‘Whenever the construction market faces a slowdown economically, the demand for used equipment starts to increase,’ says one expert
With an atmosphere of cautious optimism pervading the region on the back of low oil prices, equipment manufacturers and dealers will tell you that machinery sales are not what they used to be a year ago. However, this does not mean that machinery is not being bought or sold. What has been built has to be maintained and, despite the caution, some projects have forged ahead, especially those that involve public spending on infrastructure. Enter the second hand or used machinery market.
“Whenever the construction market faces a slowdown economically, the demand for used equipment starts to increase,” says a spokesperson from Mohamed Abdulrahman Al-Bahar LLC, a Sharjah-based distributor of Caterpillar products in the region.
“During such scenarios, we have noticed that purchase of used machines falls within the budget for those customers who still have projects to run.”
According to Al-Bahar, in addition to offering cost-effectiveness, used machines also come with lower risk. Since the investment is considerably lower, having the equipment lying around idle in between projects does not impact the bottom line as much.
At auctioneers Ritchie Bros., the biggest seller of used equipment in the world, Karl Werner, chief operations support and development officer and managing director, Middle East, Africa and India, is quite clear about the challenges in the market and how to meet them.
“We have the ability to transcend local challenges in any market by bringing in buyers from outside to create more liquidity and help maintain pricing levels. Dubai is one of 44 auction sites we have around the world and when we have an auction event, like the one we had in May, we get bidders from every corner of the globe, letting equipment as an asset flow around the world and effectively offsetting the downturn in one place with buyers from another,” Werner says.
Of the 3,477 total registered bidders for Ritchie Bros.’ Dubai auctions in 2015, 54% were from outside the UAE, representing 84 countries around the world, he reveals. And they bought 42.9% of the equipment on sale. In total, the auctioneer sold $138.7 million worth of equipment from Dubai last year to a total of 1,429 buyers, which establishes the importance of Dubai as a used equipment hub.
Helping Ritchie Bros. to broaden its reach is its wide online presence. The company saw a record 51% of its global sales come from online buyers in the second quarter of this year, which included a multi-million-dollar auction in Dubai in May, Werner says.
“The biggest Dubai auction we have had was around five years ago, which netted total sales of $57m.”
Speaking about the prevailing conditions, he adds: “Last year we saw significant growth in our business here in the GCC, and the region has provided us consistent growth. There are strong markets in the GCC, but we’re also reaching out into Africa, Asia, Europe and the Americas to pull buyers in.”
Over at Al-Bahar, the association with Caterpillar forms the backbone of their used equipment business.
“All the used machines we sell are originally from our on-campus Cat Rental Store (CRS). Al-Bahar has invested hugely into the rental business, so all these used machines were used under our supervision and by our operators,” says the spokesperson.
“We’re seeing customers for our used machinery from the contracting and transportation sectors and the machines in greater demand at the moment are medium wheel loaders, tele handlers, skid steer loaders and backhoe loaders.”
The demand hints at maintenance operations and small jobs, rather than big projects, but Al-Bahar supports customers of all sizes, he adds.
“Al-Bahar ensures that all used machines we sell are in good working condition and ready to work prior to delivery, as we offer warranty for our used machines.”
Elaborating on the benefits customers derive from buying used, he adds: “With a proven track record of unmatched service, Al-Bahar is a trusted brand that not only sells used machinery, but offers unrivalled support to our customers with the warranty, parts availability, field service on call and a variety of other solutions for used machines.”
For its part, Ritchie Bros sources its inventory from a variety of places, and Werner says: “We do the majority of our business with end users, whether it’s large construction companies or smaller ones that own just a few pieces of equipment. We also do a significant amount of business with dealers, brokers and OEMs. So you’ll see in some of our auctions, manufacturers from Asia shipping things here to sell into this market. Whether it’s going to stay in the GCC or go outside, we don’t know. But we can create that market for them where they feel comfortable sending their assets here to be sold.”
Machines consigned to an auction can be refurbished at Ritchie Bros.’ on-site state-of-the-art facility in Dubai, Werner adds.
“Sometimes it is worth investing a certain amount of capital into a machine to bring a higher return. And we help our customers with that, first by machine evaluations and recommendation, and then with painting and refurbishing the machines both before and after an auction.”
With the right resources in place and strategies on the table, there is little doubt that the used machinery sector in the Middle East will continue to supply the region and the world market with the used machines and equipment it needs to keep the wheels turning and the projects growing.
Winning bids: How the auctions work
Participation in a Ritchie Bros auction starts with the registration, which is free. A refundable deposit equaling 25% of the total expected purchases, with a minimum deposit of US$25,000 or AED100,000 is required for all participants, says Karl Werner.
Participants can either attend the auction in person at Ritchie Bros’ premises in Dubai’s Jebel Ali Free Zone or avail of the option to attend virtually by bidding on-line. Those registering on-line need to pay the refundable deposit by card or bank transfer, while participants wishing to attend in-person have the option of paying by cash or local cheques. However, only cash payments are accepted in case of those attending for the first time.
Customers who wish to attend an auction can also avail of a special offer from Ritchie Bros. The company has a tie-up with Emirates airline that enables those registering to attend an auction to fly to Dubai on the carrier at a discount of 10% on the airfare. The discounted flights are available from five days before an auction to five days after it and, according to Werner, “is just another facility we provide that goes to show why we are the world’s preferred” auctioneer for used machinery.
If the imposition of the bidding limit seems like a bit of a constraint for on-line bidders, there is a solution for that, too.
“The entire inventory to be sold is up on our website before an auction, so if an online buyer knows what he will bid on, he can easily form an idea about how much it will go for. He can even view selling prices of similar items that sold at recent auctions. And then he can pre-clear his bidding limit based on his own projection of how much he will need to spend,” Werner says, adding that the management then decides how much can be approved based on the customer’s history.
The Ritchie Bros. yard is open for customers to come in and inspect the inventory up for sale.
“Many customers bring in experienced and qualified mechanics or machinery experts with them to inspect their prospective purchases,” says Werner.
“We encourage our customers to freely take a look at the inventory to their satisfaction.”
On-line bidders can also send their representatives to inspect the equipment on their radar. These representatives can be their own mechanics or experts, or third parties such as local machinery dealers who offer to perform inspection services on behalf of an on-line buyer.
“Our processes are completely transparent,” Werner adds. “We endeavour to answer all questions that prospective buyers ask regarding the machines we sell. Whether they are in-person attendees or on-line participants, we provide them all the information at our disposal about their prospective purchases.”