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Addressing the Equipment Shortage

“Considering the current used equipment shortage, when do you think the supply of used equipment will bottom and availability will return to more normal levels? How much worse does everyone think the used equipment shortage will get before it improves?”
– John L. Gelsimino, President at All Lift Service Co Inc., in Willoughby, Ohio

Asked & AnsweredJerry Weidmann
President
Wisconsin Lift Truck Corp.
Brookfield, WI

The primary sources of used equipment includes off-lease equipment, trade-ins on new equipment purchases or leases and retirements from rental fleets. When the economy goes into recession, used equipment availability rises. Rental fleet utilization rates go into decline. Dealers sell off their rental fleets to reduce their costs, generate cash and get their utilization rates back to more normal levels. Typically, during the onset of the recession and until the expansion commences, used-equipment availability exceeds demand.

During recessions, fleet owners purchase fewer lift trucks and will frequently extend their ownership or lease period because the equipment is not used at the rates they anticipated when they put them into their fleets. As the recovery starts, demand for rental assets increase. Dealers put used inventory into their rental fleets to meet the demand. Fleet owners extend the leases on their existing fleets during the early stages of recovery to avoid making significant investments and demands on their lines of credit. Fleet owners are more likely to purchase used equipment during the early stages of recovery. As a result, as the economy recovers used equipment availability declines.

As the recovery lengthens, the accumulated hours on equipment rises and an increasing portion of the equipment population needs to be replaced. As equipment replacements increase, availability of used equipment will rise. It is only when new equipment orders are sustained at a higher level for an extended period of time that the availability of used equipment normalizes.

In my view, we had three years of retired rental sell offs and we have only had two years of expansion of rental fleets. Rental retirements as a source of used equipment will likely normalize in 2015. Likewise, fleet replacements and therefore trade-ins and off-lease sources will recover as equipment owners must replace their equipment. I expect the fleet retirements to increase in 2014 and to normalize in 2015 and thereafter.

It is my belief that the used market will be tight for another two years, bottoming out in 2014.

Mark Milovich
President
Lift Atlanta
Decatur, GA

I think the scarcity of used equipment will remain as long as the economy continues to grow at a snail’s pace. With the full implementation of the Healthcare Act coming next year, and the uncertainty that goes along with it, I think the demand for used equipment will continue to exceed the supply. The benefit of this should be an ability to sell used equipment at a higher retail price. I think we have seen the bottom, and I also think it will take several years to return to more normal levels. Many dealerships, such as mine, filled used truck demands by selling off rental trucks that were sitting idle. Most, if not all, of those are gone. Dealerships will have to rebuild their rental fleets and depreciate these assets down to a retirement date before making them available to the used market. Likewise, customer demand for new equipment will have to increase, and with this, the opportunity for trade-ins should increase as well. Many customers are looking for the elusive 5,000-pound capacity truck for $5,000. Although there may be some out there, they are not of a high quality, and it becomes buyer-beware! Best of luck!

Al Boston
CEO
AK Material Handling Systems
Maple Grove, MN

I believe that your question is referring to used forklift equipment. The business that I am in is in the storage and handling area and I am only qualified to discuss used pallet racking and shelving The used rack and shelving market has remained fairly constant. It seems like the consolidations and closings of distribution centers continues and that the used product enters the market and is absorbed in a short time. There have been two large spikes in the last 15 years with the end of the dot-com bubble and the great recession when a lot of used pallet racking entered the market. I would say that right now we are in a normal cycle with 10 to 15 percent of the pallet rack product re-entering the market as used.

Doug Carson
VP Marketing/Sales
Fallsway Equipment Company
Akron, OH

Since the used equipment market is primarily fed by the supply of end of operating lease trucks, we can turn to the ITA market size numbers and project when the used equipment market will bottom. In 2008 the ITA market size started to dive, but it didn’t bottom until 2009. If you project an average fair market lease to be four or five years, one would expect the bottom of the used truck availability to peak in the years of 2013 and 2014. I predict the market will get much tighter over the next year and a half as the 50 percent+ decline in the ITA market size between 2007 to 2009 takes hold for used trucks availability. Exacerbating the shortage is the fact that the internal combustion cushion and pneumatic market shrunk disproportionately more than the electric market during the economic downturn. I don’t expect used equipment availability to return to long-term trends until 2015 and 2016.

Buddy Smith
CEO
Carolina Material Handling Services, Inc.
Columbia, SC

In response to your question regarding the availability of used equipment, we have not had a problem getting access to used equipment. Our process for sourcing used lift trucks are 1) our own rental fleet 2) lease returns 3) our manufacturers national used and rental fleet and 4) wholesalers. We are finding that the majority of our needs can be met through our own rental fleet, lease returns and manufacturers that we represent.

Robert Giberson
Principal
PeakLogix
Midlothian, VA

The used equipment shortage will continue as long as the economy keeps bouncing along. Not many companies will be liquidating/ abandoning their existing material handling assets and investing in new technology until the economy shows signs of significant growth. Once the economy starts showing real strength, we will see investment in new technology with an accompanying increase in used material handling and storage equipment inventories.

Mike Vaughan
CFO
Liftech Equipment Companies, Inc.
East Syracuse, NY

We believe the used markets will be marginally improved during the next year or so. New equipment purchases started to ramp up toward the end of 2010 and into 2011, leading us to believe that the inventory of off lease units will grow in 2014 and 2015. We do find that more customers are looking to either extend leases or purchase at the end of lease terms, which limits availability of used equipment.

Chris Wetle
President
Pape Material Handling
Eugene, OR

We feel that the used equipment shortage will continue through 2013 and actually get a bit worse for at least the first six months of 2014. I believe this shortage is in part caused by the number of machines not coming off lease. Customers, it seems, are holding on to equipment longer, especially rental fleet, which also contributes to the shortage.