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Civil construction equipment industry thrives in the face of slowing economy

Order backlogs for 5G and infrastructure projects propel big-ticket purchases

Mike Flowers, chief operating officer of Sunward USA, with a reach folk lift at the International Construction & Utility Equipment Exposition in Louisville, Kentucky.. (Photo: Alan Adler/FreightWaves)

The civil construction equipment industry—which builds the backends of trucks that clean sewers, excavators for asphalt rock and equipment to bury 5G fiber-optic cable—is feeling none of the economic gloom that besets manufacturing.

“We are booked through February 2020,” said Bill Petrole, vice president of sales and marketing for Vacall Products, a unit of Gradall Industries Inc., which is part of the Alamo Group Inc. (NASDAQ: ALM). “The only thing that’s going to change this is if people keep crying ‘wolf, wolf, wolf,’ then the wolf comes,” he added.

The “wolf” is an industrial sector recession. Talk of a pullback grew Oct. 1 when the Institute of Supply Management reported that its index for U.S. factory activity hit its lowest level in more than a decade.

However, sentiment is upbeat among companies at the massive International Construction & Utility Equipment Exposition (ICUEE) in Louisville, Kentucky that runs through Oct. 3.

The sewer equipment Vacall and its competitors Vactor Manufacturing, Vac-Con Inc. and Hi-Vac Corp. make are as necessary to life as a mortician is to death. 

“If you have a sewer, it gets dirty from the first day, and it has to be cleaned,” Petrole said. “Every municipality with over 15,000 people has a sewer truck [each of which costs about $450,000]. Bigger cities like Chicago have hundreds of them.”

Vacall’s equipment mounts to the chassis of Freightliner, Peterbilt and other major heavy- and severe-duty truck models. Customers are 70% municipal fleet managers and 30% contractors. The Gradall plant in New Philadelphia, Ohio, has 450 workers.

Cleaning up storm debris and locating buried power lines following disasters like the 2018 Camp Fire, the deadliest and most destructive wildfire in California history, creates demand for specialized hydrovacs, horizontal directional drills and other outsized equipment. 

“We are sold out for 2020 at 22 trucks a month,” said Mike Grieco, sales manager of the Hydrovac Division of Transwest Truck Trailer RV in Brighton, Colorado, which distributes Foremost equipment mated with Western Star trucks. “California is taking quite a few. Texas is still strong for oil and gas drilling.”

Infrastructure spending

Lack of congressional action on a national infrastructure spending package has prompted 27 states to raise gasoline taxes since 2013, according to the Institute on Taxation and Economic Policy. The money is being spent on state-level projects.

“There is a lot of optimism on the heavy civil side of the construction industry,” said Steve Cox, vice president of business development at Command Alkon, a software supplier to the heavy civil construction industry. 

Public construction including road and bridges accounted for a seasonally adjusted $332.3 billion in August, according to U.S. Census Bureau statistics. Overall construction spending was nearly $1.3 trillion seasonally adjusted.

“After the [2020] election, there will be a national infrastructure plan,” Grieco predicted. “It’s going to have to pass and that will be a benefit to us.”

5G Demand

Part of the necessary infrastructure is getting the nation ready for adopting fifth-generation cellular network technology (5G).

Chris Anderson, regional sales manager for Condux International, shows one of the company’s fiberoptic capstans at the International Construction & Utility Equipment Exposition in Louisville, Kentucky. Condux equipment is in demand as the nation moves to a 5G cellular network. (Photo: Alan Adler/FreightWaves)

“It’s a good time to be in the fiber and power cable business,” said Chris Anderson, regional sales manager for Condux International in Mankato, Minnesota. “There is so much 5G to put in and not enough time.”

Condux makes underground and overhead cable installation tools and equipment for the telecommunications and electric power markets. That includes fiber-optic blowers and pullers called capstans that resemble garden-hose reels. The largest are 50 inches in diameter and mount to the back of trucks or trailers. Smaller units stand alone and operate by foot pressure.

Relocation opportunity

Chinese construction equipment maker Sunward USA plans to begin importing components in kits for integration with Cummins Inc. (NYSE: CMI) engines in Denton, Texas in the third quarter of 2020. It has an 11-month order backlog for skid-steers, cranes, excavators and reach forklifts, though U.S. sales are a small part of the Hunan-based company’s business.

“It’s less expensive to send those engines from South Carolina to Texas than to China,” said Mike Flowers, chief operating officer of Sunward USA. He said the trade dispute between China and the U.S. was less of a factor in the decision than new business opportunity to compete as a lower-cost alternative to construction giants Caterpillar and John Deere.

Sunward plans a full manufacturing operation in Denton by 2022 or 2023. “The real emphasis behind this is that we can produce a little bit cheaper here in the U.S.,” Flowers said.

Alan Adler

Alan Adler is an award-winning journalist who worked for The Associated Press and the Detroit Free Press. He also spent two decades in domestic and international media relations and executive communications with General Motors.