 2020. The combination of supply chain disruptions, material shortages, inflation, and a booming demand for both new and used equipment has kept prices high. Looking ahead, while some pressures are easing, the market is likely to remain dynamic.
Understanding these factors will help construction firms make informed purchasing decisions as they navigate the evolving landscape of the equipment market.
In our next article, we will take a deeper dive into 2024 pricing and what the future may bring.
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Commercial and Industrial Asset Appraisals & Inspections
Reliant Advantage, LLC. provides companies and financial institutions with confidence to make informed decisions with our certified and desktop appraisals which follow USPAP guidelines. Serving lenders, consultants, and companies, we provide prompt asset appraisals with proven value and trusted results nationally from our Mid-Atlantic office.
William J. Fischer, CAI GPPA
646-565-9847