This TEA not so sweet for asphalt pavers - Trend Lines - Brief Article

Diesel Progress North American Edition, July, 2002 by Charles R. Yengst

A few years ago, a lot was said about the Transportation Equity Act for the 21st Century (TEA-21) and how it was going to be the savior for companies in the highway paving business and machinery related to highway and street construction. Many thought it would bring to life some equipment that has always taken the back seat to the higher flying mini-this and mini-that. Well, the truth is TEA-21 fizzled for most companies, particularly the asphalt paving suppliers.

Instead of higher sales and profitability, most asphalt paver companies have had disappointing sales since 1999. While asphalt paver sales did peak that year in North America, the highway class machines hardly improved in sales from the 1997 level. Everyone was expecting a lot more. If anything, TEA-21 was a dismal failure for the paving suppliers, because the real money everyone expected from Washington to help rehab roads never came. Nor did the anticipated onslaught c)f new machine orders.

Asphalt pavers are divided into two categories -- highway class machines rated above 19,000 lb. operating weight and commercial class payers rated under 19,000 lb. The highway payers are made by some big companies - Caterpillar, Ingersoll-Rand (Blaw-Knox), Terex (Cedarapids), Astec Industries (Roadtec), Wirtgen (Vogele America) and Dynapac. The commercial machines are offered by a handful of companies including B.R. Lee Industries, Gelil Co., Puckett Manufacturing, Mauldin Paving Products, Gilcrest Equipment Co., M.J. Taylor Manufacturing and Saisco, Inc. Blaw-Knox has a Commercial Paving Division that makes the smaller machines, and Caterpillar is marketing some Bitelli (owned by Caterpillar) machines produced in Italy that meet the commercial weight standards.

Highway pavers is where some big bucks would have gone if TEA-21 was really going to pay off. Well, industry sales of highway payers got to 900 units in 1999, up from about 800 units a few years earlier. Most industry observers and suppliers thought the market was just getting warmed up in 1999 for some big sales in 2000 and 2001, and for a period of time in 2000, the many people thought the big orders were just around the corner. "I can smell them coming!" was how one person put it."

But the smell turned Out to be something else entirely Hope faded as the year wore on and by August 2000, companies were closing factories and had big inventories to handle the big orders that never arrived. Sales declined for payers in 2000 (just like it did for other equipment). Then came 2001 and demand was even worse. Highway paver sales for the industry dropped another 15 percent.

Sales in 2001 were down to 1997 levels and still heading south! TEA-2 was in its prime, but the paver players were sitting on the sidelines waiting.

In commercial payers, the smaller machines often seen doing street work, driveways and parking lots, the situation has not been as bad for some players, but worse for others. Overall, the suppliers saw sales peak in 1999, about 36 percent higher than in 1997. Then some slowing in sales were seen in 2000 and further in 2001, so that last year's numbers for the group were still higher than the 1997 levels. Commercial paver sales have been over 1000 units for the past four years and will make it five years in 2002, if we are reading the industry correctly That's the good news.

The bad news, however, is that one company in commercial payers has been stripping away market share in recent years at the expense of most others. B.R. Lee Industries is the big winner in commercial payers, and now accounts for over half of the market in that size class compared to about the mid-40 percent level just a few years ago. Blaw-Knox's Commercial Paver Division (formerly known as Neal Manufacturing) still has more than 10 percent of the industry's commercial paver sales, while each of the rest of the players are below the 10 percent mark.

Getting back to highway payers, Caterpillar has taken over the number one position for the first time in decades over Blaw-Knox, which has been the industry leader for many years. Caterpillar and Blaw-Knox are still neck and neck in the race for the big machine sales, while Cedarapids (a Terex company), comes in third place. Vogele America and Roadtec (Astec Industries) are other strong suppliers on the highway paver side. Dynapac, which imports its machines from Germany, is involved, but not a major contender. The top three companies accounted for about 80 percent of the sales in 2001, fairly typical for the past five years.

Will TEA-21 and any other government TEA program ever push funds in the direction of the paver suppliers? I doubt it. States are not getting the necessary tax revenues to match federal funding, so life in the highway paving business is going to be very competitive and somewhat cheap. We are looking for very little or no change in the highway asphalt paver business this year, with some growth of about 10 percent expected in 2003. On the commercial side, the same is true for 2002, with sales growing more robustly in 2003.