Tight market benefits locals

25 April 2008
As regional demand for construction equipment soars, securing the plant needed to carry out the work is becoming difficult, especially for contractors new to the region.

In late March, Abu Dhabi-based Al-Jaber Group placed a AED809m ($220m) order with local dealer Mohammed Abdulrahman al-Bahar for 720 Caterpillar earth-moving machines. As the UAE’s largest contractor, the deal sent out a clear message to the rest of the construction industry. “This is probably the best signal we have had yet that we have several years of work coming up in Abu Dhabi,” says one contractor based in the emirate.

With more than $140bn worth of projects under development, Abu Dhabi needs a lot of earth-moving equipment, but it is not the only market in the region with massive equipment needs. Dubai continues to launch major mixed-use developments, including the 75-kilometre-long Arabian Canal, which is expected to require thousands of earth-moving machines and trucks. About 4,600 new machines were imported into the UAE in 2007, while an estimated 5,500 used machines were imported into Dubai alone.

Importing equipment

While the UAE may appear to be the biggest mar-ket for construction equipment in the Middle East, Saudi Arabia imports more equipment than any other Gulf state. In 2007, the kingdom imported 6,000 new machines, and with a series of megaprojects planned such as the six economic cities, this number is expected to grow significantly.

In the UAE, the earth-moving business is dominated by local, established players such as Al-Jaber, Saif bin Darwish and Ghantoot Transport & General Contracting, who have extensive plant fleets. Similarly, the Saudi market is dominated by Saudi Binladin Group and Saudi Oger.

These companies continue to add to their fleets as projects get bigger and the overall volume of work on offer across the region grows. But their demand for new machinery is not as pressing as it is for new entrants to the market, as they are able to absorb vast amounts of work with their existing machines, subcontractors and the regular owner-operators they use. Established contractors can also plan orders with more certainty, because even if the project the machines were bought for does not go ahead, they can be used on other projects.

New companies, however, cannot afford to do this. For companies coming into the market for the first time, plant can be a major concern. They do not have an existing fleet to rely on, and the rental market has little capacity to spare. The result is that contractors can find it difficult to procure the equipment they need on time. To make matters worse, tender periods are short, which gives them little time to determine what equipment is needed for any particular job.

In Dubai, the Roads & Transport Authority has awarded work to Beijing-based China State Construction Engineering Corporation (CSCEC), which won the AED600m ($163m) parallel roads contract in early 2007 but struggled to import machinery into the emirate quickly enough. “It can take four months to get road machinery into the UAE,” says Yu Tao, managing director of CSCEC in Dubai.

Contractors in Doha face similar problems. Finding plant and equipment has been a challenge as there are few spare machines and import regulations make it difficult for contractors to import equipment from overseas.

Ordering new machines can also be a drawn-out process as some can take up to 18 months to be delivered. This is because all the major manufacturers continue to enjoy strong global sales, despite the recent slowdown in the US. In 2007, the largest manufacturer, the US’ Cater-pillar, achieved its fifth straight year of record sales - about $45bn. Caterpillar’s rivals, Japan’s Komatsu and Sweden’s Volvo Construction Equipment, are achieving similar results.

Availability is not the only issue facing contractors, with downtime another major concern. “Contracts must be completed quickly so any downtime will kill them,” says Ilkay Fidan, area sales manager for Volvo Construction Equipment. “So far, we have seen that international contractors regard service as the most important factor, and that determines whether they buy brand new, second-hand or [opt for] rental.”

The hope for new players is that these issues will be temporary. As they establish themselves and take on second and third contracts, they will be able to use resources secured for previous projects on new contracts. Until that happens, getting enough plant on site at the right time will remain a challenge.

Key fact:

In 2007, a total of 14,950 items of construction plant were imported into the Gulf, with 6,000 going to Saudi Arabia.

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