Construction Machinery and Equipment

SIC 3531

Companies in this industry

Industry report:

This industry includes establishments primarily engaged in manufacturing heavy machinery and equipment used primarily by the construction industries, such as bulldozers, cranes (except industrial plant overhead and truck-type cranes), dredging machinery, pavers, self-propelled backfillers, backhoes, aggregate spreaders, construction plows, and power shovels. This industry also includes establishments primarily engaged in manufacturing forestry equipment and certain specialized equipment, not elsewhere classified, similar to that used by the construction industries, such as elevating platforms, ship cranes and capstans, aerial work platforms, and automobile wrecker hoists. Establishments primarily engaged in manufacturing mining equipment are included in SIC 3532: Mining Machinery and Equipment, Except Oil and Gas Field Machinery and Equipment; those manufacturing industrial plant overhead traveling cranes are classified under SIC 3536: Overhead Traveling Cranes, Hoists, and Monorail Systems; and those establishments manufacturing industrial truck-type cranes are classified under SIC 3537: Industrial Trucks, Tractors, Trailers, and Stackers.

Industry Snapshot

This industry provides several major categories of equipment for use by the larger construction industry. Total sales in the construction equipment manufacturing industry reached $50.5 billion in 2009, according to Dun & Bradstreet's Industry Reports. Although most establishments in this industry were small, those employing more than 500 people accounted for about 70 percent of total revenues. The top state in terms of number of employees and revenues was Illinois--home of industry leader Caterpillar Inc.--followed distantly by New York and Wisconsin.

Earthmoving machinery is utilized by companies involved in residential and commercial construction, as well as those involved in highway construction and dam-building. Caterpillar Inc. is the industry leader in the production of earthmoving machinery, which has historically been the cornerstone of its product line.

Excavators and cranes are used in a variety of construction areas. Excavators are used in most construction jobs and come in a wide variety of sizes and configurations, ranging from small tractor-mounted backhoes to large power shovels. Cranes are used for bridge, highway, large commercial or industrial construction jobs, and in offshore oil drilling. Other construction equipment includes underground mining machinery, asphalt and concrete pavers, air compressors and tools, pumps, hoists, and rock-crushing and screening equipment.

Background and Development

In the late 1990s, low interest rates and a booming American economy fueled residential, public, and commercial construction in the United States, which in turn boosted demand for construction machinery and equipment. After experiencing its eighth year of consecutive growth in 1998, when the value of shipments reached $24 billion, the construction machinery industry began to weaken slightly. Shipments in 1999 dropped to $21.9 billion before rebounding to $22.5 billion in 2000. In the late 1990s, 721 establishments were involved in the production of construction equipment, compared to 919 mid-decade.

The burgeoning American economy of the late 1990s bolstered industry growth. With low interest rates fueling a housing boom, the construction business needed equipment and machinery to keep up with demand. Commercial building also fared well. The lowest vacancy rates in office buildings in a decade spurred the construction of office parks and urban commercial buildings. The strong economy also led to the construction of new football stadiums and other sports arenas--again driving sales of earthmovers, scrapers, pavers, and other heavy equipment to complete the projects.

Manufacturers of construction equipment also received a boon from infrastructure projects. In June 1998, the Transportation and Efficiency Act for the 21st Century passed the U.S. Congress. This bill--the biggest public works bill in U.S. history--set aside $219 billion for transportation needs; $175 billion was earmarked for road and bridge repair and construction alone. The bill's impact on the construction equipment market was extremely positive. Moreover, bridge-building reached new levels in the late 1990s after the U.S. Department of Commerce reported that over one-third of the country's bridges were in need of repair. Such work requires highly automated bituminous and concrete paving equipment, milling machinery, and high-powered pavement breakers. Other public sector projects included the construction of urban pollution control facilities, such as solid waste disposal and wastewater treatment facilities.

The construction equipment industry upswing did not last, however. The Asian economic crisis of the late 1990s cut into American firms' exports. In the wake of the collapse, construction projects for new housing, roads, and offices slowed dramatically, dragging down demand for construction machinery. Russia's economic collapse in the late 1990s also hurt the American industry. Total industry shipments fell from $24 billion in 1998 to $22.5 billion in 2000. After a boost from the low interest rates and a high demand for housing in the early to mid-2000s, resulting in industry shipments of more than $37 billion, the construction equipment industry began to slow again, along with the U.S. economy. By the end of the first decade of the twenty-first century, the industry was facing severe challenges.

Current Conditions

Because demand in the construction equipment manufacturing industry is highly dependent on the state of the U.S. economy and the resulting activity in the construction industry, this sector of the U.S. manufacturing business was suffering in the late 2000s and early 2010s. According to the Association of Equipment Manufacturers, the construction machinery industry declined 40 percent in 2009 alone. The recession of the late 2000s brought construction in the United States to a sliding halt, and many industries, including this one, felt the effects.

In mid-2010, construction equipment manufacturers waited for a decision on a new highway bill and lobbied for increased funds for transportation construction. The funds provided by the 2005 Safe, Accountable, Flexible, Efficient Transportation Equity Act had run out in 2009, and the industry hoped for a new bill that would include enough stimulus money to put manufacturers back on track. Larry Tate of Caterpillar Inc. cited research at a July 2010 U.S. Transportation Department hearing that showed that the American population was expected to increase another 112 million people by 2020, to 420 million, and that the need to haul more goods--called freight demand--would double in the same time period. Tate said, "For the future, we absolutely need to make adding significant new capacity to the nation's highway system a top federal priority. We need to address the known traffic chokepoints and create regional critical commerce corridors to move goods." Others, including Dennis Slater of the Association of Equipment Manufacturers, pushed for a reinstatement of the bonus depreciation provision included in the Economic Stimulus Act of 2008 and extended to 2009 by the American Recovery and Reinvestment Act. The provision allowed businesses to deduct 50 percent of the cost of new construction equipment in the year it was placed in service. According to Slater, the equipment industry needed help, having cut 37 percent of its workers and experienced a 50 percent decline in sales between January 2007 and September 2009. Government officials, industry participants, and others involved engaged in heated debate about what the U.S. government's next steps in regard to highway and transportation construction should be. Some proposed that highway funding be passed to the states.

Industry Leaders

The world's leading manufacturer of construction equipment, with total sales and revenues in 2009 of more than $32.4 billion, was Caterpillar Inc., of Peoria, Illinois. Originally incorporated in 1925 as the Caterpillar Tractor Company, the company had 3,500 offices in 180 countries. After suffering significant losses during the 1980s, the company embarked on a series of changes to regain its previous form, cutting its workforce from 90,000 to 60,000, closing 30 percent of its plants, introducing new machinery, and moving aggressively into foreign markets. After completing the massive restructuring in 1993 that automated more facets of production, Caterpillar was able to better withstand labor disputes, such as the 1994 United Auto Workers (UAW) strike in which two-thirds of Caterpillar's workforce went on strike. The transformation was at times a painful one, but the company emerged stronger and able to meet market needs quickly. For instance, in the 1980s, Caterpillar offered little paving equipment; by 1999, it was the industry leader in this segment of the market. After reaching a contract agreement with UAW in 1998, the company acquired Veratech Holdings, Handling Crane Systems, and Wrightech.

The second-largest construction equipment company in the world is Komatsu Ltd. The Tokyo-based company's American subsidiary, Komatsu America Corporation, was a strong performer. Based in Rolling Meadows, Illinois, Komatsu America conceives, manufacturers, sells, and maintains earth-moving machinery for North American construction and mining firms. The company's forte is in dump trucks and crawler bulldozers.

Incorporated in 1868, Deere & Company is one of the largest agricultural and industrial equipment manufacturers in the United States. An industry innovator since founder John Deere introduced the first successful self-cleaning steel plow in 1837, the company has factories throughout the world and distributes its products through independent retail dealers. Based in Moline, Illinois, Deere & Company employed 51,300 people and achieved sales of over $23.1 billion in 2009. John Deere produced backhoe loaders, crawler bulldozers, and drive train components, in addition to engines, excavators, motor graders, and scrapers.

Other important players in the construction equipment manufacturing industry in 2010 included Terex Corporation of Westport, Connecticut, with 2009 sales of $4.0 billion, and CNH Capital America, a division of CNH Global, which had overall sales of $13.7 billion in 2009.

Workforce

According to Dun & Bradstreet's 2010 Industry Reports, 3,700 establishments employed 75,800 workers in the construction machinery industry. The industry was highly concentrated, with the 50 largest companies accounting for more than 80 percent of total revenues.

Labor is a huge part of operating expenses for leading domestic construction equipment manufacturers such as Deere & Co. and Caterpillar. Labor at both companies is represented by the United Auto Workers, and ongoing negotiations and settlements were a part of the landscape throughout the 2000s.

Research and Technology

Construction equipment itself has often been considered relatively "low-tech," but "intelligent" machinery was increasingly being developed for field work in the early twenty-first century. Kraft TeleRobotics of Kansas developed Haz-Trak, an excavator and materials handler that could be operated by remote control, allowing operators to handle dangerous materials such as radioactive waste from a safe distance. Other products offered by the company by 2010 included the Raptor, Viper, and Predator manipulator systems, as well as the Brokk 180R, the first commercially available demolition robot with "master/slave force feedback control," a system that allowed the operator to "control complex arm motions in an intuitive comfortable manner, as if the machine were an extension of the operator's own arm," according to the firm's web site.

Another trend in the industry was the quest for automated construction equipment, which, as Construction Equipment explained, would "reduce operating costs and increase productivity on the construction site and in the mine." The magazine predicted that eventually a fleet of machines could be operated by a single human operator. Armed with the latest in technology these machines will "detect problems and then proactively inform the human overseer."

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