The construction and equipment industry is undergoing significant changes, and equipment dealers must rapidly adapt to keep up. The industry is dealing with numerous challenges, from supply chain disruptions to the rise of equipment rentals and economic shifts like inflation. These factors might make some dealers nervous, but these changes can create business opportunities to adapt, innovate, and thrive.
Here’s our take on how supply chain disruptions, the growth of the rental market, and economic forces are reshaping the equipment industry and what equipment dealers can do to stay competitive.
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Supply chain disruptions continue
One of the equipment industry’s biggest challenges today is supply chain disruptions. The days when delays were limited to logistical hiccups are long gone. Now, every stage of the supply chain is facing challenges. From securing raw materials to delivering finished products, disruptions are the new normal.
What’s behind the disruptions?
The causes of supply chain disruptions are multifaceted, and they’ve been building for a while. Here’s a breakdown of the main culprits:
- Material shortages. Essential materials for manufacturing equipment, such as steel, semiconductors, and rubber, are in short supply. Events like the COVID-19 pandemic and geopolitical tensions have only exacerbated these shortages and price fluctuations. Production delays and increasing demand have resulted in significant price hikes.
- Labor shortfalls. The need for more skilled labor is another issue contributing to supply chain delays, especially in manufacturing and logistics. The pandemic led to early retirements, reduced immigration, and career shifts, further straining the workforce. For example, 3.8 million jobs will need to be filled in the manufacturing sector between now and 2033.
- Shipping bottlenecks. Delays in shipping are expected, with port congestion, a shortage of drivers, and fluctuating container availability worsening the situation. Global shipping capacity remains below pre-pandemic levels, causing longer transit times and higher shipping costs.
How do supply chain disruptions affect the equipment industry?
Supply chain disruptions are creating headaches for equipment dealers across the construction industry, including:
- Production delays. Equipment manufacturers are experiencing delays in delivering necessary parts and raw materials, which slows production and results in missed deadlines.
- Rising costs. The scarcity of materials and labor drives up costs, with price increases often passed down to customers. Equipment prices remain a concern for many business owners in 2024.
- Unpredictable deliveries. Extended lead times and uncertain delivery schedules make it difficult for equipment dealers to meet customer demands, adding to their operational challenges.
How equipment dealers are coping with supply issues
There’s no quick fix for supply chain disruptions, but equipment dealers are finding ways to adapt. Some strategies include:
- Diversifying suppliers. Relying on a single supplier is risky, so dealerships are broadening their networks to ensure more reliable access to in-demand equipment.
- Using digital tools to anticipate challenges. Technologies like predictive analytics and real-time tracking give equipment dealers better visibility into their supply chains, helping them anticipate potential disruptions and improve efficiency.
- Building supply resilience. By strengthening inventory models and creating more flexible supply chains, dealerships can buffer themselves against future disruptions.
Equipment rentals are trending
With the supply chain under pressure, many companies use equipment rentals to stay operational. The global equipment rental market is forecast to grow by 5.1% annually, reaching $164.4 billion by 2029. The rising demand for rented earthmoving equipment, material handling equipment, and other types of machinery is why construction is one of the sectors experiencing significant growth.
Why renting makes sense for construction companies
- Economic flexibility. For small to medium-sized construction companies, purchasing new equipment can be expensive and risky, especially in uncertain economic times. Renting provides a cost-effective alternative, allowing businesses to scale their equipment needs based on project demands.
- Access to new technology. Renting equipment allows construction companies to use the latest equipment without the hefty cost of ownership. The ability to quickly upgrade equipment is essential in sectors where technology is advancing quickly. For instance, electric-powered equipment and automation are gaining traction in construction, and renting allows businesses to stay competitive without constantly overturning their fleet.
- Operational agility. Renting equipment gives companies the flexibility to meet short-term or seasonal project demands without the overhead of ownership. Adapting to seasonal demands is crucial for managing cash flow during volatile economic periods.’
What does growing interest in renting mean for equipment dealers?
The rental boom is both an opportunity and a challenge for equipment dealers. Dealers must shift their strategies to accommodate this growing demand. Your dealership can unlock new revenue streams by offering:
- Broader inventory. Dealers must offer various equipment to meet diverse customer needs by maintaining a fleet that provides multiple types of machinery at different price points.
- Flexible rental (with or without RPO) or leasing agreements. Customers want flexibility, and dealers that provide customizable rental terms are more likely to succeed. Many customers prioritize flexible terms when selecting a rental provider.
- Digital platforms. Tools like online booking systems help manage reservations so customers can get the necessary equipment. Mobile inventory management also makes real-time stock tracking easy. Dealers who use digital tools can speed up leasing agreements, improve customer service, and stay competitive.
Economic forces impacting the equipment industry
Beyond supply chain woes and the rental surge, the equipment industry grapples with broader economic forces like supply and demand fluctuations and inflation.
Supply and demand dynamics
Supply and demand have always driven the equipment industry, like any other market. When demand for construction and transportation equipment spikes, it often outstrips supply, increasing prices. In the rental market, when demand is high, rental rates increase. For example, rental rates for construction equipment surged by 6.2% between 2022 and 2023 due to increased demand from infrastructure projects. On the flip side, equipment dealers must adjust their rates when demand wanes to remain competitive.
The impact of inflation
Inflation has a significant impact on the equipment industry, affecting everything from manufacturing costs to financing:
- Rising equipment costs. In 2023, the price of industrial machinery increased by 7.5%. Inflation increases the price of raw materials, labor, and production, ultimately producing more expensive equipment.
- Higher financing costs. As inflation drives up interest rates, financing equipment purchases or leases becomes more expensive.
- Increased maintenance expenses. Inflation also affects operating costs, including fuel, parts, and maintenance labor, which significantly impact the bottom line of a construction company. Using more capital to maintain their current fleet means construction companies have fewer funds for equipment acquisition.
How equipment dealers can thrive in an uncertain environment
Despite these challenges, there are several strategies equipment dealers can employ to navigate the shifting landscape:
- Diversify supplier networks. By diversifying your supplier base, your dealership can reduce disruptions and maintain a consistent inventory.
- Use technology to streamline operations. Digital tools for inventory management can improve visibility and efficiency, helping you effectively manage your inventory to provide your customers with the equipment they’re looking for.
- Expand rental or leasing options. Dealerships can profit from rental market growth by offering a broader range of flexible agreements.
- Focus on customer experience. Whether selling or leasing, dealerships that prioritize customer service tend to build stronger customer relationships. Building a good relationship with every customer leads to repeat business and positive word-of-mouth referrals.
- Stay agile and adapt. Economic conditions can shift quickly, so dealerships that remain flexible and responsive to supply, demand, and pricing changes are positioned for success.
Equipment dealers must adapt to changes in the construction industry
The equipment industry is in the midst of a significant transformation. Supply chain disruptions, rising inflation, and the growing preference for equipment rentals are reshaping the market. But with these challenges come opportunities. Equipment dealers embracing change, investing in digital tools, and prioritizing customer experience will be well-equipped to navigate the future. The key to success in this evolving industry is agility and forward-thinking. Those who can adapt will thrive in the long run.
Are you interested in learning how you can better respond to changing equipment trends so you can close more deals? Let’s talk! Connect with your local equipment loan and leasing representative to discuss how working with Equify Financial can benefit your customers and grow your dealership.