Third Quarter Report for 2018

Third Quarter Report for 2018

The third quarter was a hive of activity with major auctions taking place and substantial shifts across many markets. Slattery Asset Advisory has hosted its very successful 2018 Valuations conference. The focus being ‘Looking to the Future‘ with industry experts from Transport, Mining, Earthmoving, Marine and Aviation giving insight into what technology is coming.

The overall road transport and Mining/Earthmoving sector has continued to perform well throughout the third quarter of 2018. Motor vehicles and Marine all had a mixed quarter.

The quarter in short:

• 2018 is shaping up to be the highest volume of sales in new and heavy trucks ever recorded.
• Caterpillar Inc had another strong quarter, with the third quarter of 2018 a record-breaking quarter for the company.
• Alternate fuel trucks and semi-autonomous trucks are coming, however, there will be resistance in the market.
• October saw the Marine and Civil major auction held in WA with a 91% clearance rate.
• Passenger cars continued to slide, recording a 20.1 per cent drop on last year’s sales

Slattery Asset Advisory

Slattery Asset Advisory has just hosted its very successful 2018 Valuations conference.

This is the fourth year of the conference and each year just gets bigger and better. This year was no exception with over 80 attendees learning and networking in the beautiful Hunter Valley. This year’s theme of ‘Looking to the Future’ included key note speaker Brendon Richards from KPMG and guest speakers from Westrac, BIS Industries & Larson Transport, as well as displays of future transport modes.

Registration for the 2019 Slattery Asset Advisory Valuation conference is now open. Register here

Road Transport

New Truck Market

The overall road transport sector has continued to perform well throughout the third quarter of 2018 with the Australian new and heavy truck industry continuing to track strongly towards becoming the best year ever in terms of total units sold. With a 14.3% month-on-month rise in sales this has contributed to the 20.1% growth in 2018 across the combined truck category with a total of 26,001 units sold year to date. This is an increase of 18.4% compared to sale results at the same period last year.

We have seen the Medium truck market perform well this quarter with sales being up 11% in October and 15% YTD 2018. Isuzu continues to dominate this segment with 40% share YTD October 2018. With total year-to-date sales of 7263 units reflecting growth of 11.3%. While that’s a solid figure in itself, it’s nearly half of the growth experienced by Isuzu’s two main competitors, Hino and Fuso.

The Light truck market is also up on last year by 16% in October and 14% YTD 2018. Isuzu continues to also dominate the light truck segment, but its sales have only increased marginally so far this year.

Used Heavy-Duty Trucks

The third quarter saw strong results at our NSW truck and machinery auctions. A large volume of quality assets were offered to the market due to the liquidation of, among other sources, the assets of a bulk haulage company as well as a civil construction company.

The variety of assets, good condition and scale of the auctions gave a strong indication of the positive health of the national secondary market for used trucking and civil construction.

The August truck and machinery auction saw approximately 20 tipper trucks and trailers offered, with majority of these units being late model, high-quality stock.

The highlights of this sale were 2x 2017 Kenworth T610 Tippers with 2017 Hercules Quad Dogs, which resulted in a sale price of $415,000 and $405,000 representing 109% and 107% of retail value. We also saw the sale of a 2017 Kenworth 409 SAR with a 5-axle tipping trailer achieving a result of $430,000 (102% of retail).  All three of these trucks had less than 40,000 km on the odometer and were PBS compliant.

With a large turnout participating in the auction, the momentum from the previous late model trucks continued through to the later model trucks offered in the same auction. This was shown in the strong results on 3 x 2015 Kenworth 409 SAR tipper trucks with 2016 Hercules Quad Dogs, which saw results for these trucks achieving between 94% and 99% of retail.

It was noticed that buyers were willing to pay a premium during this auction for tipper trucks fitted with steel/hardox bins. A 2012 Kenworth T403 tipper with an aluminium tipper bin was sold for a healthy $132,500, but a 2011 model of the same truck and similar km with a hardox bin sold for $160,000 reaching 97% of retail value, despite being 12 months older.

In VIC, we saw similar results to the NSW market for late model trucks that were offered for sale with two 2016 Mercedes Prime Movers with low kilometres that were well maintained resulting in sale prices of $207,500 and $205,000 respectively and achieving a 100% of retail value. Our VIC truck and machinery auction also saw several late model trucks including 14 Pallet Tautliner achieve beyond expectation and reaching a 100% of retail value.

In QLD we saw strong demand for late model Kenworth, Mack & Volvo prime movers, however the market has softened for secondary makes, buyers are being more selective. In WA we are noticing reduced volume of trucks being available for purchase.

This quarter highlighted that if you have good stock that is marketed well and priced correctly, current market conditions will ensure big crowds, substantial interest and robust bidding.

Used Medium-Duty & Light-Duty Trucks

Across the country we have seen the secondary market for medium-duty and light-duty trucks continue to stay strong throughout the third quarter.  In NSW & VIC, we have seen several small to medium sized Japanese commercial trucks sold beyond expectation during September with a 2010 Isuzu NPR 200 Tabletop that achieved 90% of retail, a 2013 Isuzu FRR500 Tipper achieved 83% of retail and a 2008 Isuzu NPR 250 Dual Cap Tabletop reaching a sale price of 80% retail value.

This market continues to stay strong as stock supplies are limited and we see dealers and end users competing at a closer level to obtain the trucks. This was apparent in our Sydney light truck auction, where we saw 2x 2006 Mitsubishi Canter Tippers with high kilometres sell for 90% of retail value.

In the WA market we have noticed that Rigid Tray back units have been performing well, with a 2007 Hino FM1J achieving 98% of retail at auction and a 2007 Mitsubishi Fuso achieving 88% of retail. QLD has seen strong demand for small and medium tippers.

Trailers

Throughout the third quarter, good quality flat top and drop deck trailers continue to be in high demand throughout NSW.  A 2013 Vawdrey Tri Axle Flat Top Trailer achieved 85% of retail value at our September auction. We have also observed an increase in demand for these trailers in the WA market over the last quarter, this is likely due to the increased mining activity that has increased the need to shift earthmoving assets.

It was evident throughout this quarter that despite the continued demand for good quality tipper trucks, there was an obvious pull back in prices for dog tipper trailers. Normally, demand and prices for tipper trucks and dogs directly correspond given their symbiotic relationship, however the wait time on new trailers has improved, there has possibly been an oversupply of these trailers in the last quarter and the standardised nature of these assets as compared to trucks makes them more susceptible to decreased prices when an oversupply occurs.

Future of Transport

Leading on from our Valuations conference recently held in October industry experts provided key insights into the future of the transport market in Australia. Alternate fuel trucks and semi-autonomous trucks are coming however there will be resistance in the market. We heard directly from a large VIC operator that alternative fuel trucks are still not that well accepted. With a lot of operators being ‘scared’ by the tech. This would suggest that any estimates around residual values should be kept conservative. The Australian market is well behind the US in adopting these new technologies. Electric trucks and buses are far more prolific in the US market.

An insight into the future of the transport growth in VIC was also highlighted at the conference. Victoria’s gross product is estimated to increase by $40 billion over the next three decades which will see freight volumes triple and consequently demand for related trucking assets in the state.

Another interesting call out during the conference was the recognition of a serious skills shortage for truck drivers with the average age of a truck driver currently sitting at 60. This skill shortage may see in the increase in demand of semi-autonomous trucks as there is a driver skill gap. In the meantime, the Victorian Premier, Daniel Andrews, has declared his Government, if re-elected in the November state election, will provide $4 million in funding to cover the training of 800 new heavy vehicle drivers in partnership with the Victorian Transport Association (VTA) and others, which may go some way to addressing this issue.

Mining and Earthmoving

New Equipment Sales

Looking to Caterpillar as a barometer on the health of global equipment sales, it is clear that the global market is very strong with Caterpillar having a record-breaking quarter. Sales and revenue were up $13.5 billion compared with $11.4 billion in the third quarter of 2017. Resource Industries continues to be their most noticeable increase in sales and revenue, with a 35% increase compared to the same time last year.

Sales for Caterpillar Inc in the Asia Pacific region were higher for resource industries with a 46% change from the 2017 third quarter. This is due to the increase in demand for both mining and heavy construction equipment. Following this result was construction industries with an 18% increase in quarter three of 2018 compared with quarter three of 2017. The most significant impact on sales was from improved demand in China that stemmed from the increased non-residential building construction and infrastructure levels.

Used Equipment Sales

There has been a huge increase in demand for dump trucks over the past 12 to 18 months as contracts to move large amounts of dirt have increased with good quality 40T dump trucks selling for 35 – 40% higher than 18 months ago, due to the lack of supply.

In September, our NSW auction held an outstanding truck and machinery auction, with one of the best line-ups of earthmoving and civil equipment. The highlight of this auction was the offering of five Volvo A40F Articulated Dump Trucks where all these machines made between 93% and 100% of retail value. Final sales price ranged from $250,000 to $305,000. This auction had buyers from all around the country in attendance, to inspect and try and purchase these machines with all the action coming from end users who had contracts to put these machines straight back to work.

We have seen strong appetite for CAT skid steer loaders and smooth drum rollers in the VIC market, where dealers and end users are competing to secure these machines at auction. The Slattery VIC office offered a 2013 Dynapac CA4600PD Padfoot Roller for 85% of retail value, a 2008 Volvo SD-200DX Smooth Drum Roller for 83% of retail value and a 2008 Caterpillar CB24 Twin Smooth Drum Roller selling for 90% of retail value in the third quarter suggesting demand will continue for similar assets in the short term.

At our August auction in VIC, we saw the sale of a large quantity of civil construction equipment with the late model earthmoving machines having a 100% clearance rate on the day. A 2015 CAT 305E CR Rubber Tracked Zero Swing Machine recently exceeded all expectations with the hammer falling at an astonishing $67,000 (approx. 100% of retail). The demand for medium to large sized excavators was also highlighted by a 2012 Caterpillar 349D Digger commanding 85% of retail despite displaying over 9,000 working hours.  In QLD at our October auction we sold a 2018 Kobelco SK300LC-10 Excavator with 868 hours for $235,000, 100% of retail value.

Our WA office has noted similar trends as NSW and VIC markets, where they can see an increased demand for low hour, well presented machines. Particularly water carts have been achieving above retail value with demand reaching the highest levels we have observed over the last 3 years. The lack of stock is driving prices higher as buyers need them at sites that have already commenced work.

Future of Plant and Equipment

Next generation machines being produced by the global manufacturers are the latest advancement for the earthmoving and construction sector whilst also being the biggest threat to the values of existing equipment.

Whilst not yet required to do so, Caterpillar is currently manufacturing these next generation machines to meet higher emission standards, similar in nature to the Euro standards for Road Transport regularly reported on in our Quarterly Reports.

https://www.youtube.com/watch?v=1wB3VqPgcHQ&feature=youtu.be

The Australian government is yet to introduce higher emission standards in this sector however it is important to note that they have been adapted in both the US and Europe. These higher emission standards have been applied to the Australian road transport sector and many major construction companies in the private sector already require high levels of emission standards on any of their major projects.

We anticipate that it is only a matter of time before emissions standards for plant and equipment is introduced, which will have a huge impact on values of existing machines. This impact will be similar to the decision in 2010 to introduce a mandatory requirement for all mining and earthmoving machines to be fitted with ROPS. This impacted the values on the secondary market overnight and demand for new machines spiked and left a glut in non-compliant machines.

Marine

Marine Sector

There is currently a huge demand in the freight transport sector, especially in the maritime field, which has resulted in a major recruitment campaign in that sector. In response to global demand, including the huge demand for freight boats and other transport ships. Australian trade is booming due to surging growth in Australia’s fossil fuel exports of coal and gas. The latest ABS International Trade in Goods and Services figures reveal Australia’s trade surplus climbed to $3 billion in September.

Used Marine Sales

In the third quarter of 2018, our WA branch was appointed to assist in the disposal of a large quantity of marine civil assets where we held an onsite and an online auction. The onsite auction resulted with a 91% clearance rate on the day with the rest of the assets being sold after the auction. The highlights from the day was a 2007 Hitachi 135T Crawler crane that sold to a Singapore buyer for $412,528, 2002 Sea Quest that sold for $66,968 and an IHC S120 Hydro Hammer that sold for $122,500. The auction had a strong online bidding presence with interest coming from the United Arab Emirates, the Netherlands and South East Asian. This highlights the need for global reach when selling these specialised assets.

The online auction achieved similar results to the onsite auction with a 90% clearance rate at the close of the auction. The notable mentions from this sale is an Enterprise M&H 5060 Segmental Combi Pontoon Work Bridge (in 20 Sections) sold for $63,500, a Leader SPS Piling Frame sold for $18,300 and a Quantity of Drilling Sections and Stabilisers that sold for $13,250. This equipment is used across varied infrastructure and marine projects. The primary being bridge maintenance and building with the road network being upgraded across WA this gear is in high demand.

Motor Vehicles

New Motor Vehicle Sales

Overall this quarter has seen new vehicle sales drop nationally year on year. New vehicle sales dropped in September 5.5 percent on the same month in 2017, with a total of 94,711 registrations recorded.

QLD, TAS, WA and VIC all saw increases on last year, while the rest of the nation was down, led by a 4.4 per cent dive in NSW. September follows two months of slow sales this quarter, leaving the market 0.9 per cent behind year-to-date, with 881,005 registrations.

Passenger cars continued to slide, recording a 20.1 per cent drop on last year’s September sales, headlined by 24.1 per cent and 60.3 per cent drops for medium and large passenger cars respectively. While light commercial vehicle sales also dropped 2.3 per cent on September 2017. SUVs defied the slump, continuing their strong year with a month 6.2 per cent stronger than the equivalent last year.

Only micro cars and people movers grew in the passenger segment, while medium and large SUV sales actually fell. Although those segments were down, a strong month for small SUVs – 13,263 sales, up 25.7 per cent – covered those losses.

Toyota continued its dominance leading the sales figures with 18.4% of market share. Hyundai took second place from Mazda with Mitsubishi sneaking into third which left Mazda in fourth place.  The Holden brand continued its free fall with local production wrapping up last year this brand is now sitting in tenth.

Used Motor Vehicle Sales

As we have seen in previous quarters, Toyota vehicles are still a firm favourite with dealers and confidence when buying remains strong, even with high kilometre vehicles across the country.

In the WA market, we have noticed a trend of late model cars with low kilometres selling for above retail pricing as showed in the sale of a 2015 Kia Carnival with 37,529 kms sold for $31,186.25 making 111% of retail and a 2016 Range Rover Sport with 37,430 kms sold for $84,867 which made a 100% of retail. As the mining sector continues to grow momentum on the western coast, we are seeing increasing demand for light commercials and mine specification utilities.

On the Eastern seaboard we are seeing similar trends to the WA market, with strong competition to purchase clean, quality vehicles. In VIC, we saw a manual, low kilometre 2016 Ford Falcon XR6T FG X sell to an end user for $35,000 and a 2016 Toyota Fortuner Crusade with 47,851 kms sell for $39,400.

Demand for utility and commercial vehicles remains strong with dual cab automatic 4×4 diesel vehicles highly sought after. Most Ford Rangers and Toyota Hilux’s are achieving retail prices at auction. Notable results over the quarter in NSW was the sale of a 2016 Ford Ranger Wildtrak with 18,906 kms selling for 95% retail and a 2015 Toyota Hilux SR5 with 72,895 kms selling for 90% of retail.

In QLD we recently sold a 2016 Dodge RAM 2500 4×4 Dual Cab Utility 4×4 with 71,938 kms for $116,500 selling for a 100% of retail.

NSW has observed that the V8 Holden models such as the SS, SSV and HSV are achieving strong results at auction as the demand for these vehicles continue to rise with the end of the commodore era. This is noted with the sale of a 2016 Holden Commodore SS-V Redline that sold for $41,300 and a 2016 Holden Ute SS that sold for $39,000 representing between 95% and 100% of retail.