The transport industry is a beneficiary of a more buoyant mining sector in Western Australia
summary-date April 2019
The past two years has seen steady and positive growth within the mining and related transport equipment sector as a result of a turnaround in a once heavily depressed resources market.
Large participants are posting record export numbers off the back of increasing commodity prices and developments in mining technology. OEM lead times for large yellow equipment such as Off Highway Dump Trucks, Excavators, Wheel Loaders and Bull Dozers have seen an increase depending on customer requirements according to various market participants. It is evident that tier one brands such as Caterpillar and Komatsu remain in high demand, particularly in these periods of increased activity.
Mining remains the pillar of the West Australian economy, with renewed confidence as larger projects from the major miners such as BHP’s South Flank, Rio’s Koodaideri and Fortescue’s Eliwana combined $8 billion get under way.
Gold, Nickel and Lithium will also be contributors as will Oil and Gas with the likes of Wheatstone, Greater Enfield and Greater Western Flank. Queensland remains strong in coal with plenty of new coal exploration licenses and a recently approved a royalty framework which actively encourages the development of new coal tenements in the Galilee and Surat basins.
These heavy capital investments require an enormous transport and logistical component commitment not only during the construction phase but well after completion into production.
Whilst caution is still being exercised regarding transactions and capital expenditure, an emerging trend was the rise of mining mergers and acquisitions in the first quarter of 2018 where figures indicated an 86% rise year over year according to a recent a report published by Ernst Young. It has been reported that investors have been attracted to the decreasing financial risk and improved margins. Strong cash generation within the sector has resulted in easier security funding which is no longer limited to traditional lenders with the inclusion of new bank syndicates, private equity firm and global asset based lenders such as Gordon Brothers which has recently opened its Perth office.
The market for new and used mining mobile plant is thriving, with a shortage in supply of late model and low hour assets. A combination of project ramp up and quality equipment shortages has seen mining assets return to high demand across the country.
Equipment lead times through leading mining manufacturer Caterpillar can be considered a barometer, reflective of the demand in the machinery market.
There is currently lead times ranging from 12-18 months for mobile plant and upwards of eight months for some componentry such as engines which is partially due to backlogs caused by contraction of supply chains during the previous years of downturn.
The value of good condition and low hour machines has soared, and wherever possible equipment life is being extended to cover the lack of supply.
Accordingly, available positions for heavy duty diesel mechanic apprenticeships with the likes of Westrac and Komatsu are at all-time highs.
In fact, all areas of mining and support equipment appear buoyant with regard to asset values. The last 12 months has seen like for like asset prices improve, ranging from 10-25% depending on asset class, make and condition.
Asking prices for used equipment have seen a significant surge in the past six months particularly, and a number of enquiries suggest that, while asking prices do not represent consummated sales data, enquiries, demand and sale completions have seen an increase. Recent auction sales data has also been strong.
Transport Sector Equipment
The transport industry is a beneficiary of a more buoyant mining sector in WA, particularly large prime movers, side tipping trailers and floats for transporting mining support equipment.
We are witnessing a promising market outlook for this sector as highlighted by new truck sales in 2018, which were consistently strong and have set new records.
The transport market took a significant downturn in 2008 (much earlier than the mining sector) and while the recovery has been slow, 2018 has seen new truck sales reach and surpass pre GFC levels.
Sales through July 2018 were positive with VFACTS data showing a 12.7% increase in new truck sales compared to the same month last year and a 17% increase on year to date figures when compared with the previous year.
New heavy-duty truck sales, given their significant capital cost are often seen as a barometer for transport sector confidence. This class saw July 2018 sales achieve 1088 deliveries, a 21.4% improvement on July 2017 figures.
OEMs of trucks and trailers have been buying back used fleet assets from transport operators at premium values to secure supply for their own used equipment divisions. End users will pay premium prices for late model quality equipment to service immediate workflow.
The Australian government, as referenced on their Department of Infrastructure and Regional Development website estimates the freight and logistics industry to account for approximately 8.6% of Australia’s GDP annually. While this includes shipping, air and rail freight, this sector is a significant portion of Australia’s annual GDP.
The trucking industry is made up of small, medium and large entities. While companies such as Toll, Linfox, QUBE among others are well known and prominent in the sector, small and medium size entities are scattered across Australia and make up the bulk of the industry participants.
Given the diverse range of entities supplying Australia’s transport sector and the amount of assets required, there is always a ready market of buyers at any given time.
The recent collapse of Redstar Transport demonstrates that long road haulage remains competitive and although likely stable in the medium term, it will face its own disruptor challenges including:-
- GPS monitoring, sophisticated real time tracking for safety, fatigue, maintenance will become a mandatory compliance requirement for major carriers and customers.
- Truck platooning: Connecting two or more trucks in a group with the assistance of connectivity technologies, artificial intelligence, autonomous driving and support systems. • Autonomous Driving: With wages and fuel being the two largest expenses for truck operation autonomous trucks offer a way to reduce costs. While this technology is actively being explored by truck manufacturers it is unlikely to be commercialised until 2025 at the earliest is more likely to occur after 2030.
- Electric Trucks: Many manufacturers are moving to develop electric trucks based on the US co2 regulations facing the industry along with increased diesel prices. Currently, players such as Tesla, Daimler, VW, Peterbilt and Paccar are among those conducting research on electric trucks.
While traditional transport industry supporters around the country slow such as new housing construction and the ailing retail sector, for those West Australian transporters with the right fleet configurations, mining remains strong and in need of its services.
This is clearly evidenced in current equipment market prices. Keep your fleet well maintained, turn it over regularly so that it stays up to date with technology improvements and most importantly embrace the coming disruption, don’t be a taxi in the age of Uber.