As technology evolves, aggregate producers are making strategic investments

The following transcripts were edited from two concurrent discussions Jan. 15 at the Pit & Quarry Roundtable & Conference. Both conversations were edited for brevity and clarity.

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P&Q: Producers: How did your capital spending in 2019 compare to the previous year, and what are your capital spending plans for 2020? What sorts of investments do you plan to make? What factors are currently impacting your ability to make capital purchases? Are lead times on equipment friendlier today than they were at this time a year ago? Equipment suppliers: How would you characterize the current equipment sales environment? Are the sales highs experienced in 2017 and 2018 now firmly behind us, and is it fair to expect the 2020 sales environment to mirror 2019? Also, how are you shaping equipment offerings to meet the needs of today’s producers?

TONY GIANNI (TRIMBLE): In terms of what we saw in 2017, 2018 and into 2019, we quickly saw the technology we were offering ramp up. With technology adoption, you have a set drag, and that really creates a steep incline to those early adopters. Then, it kind of tapers off a little bit, and now we’re starting to see a bit of a decline, which is kind of a normal. Then, you have a little bit of a rat tail, and it starts to kind of slope up a bit.

That’s kind of where we’re at right now. In a lot of our meetings, presentations and discussions with end users, we found that the aggregate industry is not a ‘flat drop’ as much on the side of selling. It’s more of an impact on the costs up to this point, where the principals of new manufacturing see a stigma and all of those can kind of get adopted to make things more efficient.

We’re starting to see a little bit of a decline – not necessarily in the adoption, but it’s more the sustainability if it. We saw those early adopters ramp up and they are using it. So I guess my question to some of the producers is what does that investment most likely do for your companies going forward? Like I said, we overcame the adoptions. I believe the producers are on the same page and using technology to supplement their business because of a dwindling candidate pool to make things more efficient and to drop costs. But what does that look like going forward in 2020? Is there going to be that monetary investment?

STEWART PETROVITS (ROUTE 82 SAND & GRAVEL): We right-sized and then we modernized. As far as yellow iron, big capex purchases, plant equipment and things like that, we’re probably where we need to be. Probably knowing the election is only a year or so away, I would be cautious about expanding plant capacity because I do have genuine fears about whether it’s a short-term or a long-term procession or decline.

What we’re looking at for 2020 on the technology side are things like software for ticketing; trying to consolidate all of our locations; something that could give us some real-time results. Frankly, there’s not a lot of yellow iron guys here, but we’re at a point where we’re very frustrated.

I don’t know if any of the other producers have this, but [we’re having] constant electronics problems and ECM (engine control module) problems. I’m at the point where I don’t even want to buy a new machine. We’re doing Cat-certified rebuilds on old machines just so we have something to replace the new machines with when they go down because of an emission code or something.

My equipment manager is a rational, calm, gentle person, but I’ve really noticed a change in personality. I thought modernizing would make him happy. He’s really frustrated because our guys can’t fix things.

We just did our annual report on machine repairs. Costs were up, and it was all road service calls on electronic issues. It wasn’t breakdowns and, thank God, we’re not trading things in.

We were all told electronics would make our lives easier, right? Things like: ‘This machine’s going to email you and solve your problems.’ That’s one of the reasons why we’re a little reluctant in terms of availability to machines.

JOHN SCEPANIAK (WM. D. SCEPANIAK): I would agree entirely with Stewart. We began to just do certified rebuilds rather than buy new machines. Our fleet is almost entirely Caterpillar. We haven’t really seen anything from the perspective of a wheel loader that has incentivized us to buy a new machine versus just a certified rebuild. The certified rebuild is an advantage for us as a customer. It has produced expenses, obviously, that are quite significant [but] emission controls are much more relaxed. Machines are much easier to work on. We’re able to troubleshoot stuff in the field.

We have a [model] we just brought back for a certified rebuild. No brand-new machine is going to do the job in the field. It’s just as good as a brand-new one would be, but at a reduced cost and it has a simpler operating structure.

THOMAS HAUN (TURNER MINING GROUP): We tend to partner with some of these larger producers that are nationwide. One of the things we’re seeing is a hesitation long-term or an uncertainty long-term. We’re actually seeing a big shift from capex dollars into opex budgets. To kind of emphasize that point: You’re doing certified rebuilds instead of purchasing new equipment, or just trying to find other ways to fit it into the operating costs.

Also, I’ll comment on what Tony (Gianni) said when he was talking about the technology side. We’re also seeing a shift there. It’s not that they (buyers) don’t want to act, but I think it’s that they’re pushing for a justification. This is maybe why you’re seeing that the first or early adopter-style thing has kind of been a fraud.

CRAIG LAMARQUE (JOHN DEERE): [I] certainly recognize the complexity of the machine. That’s absolutely understood. But I think some of the things we’re doing, not surprisingly, are increasing productivity of the machine. I think this is universal. It’s not just us.

We’re continuing to manage down fluid consumption. Fuel and diesel exhaust fluid is continuous, right? But there are a couple of other things that we’re focused on very heavily. If you see our brand-new wheel loaders, you’ll notice a couple of trends that we’re heavily focused on.

One is the operating environment, recognizing that getting, finding and keeping operators is a key challenge for many of our producers. We’re trying to put the producers in an environment where they can be productive. They clearly don’t feel like that they’ve been beaten up at the end of the day. So we focused heavily on ergonomics – operator ergonomics, as well as service ergonomics.

The other thing we’ve done is introduced an element of safety. It’s recognizing the challenges with MSHA (the Mine Safety & Health Administration) and other folks. One of the unique things we’ve done is put a beacon on the machine that identifies when the seat belt is connected. So when the operator gets in the machine and they physically fasten their seat belt, there’s a physical beacon on the outside of the machine that anybody on site can immediately tell if that operator is wearing his seat belt or not.

CHRIS TAYLOR (NORTH AMERICAN MINING): We’re kind of in a unique space. Some of our offices were partnering with producers with the purpose of generating efficiencies – [doing things like] technology upgrades and cab improvements for operator comfort.

Those capex dollars are being spent for the comfort and the ability for the operator to run that machine. What we’ve encountered, again, is that people can break new draglines. They’re constantly upgrading all of the machines. So the software is obsolete.

If you have a capex budget for a new control system for a piece of equipment, what we’re seeing is time-factor economics of what people think they’re going to have in 2020. Some companies occasionally are going to spend that money to upgrade to a dragline. Some companies feel comfortable doing that, or in other cases we [utilize] some parts of the old machine to kind of make this thing run for another year or so – to make sure we keep going in the right direction.

We’re seeing a little bit of everything, but again, the dollars we expend are for workforce, electronic upgrades and making operator comfort and efficiency better for the operation.

AHMED HELMY (TANDEM PRODUCTS): In regard to capital expenditures, we’re a supplier and it’s mainly about being more efficient and [addressing] labor needs.

Somebody mentioned replacement capex or growth capex. I would say most of ours would be growth capex.

Somebody mentioned safety, as well. To keep labor and make sure everybody is safe, that’s a big part of the capital expenditure. You don’t see those on the bottom line.

JONATHAN HART (WASHINGTON ROCK QUARRIES): When we look at 2019, we made some pretty significant investments that helped lead us to our record sales and our great 2019 year-end. So when we look at 2020, we have to look at what 2019 told us and where we need to improve.

What we have found is investments are going to be made over the next five years and [with] our production capacity, we found that a lot of decision-making is now based on not the key traditional metrics of your tons per hour, but whether or not the equipment can be operated by somebody with less experience and fewer skills than we’re used to having.

We’re looking at advances in technology and how we can leverage that technology to allow us to do the same amount of production as in the past, while relying on fewer people, less skilled labor, and seeing how all of that combines together in driving our capital purchases over the next 10 or 20 years.

KEVIN GARCIA (TRIMBLE): To the point about how are we structuring to go to market to meet the needs of today’s customers, some of the stuff we’re doing now I wouldn’t have predicted five years ago. But we will still always have what we call ‘enterprise customers.’ These are replacing customers who just want to buy the equipment outright, own it and do what they want with it.

Certainly software service has been a thing for quite a while, but even hardware service is a thing now. We’re offering solutions that are a fixed cost per month, and you can sign a term – whether it’s 12, 24, 36 months or whatever you want, basically.

At this point, we’re pretty flexible by trying to get stuff into the market where you can just say: ‘Look, I don’t have to allocate this large capital expense. I can do it on a monthly fixed cost.’ Your profits, by using those implementations, are essentially paying for [themselves], so you never really feel that pinch up front.

In other words, we’re carrying the risk instead of the contractor or customer.

I never really considered that most people want to take their ball and go home. That’s changed a lot for us. It’s actually a very hard go-to-market strategy for us. It requires us to have an intimate touchpoint with our customers, especially if you’re going through a distribution channel, to understand what they need, what they care about, the life cycle of that product and how they’re using it on a day-to-day basis. So that’s been interesting for us to go with that model.

WILL PIERCE (SCHURCO SLURRY): I see a little bit of a pendulum swinging in the software as a service model, moving to hardware as a service and customers having ownership of their equipment.

There’s a lot of equipment being put out there. The keys to it, a lot of times, are still held by the manufacturers. A lot of end users are demanding to have those keys.

We’re seeing a demand by users. [They’re saying]: ‘Sell us this equipment, but also either package it with training and show us how to use it; show us how to work on it. We want to take back ownership.’

In the 10 years prior, I didn’t have that. We had: ‘Sell us this, and if I have a problem, I’m going to call you and then you guys come fix it.’ In the past 18 months, I’ve seen a big shift, and I don’t know where it’s come from. But we’re putting out service in almost every major package we sell now. We’re either having people come to our factory and do in-service, or we’re doing out-service, going out and showing these people how to take care of their equipment.

TRENT CARNEY (ROGERS GROUP): On what Will’s saying: From a producer standpoint, this leads back to labor again. One of the things we’re looking at and starting to take advantage of is PM (preventive maintenance) service agreements from OEMs – or those sorts of thing to help us out and manage equipment. We just don’t have the resources anymore.

As OEMs come out with more and better service agreements of programs, it is helping us swing one way or another as far as identifying brands. We do see a benefit there.

Our capital spending has been somewhat aggressive over the past few years and probably will continue in that direction. On things like telematics and AI (artificial intelligence), we’re very interested in them to help make us more efficient but also [address] labor.

One of the things everybody is about for the future is autonomous [technology]. It’s very popular and probably will go to the bigger industries – not aggregates. It’s going to go to the bigger mines first before it starts to filter down, which, for us, is unfortunate.

We move equipment much quicker and faster than they do in the larger operations. It would be nice to see those manufacturers maybe try to take on more of that at the smaller levels. Some of the hybrid machines that are coming out in our size are helping fuel burn more efficiently over the entire cost. We’re always looking for that next step from a producer’s standpoint – anything that will help us or the manufacturers on the capital side.

SCOTT ALEXANDER (ARCOSA): Our capital spending has increased significantly. It did in 2019, and it’s expected to in 2020. A lot of it has to do with the economic environment we’re operating in, which makes the capital resources available. That’s one of the key issues.

Internally and culturally, we’re evolving into becoming more financially astute and recognizing that you’re looking always from a day-to-day basis on competitive advantages and how can you obtain those. A lot of it is by becoming more efficient. This industry at-large has been somewhat frugal in wanting to keep as much money in your pocket as you can. But as you get to understand things, [you realize] right-sizing equipment and newer equipment can increase the bottom line a lot more than you think.

We’re going through a process right now. Safety has been No. 1, so that’s been a huge cultural change that we’ve aggressively gone after. Now, we’re doing the same thing on the productivity side, and the end result of that, often, is creating a culture on improving performance results in spending more money.

CLYDE BECKETT (SEMINOLE TRIBE OF FLORIDA/BIG CYPRESS ROCK MINE): We found [with] our older equipment [that] we were spending more time fixing it. Downtime was going up year after year, so last year we actually had a large capital expenditure and we purchased a new portable crusher, a new portable screener and we also changed our leases to make sure everything is brand new. Now, we’re able to know when we get there in the morning, it’s running.

We have a big problem finding mechanics to work on the older equipment, so now that we have the new equipment with warranties, we’re able to call the company and we can cut that out. Our maintenance costs have gone down even though our initial buying costs went up.

JOHN GARRISON (SUPERIOR INDUSTRIES): Some of the conversations have been around replacing equipment. I think that 2018 and 2019 big boost in the market was [the result of] a lot of pent-up demand of people who had just been repairing stuff for a very long time. There’s good economics that allowed for capital budgets. I’d say it’s calmed down a little bit, obviously, from some of the new factories.

As far as equipment, we do complete turnkey plants. We did a lot of fixed-site turnkey plants over the last couple of years, but the mobile side and the rental side seem to be picking up [with] the portable plants. We’ve had dealers who historically haven’t been in a rental market that would just sell equipment who are now taking wheeled, portable plants in and doing rental-purchase options and stuff they hadn’t done in the past.

Portables have always been popular in certain areas where the sites are quite remote. But even up in the Northeast, there are more portable plants going up. Even down in the Southeast, which historically has been fixed-site and larger mining [sites], there is a lot more tracked equipment and portable plants going in.

MARK STRADER (BRAMCO-MPS): We definitely see not only the aggregate customer base in our territories, but the contractor base as well, moving more and more toward tracked or mobile. It’s going to be really interesting to see how the customers proceed as we go forward with that, but we definitely see a move and interest in looking at more mobile solutions rather than, maybe, rebuilding an entire plant.

SEAN MARTELL (PRECO ELECTRONICS): One of the things we’re seeing, particularly in key accounts, is the growth of our safety technology in equipment that’s being purchased on the capital expenditure side of it versus putting it on after they’ve included the machines in their fleet. That continues to grow. P&Q