The State of the Used HDD Marketplace

By Bob Martin - General Manager - October 8, 2010

The Global Economic Downturn has affected almost every corner of the globe, with some areas having been affected to a far greater degree than others. Countries that had previously seen unprecedented growth in the trenchless industry saw a sudden cease of work in that area altogether. Contractors who had drilling contracts in hand one minute suddenly found them evaporate the next. Almost overnight, the landscape of the entire industry changed.

Hand in hand, of course, the used equipment marketplace changed with the Global Economy. Usually, the Used HDD Market remains relatively stable even during times of turmoil. When used equipment prices drop, volume increases and the net value stays relatively stable. Similarly, when used equipment prices increase, volume decreases but the net value again remains stable. The huge downturn in US fiber optic installation back in 2001 saw equipment prices plummet, but the Used HDD Marketplace exploded as this cheap equipment was snatched up by overseas purchasers in markets unaffected by the downturn. It is important to note that in this situation the depression in the industry was localized in the United States and did not affect overseas markets.

In comparison, the situation that faced contractors near the end of 2008 was not localized, but rather global in scope. With no markets available to offer an outlet for the equipment, the depression was felt far more strongly and in far more places.

Contractors reacted well for the most part. New equipment purchases were put on hold, with existing fleets of drills and other equipment held onto longer than what would otherwise be the case. Equipment that was not needed in the immediate future was liquidated as a precautionary measure, and in some cases the newer equipment that was leased or rented was returned prematurely.

For the last two years contractors have managed to hold on by their fingertips, and the frequency of bank repossessions was fortunately fairly low. In the US, those fingers are now beginning to slip just as the work slowly begins to come back to the area. Instances of bank and dealer repossession are climbing as contractors just cannot hold out any longer.

The bigger picture, however, appears much better. While the US still struggles to set its economy straight, other countries less affected or faster to recover are moving used equipment out of the United States at a very healthy rate. Exports of used HDD equipment overseas has increased by a factor of nearly 100% over the last eighteen months.

Several major markets have emerged, and those are Australia, Canada, South America, India, and Mexico. Canada has always been a major trading partner of the US, and with a government-regulated banking system, it was less impacted by the Crisis than the US was. As a result, work seems to have picked back up sooner than it has in the US, creating a vacuum for used equipment to move into Canada. Australia has very recently re-elected its previous government, which brought into play several major trenchless infrastructure projects involving broadband installation. As a result, Australia and New Zealand are seeing a high demand for trenchless utility installation machines. The areas of South America that are seeing demand for used equipment actually remained fairly insulated against the downturn in the Global Economy, and as a result, their buying habits were only marginally affected in regard to used HDD purchases. India being such an enormous and highly populated area with aging infrastructure has always been a growing hotspot for trenchless installations, and recent government regulations in regards to disruption of roads and other transit ways has meant a huge leap in demand for HDD equipment.

The general outlook for the Used HDD Market is very promising. There are several factors that are influencing this. Generally speaking, the Global Economy is improving. Confidence is up and companies and individuals are beginning to release the death-grip that they've maintained on liquid assets they've hoarded as they weathered the economic storm. Much of the cause of this may revolve around the increasing amount of government sponsored work finally entering the industry, resulting in more contracts and more work for contractors.

Another major factor that has not yet fully entered the picture is the upcoming release of the Tier 4 motor requirements for new equipment. This has been a long time coming, and manufacturers have been gearing up for it for quite a while. While the Tier 4 standards are very good from an environmental standpoint, they unfortunately come at a very high premium. Some manufacturers of new directional drilling equipment are forecasting an increase in cost to the end buyers of new equipment as high as 20% in some cases. On a half million dollar purchase, which would get a contractor into a mid-sized drill in this market, that increase will result in an additional hundred thousand dollars of cost up front, plus the later expenses of increased maintenance frequency and price. As a result, equipment that is only a few years old with low hours will become a very attractive alternative to the purchase of new equipment, increasing demand for these young used drills and driving prices up.

On the other hand, there are some areas where contractors will be mandated to have Tier 4 equipment in order to bid work, particularly via government sponsored projects. This will mean that contractors who currently have Tier 3 equipment will be in need of liquidating the used equipment in favor of brand new drills. This, too, will have a positive impact on the volume and pricing of used equipment in the HDD marketplace.

Market projections show that used equipment prices will most likely climb over the course of the next year, particularly for used equipment less than five years of age. These are the most viable alternatives to new machines, and also the age least available on the used market. As demand increases, so shall prices.

The greatest demand at this time appears to be for machines between 15,000lbs and 100,000lbs of pullback. With the majority of work revolving around the installation of fiber, sewer, and water, this only makes sense. The major manufacturers in the HDD arena, Vermeer and Ditch Witch, account for the vast majority of the sales. It is interesting to note that despite an arguable equality in pricing and performance, more used Vermeer drills are sold than Ditch Witch at a ratio of nearly three to one.

Prices, in general, remained fairly level throughout the downturn. Unlike the early 2000's, this latest recession did not affect them in such a negative manner, and they remained fairly strong throughout the two year period to this point. Older machines with more established pricing histories remained the least affected, while the newest of the used drills saw the most fluctuation, particularly in the machines of between 100,000 and 300,000lbs pullback. Now that there is more equipment filling that size range, it is likely that these prices will stabilize in the near future.

The most important qualities that a used HDD equipment buyer is currently looking for actually have less to do with the actual equipment than you may think. While the quality of the equipment itself does play a very large role in the evaluation for purchase, the knowledge of the vendor and the level of service that they offer are far more important.

The world is a changing place, and it is becoming more and more globalized every day. Communication between people from all over the world is now commonplace, and with the perceived shrinking of the globe and blurred borders between countries, the entire market is changing at a rapid pace. Pricing is becoming far more standardized across the world as pricing information becomes available on the internet and through email. Shipping barriers are becoming less and less a factor as more companies specialize in overseas and global shipping. Contractors are becoming less restricted to purchasing equipment located in their area as the combined inventory of the planet suddenly becomes available to them. Equipment dealers are forced to become far more service oriented rather than product oriented as their goal shifts from simply supplying equipment to maintaining their customer base despite a world full of competition at everyone's fingertips.

The Global Recession hurt the industry in many ways, and helped it in others. According to the mantra of the optimists, "Adversity often culls the weak from the rest, and what remains is stronger for it." While the recovery from this crisis has been long in coming, it is safe to say that the beginning of it can already be felt. From the standpoint of the Used HDD Marketplace, the future is bright, or at least a lot brighter than what it has been. For sellers, pricing should be strong for the foreseeable future, and for Buyers, selection should be better than it ever has been. More widespread acceptance of the technology coupled with a growing Global World should result in greater inventory nearly everywhere.

A Brave New World? Perhaps not, however it is certainly one on the road to recovery, at least from the Used HDD Industry perspective.

This commentary is presented for informational purposes only. It is not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. Neither HDD Broker, Inc nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.

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