Construction Equipment Unit Enjoys Perfect Storm of Positive Business Conditions
Housing, Mining Related Business, Highway Construction creates boom times for SMS International and Komatsu Canada, Ltd .
The recent rise of worldwide commodity prices has generally been positive for Sumitomo Corporation and SCOA's North American construction equipment sales business in particular.
Like other commodity markets, but maybe even more so, construction equipment is an extremely cyclical market. As companies and governments spend, they need construction equipment to help them build and mine. This has historically caused the industry to have long sales cycles that last about 10 years from top to bottom.
The most recent sales cycle began in 1998 and hit a bottom in 2002. And now the business is looking at a new top, and not just for this cycle. This has been the steepest and most robust recovery yet, resulting in a record 30 year high for the industry. According to Christopher Revers, Account Manager, Construction Equipment Unit, SCOA, Chicago, in explaining how this has impacted SCOA's construction equipment business, "We're rocking. We blew our budget out of the water in 2005."
The reasons for the boom are threefold: the until recently hot anf still doing pretty well real estate market which has been averaging about 2 million new housing starts a year; the historically high prices for many metals and minerals leading to unprecedented demand for heavy machinery at mining sites; and the passing of last year's Congressional highway bill that has put plenty of road construction crews, and their construction equipment, to work.
"The recent rise in oil prices, the mining related business in Canada, the highway bill, it's all been very nice for our business," explained Yasuniro Aoki, VP, Construction Equipment Unit and General Manager of the SCOA's Chicago office.
SMS International Corporation (SMS) and Komatsu Canada Ltd.
SCOA's construction equipment business unit is mainly involved in Komatsu realted business. SCOA has a long history in their importation and trade of Komatsu construction into the North America market. The unit currently has two subsidiary companies: SMS which handles their U.S distribution companies and KCL that handles their Canadian operations.
In 1996, SC and SCOA established SMS International to begin investing in the retail and distribution network of Komatsu in the United States.
Their first acquisition was Linder, a Plant City, Florida based distributor of construction equipment who has nine locations throughout the state of Florida. In March 2003, they added to their dealers by buying Mitchell Distributing Company, which has distribution outlets in North and South Carolina. In 2005 they merged the operations of the two companiesand both now operate under the Linder name.
Linder's presence in Florida as a distributor of Komatsu equipment has raised Komatsu's market share to 18-20% which is slightly higher than the 14% share in the U.S. market as a whole. And with its near constant of construction, particularily in new homes, Florida is one of the stronger markets in the U.S.
SMS also owns Dallas, Texas based Continental Equipment Company which they bought in 1988.
SMS provides the financing for the inventory of Linder, Continental and KCL which is typically five months.
Strategies for the Future
"Our strategy is to secure and maintain the No. 1 position in the construction equipment business on a global basis among the Japanese trading companies and to keep growing the business to cover the total value chain in the product life," said Aoki.
Business for the rest of 2006 looks especially promising. As mentioned, the natural resources and energy related business, the road construction business, and all the related construction equipment are booming now although the housing market is beginning to show some weakness with results mixed over the past few months. They are also expecting to achieve savings and efficiencies in the merging of their Linder and Mitchell distribution companies.
The problem with the business is that is going so well, it may be overheating, according to Aoki. In fact, they are trying to conserve some of their business for this year. Their main problem is getting enough equipment from the manufacturers to supply all the demand.
The shortage has been most acute in the mining industry where record price levels of copper and other metals and minerals are causing manufacturers including Komatsu to work overtime to get their equipment into mines.
The recent higher oil prices also help their business because higher prices make it more attractive to drill for pricier oil and gas in smaller and deeper reserviors in North America.
"As our market moves up and down dramatically and quickly, we are always looking to upgrade our operations," said Aoki. "We will keep doing so by re-engineering our distributor and sales network while reinforcing our service capabilities and customer support."
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