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Client relationships may suffer as payments are delayed

This third instalment of the Plant Readers Forum looks at client base and pricing

As many within the plant sector would undoubtedly inform you, payment experiences have been bad lately. What’s more, over half of plant chiefs at the Construction News Plant Leaders Forum feel that relationships between manufacturers or hirers and their clients are set to become more adversarial as a toughening market puts increasing pressure on cash flows.

“For us it’s pretty bad, especially overseas,” said one panel member, explaining that while he gets his money when the machine drives out of the factory in the UK, this is not the case when shipping abroad.

“You can’t expect people to pay for it when they won’t be getting it for three months. You can’t get credit insurance. Our dealers are going round and reducing their credit limits. There are markets such as Lithuania, Latvia and Russia which are down by 90 per cent.”

While many of the larger UK contracting firms promise rapid payment, some forum members retain an air of doubt.

“Blue chips have made statements saying they will pay people sooner because they don’t want bad reputations - to be seen as the driver of people going bust - but whether they do or not…”

Another panellist points out: “We have framework agreements which have always been pretty good and we have no issue with them in terms of payments.”

Some in the hire market readily admit that customers are not helping.

“They are putting huge pressure on us for hire rates; there is a lot more supply than demand. Bad debts usually run at about 1 per cent but they are almost 2 per cent now.”

With one panellist remarking that clients are “more willing to propose to give you a credit note rather than a rebate cheque,” and 75 per cent of forum members admitting that sales/hire prices have fallen by between 10 and 20 per cent, it’s hard not to feel as if some firms are on a sinking ship.

“It’s not falling off a cliff any more; it’s bumping along the bottom. I wouldn’t rule out a high profile casualty. Look at the stock valuations out there. They are a third of what they were. It’s certainly not business as usual.”

At one point in the discussion, a panellist even attests that some of his workers who “have been in the industry for 35 years have never seen some of the pricing now being agreed as standard.”

Supply chain

What to do with the build up of old stock formed a hot topic during the debate – a fact which holds little surprise when coupled with comments such as that by the member who admitted he hasn’t “sold a medium heavy breaker all this year.”

“We have suppliers with significant amounts of stock trying to push 2007/8 models, but there’s an increasing appetite for the sustainability agenda, causing conflict with the supply chain.”

Machines can also become outdated before they have actually been sold due to health and safety regulations.

“It is a problem. We are continuing to invest in research, development and innovation. If you have a channel full of old stock, there are issues with vibrating plates. People don’t want white finger. You have to sell the old things off cheaply, scrap them or ship them off to countries that don’t care.”

One member voiced his opinion that a successful company within the current climate is one which can demonstrate value added products.

But the concept was not universally accepted by the forum, as many plump for the lowest priced options within a suffering sector.

“The challenge is whether the client base will fully recognise and value the value added. It can be taken as a given with people judging purely on price.”

Plant leaders forum

Last month, chiefs of the plant manufacture and hire businesses met at the exclusive Construction Newsforum to reveal their insights into the current economic climate and how it will continue to affect UK plant firms.

In a frank, off the record discussion they talked openly about what is happening now, what the future is likely to look like and what should be happening to secure a critical sector to UK plc - most importantly, one that is all too often overlooked by the Government.

Agreeing to be named as panel members were:

  • Ainscough Crane Hire managing director Neil Partidge
  • Ashtead Plant Hire Company chief executive officer Sat Dhaiwal
  • Atlas Copco managing director Kevin Prince
  • Caterpillar director Paul Ross
  • Construction Equipment Association chief executive Rob Oliver
  • Construction Plant-hire Association chief executive Colin Wood
  • HE Services chairman Hugh Edeleanu
  • Lavendon Access Services UK chief executive Andy Wright
  • JCB managing director David Bell
  • Speedy Hire chief operating officer Claudio Veritiero

Sales/hire prices (within the last year)

Fallen 10 to 20 per cent  - 75%

Fallen up to10 per cent  - 25%

Orders cancelled or postponed in last three months

More than 10 - 40%

5-9 - 40%

None  - 20%