Global sales of off-road equipment – including construction, agricultural, mining, and forestry machinery – fell sharply in 2020 as demand plummeted in key sectors due to the COVID-19 pandemic. But improving market conditions as the pandemic recedes will propel robust growth in all off-road equipment segments in 2021 as pent-up demand is released.
A new Freedonia Group analysis projects global off-road equipment demand to climb 5.4% to $439 billion in 2021. Below, we highlight some of the major trends behind the growth.
Rebounding Construction Activity Post Pandemic Will Be Key Growth Driver
While increased residential construction in many middle- and high-income countries offered some buffer to the steep drop in commercial construction seen globally in 2020, the net effect of the pandemic on construction was negative, leading to losses in:
- construction equipment – by far the largest global off-road equipment market
- the much smaller forestry segment, as sales of wood products as well as roundwood output are closely entwined with construction activity
In 2021, construction machinery sales will be boosted by rebounding construction activity – particularly in developing markets such as India; Mexico; Brazil, Chile, and other parts of Central and South America; and a number of Africa/Mideast countries – though the nonresidential sector is expected to take longer to recover from the particularly steep decline registered amid the pandemic.
Nevertheless, even as the pandemic recedes and construction returns to normal levels, demand growth will remain well below the double-digit percentage gains in both 2017 and 2018. This is due in part to the large amount of machinery already in use in mature markets and the growing popularity of equipment leasing and rental services, restraining sales of machinery.
Investing Again, Firms Drive Release of Pent-Up Demand
Heightened economic uncertainty amid the pandemic hampered capital investment in a wide range of industries, including the most intensive end users of off-road equipment. Along with weak construction and forestry activity, mining output dropped precipitously as travel stopped, trade slowed, and demand for mined materials used in fuels plummeted. Additionally, in certain countries, some mines were forced to close due to pandemic safety measures, exacerbating weakness in operators’ 2020 financials.
Though food production was not hit as hard as other industries, with elevated consumer grocery sales offsetting steep demand declines in the foodservice sector, many farms decided to put off pricy equipment upgrades and other major investments until the economic outlook brightened.
As such, improving economic conditions worldwide as the pandemic recedes will lead to a release of pent-up demand, as firms in the construction, agricultural, mining, and forestry sectors will be in a better position to invest. Many will expand or mechanize their operations, or adopt advanced technologies that will help them save on overall operating costs, promoting sales of off-road equipment.
Innovation Drives Adoption of Smart Technology, Boosting Sales Values
As capital investment returns to growth following the COVID-19 pandemic, many firms will opt for smart products due to their ability to boost productivity. Though currently just a small niche of the overall off-road equipment market – just over 1% in 2020 – smart equipment sales will grow rapidly in 2021 and beyond, with their share of the global off-road equipment market forecast to quadruple through 2025:
- Most adoption of new technologies and state-of-the-art machinery will occur in high-income nations, where high wages and labor shortages encourage investment in the most efficient equipment models.
- In lower- and middle-income markets, lower-end equipment and used machinery will continue to be popular because construction and surface mining firms have limited financial resources to invest in new machinery. Wages also tend to be lower in these countries, providing less incentive for companies to purchase high-performance equipment.
- The mining industry is the notable exception, as many of the world’s largest mines – operated by multinational companies with the finances to afford advanced machinery – are located in lower-income countries.
Among the four major off-road equipment product segments, smart technologies have seen the most penetration in mining machinery, even though the construction and agricultural markets represent larger shares of smart equipment sales, due to the following factors:
- Mine applications are particularly well suited for autonomous equipment and robotics, as mining tasks are generally repetitive over a long period and take place in an enclosed environment.
- Mining firms typically have the financial resources to absorb the high costs of advanced smart equipment, while costs are a more significant hurdle for many construction or agricultural projects.
- Though smart mining equipment sales are more concentrated in wealthier countries due to the higher cost of automated equipment, developing countries also represent a sizable share of demand, aided by government programs in some mining-heavy countries, including Brazil and Russia, to support expanded use of automation in local mining sectors.
Want to Learn More?
Global Off-Road Equipment 2021 is now available from the Freedonia Group.
About the Author:
Peter Kusnic is a Content Writer with The Freedonia Group, where he researches and writes studies focused on an array of industries.