The CECE has voiced his concern over government regulations that could strangle innovation for the digitalisation of construction machinery. China’s imploding economy was another topic at the recent conference in Brussels, reports David Arminas
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“We need a smart regulatory framework that helps to unlock the full potential of the digital economy,” said Eric Lepine, president of Committee of European Construction Equipment.
Lepine was speaking alongside his counterpart in the European Agricultural Machinery Association (CEMA), at a joint summit held in Brussels in September. The CECE, based in Brussels, represents the interests of 1,200 companies in Europe. Last year, the industry had a total revenue of €25 billion and directly employed 130,000 people.
EU legislation has a prominent role to play because digital technologies are set to transform the construction and farming machinery in the years ahead and will reshape the value chains they service.
Lepine challenged the EU to enact smart regulation that would ensure that regulations recognise the changes taking place now, such as the increasing use of virtual testing of machines. Flexible legislation could advance this virtual testing so it can replace, reduce and refine conventional tests in the future.
Users and manufacturers need a reliable, secure and trustworthy cyberspace. To achieve this, the digital economy needs a harmonised European approach to achieve a high degree of interoperability and compatibility of digital technologies and systems.
The EU should establish clear and appropriate rules governing questions such as the ownership, management and exploitation of digital data flows and the role and function of cloud-based platforms in the digital economy.
Also, EU programmes, such as the European Investment Plan, should support competitiveness and the uptake of innovation in construction. An adequate broadband infrastructure across the entire EU is an essential precondition for a successful digital transformation.
Digital transformation will also increase demand for highly skilled workers, he said. To this end, digital skills should be integrated more strongly into educational curricula and an ongoing skill development programme.
To tackle the estimated future shortage of information and communication technology professionals in Europe, member states should establish mutual recognition of ICT qualifications and promote cross-border mobility of workers with these skills.
During the summit, a group of young engineers showcased a number of highly innovative industry projects. This included an experimental pivoted drive unit for a road milling machine by Tobias Stinner, an employee of
Europe’s construction machinery sector is facing an “enormous” skills gap when it comes to mechanical engineers with electronics knowledge, according to Alan Berger, vice president of product platforms at
Berger, who made his comments during a panel discussion, said the sector needs an increasing number of highly skilled engineering technicians. They must be able to work on site “in the rain and mud” and have a good mechanical education with software and digital machine control knowledge.
You can develop a plan for what is the most effective and efficient combination of equipment from different manufacturers on a job site, such as excavators, haulers and crawlers working in tandem. What is coming fairly soon is the off-site control of these machines. However, off-site control of autonomous machines is still somewhat off in the future.
Berger said that it’s one thing to develop digital communication between vehicles made by one manufacturer but much more difficult to have vehicles from several manufacturers talk to one another. Having different machines from different manufactures working together digitally is really a problem of standardised communication systems, Berger told World Highways.
“I believe there is some third-party tools out there. But this is where there is a gap in standardisation. Our telematics systems will not talk to Cats or Cases.”
The China factor
Manufacturers can look forward to a growth rate in Europe of only about 2% for the foreseeable future, said Phillipe Waechter, chief economist at French corporate investment bank Natixis.Looking into the future, there remains a lot of concern about where sales growth will come from for the construction and agricultural machinery sector, given the slowdown in China’s economy. The days of China soaking up European machinery output are over, with the import growth hovering at about 40% a year now a thing of the past, he said.
The trend looks set for China to have a growth rate of 2-5%, unlike the 10% rate in the recent past.
Antonio Mura, director at CRESME Richerche, an Italian construction industry research organisation, said that 2015 will be “a year of awakening” for the construction industry globally. Accompanying the slowdown of China’s economy, there appears to be a slacking of the economies of Brazil, Russia and Australia.
To partially replace the Chinese market will be continuing growth in India, Indonesia, Philippines and Malaysia. But it will be Africa – with a growth rate expected to be between 7 and 8% by 2019 as whole – that emerges to lead the way, said Mura.
“The outlook for European manufacturers is not the brightest,” said Erik Sjodin, an associate principal at business analyst McKinsey and Company.
For European manufactures, a change is taking place, with the growth of larger, more sophisticated hire companies that buy in standard machines in bulk. There are also more and more emerging market machinery manufacturers catching up on Western technology. “The question is when they will move up and sell in scale to the European markets.
What the Chinese manufacturers need is access for their machines into European distribution markets.”
The result would be even more pressure on the margins of Western manufacturers.
These Western original equipment manufacturers (OEMs) are fighting back by designing greater standardisation of their machines. This allows for higher volumes of parts during manufacturing, thus cutting down production, as well as after-sales servicing costs. Higher standardisation also means the likelihood of fewer regional specifications for machines as the years go by.
To increase innovation, there could be an increasing amount of new technology added to a construction machine that was developed outside the construction machinery manufacturing sector. This is especially true for software, said Sjodin.
However, will the construction machine sector see a greater interest in Chinese companies seeking to acquire Western companies to boost their earnings in light of a fading home market?
“The question is whether they can get reasonable synergies out of buying a company in Europe or North America", said Sjodin. Getting into the distribution system will be key for their expansion. The question now is do they have the funds and, even more so, the management capacity for such acquisitions. “We don’t have an answer, but most likely we will see more of it. But we are also likely to see a lot of changes in the Chinese market structure before they go abroad.”
One of the crucial things people forget is whether the two management teams – Chinese and Western – will work well together, said David Phillips, managing director of UK-based Off Highway Research. He said that some mergers have become “a very sad state of affairs” because the Chinese have a very different way of managing their operations from most international manufacturers.
Eric Etchart, senior vice president of business development at crane manufacturer
“It is like being married, sharing the same bed but having different dreams, teaming up with a Chinese company,” said Etchart.
David Phillips said that research done on behalf of his company showed that Chinese factories are running at 20% of capacity, even though Chinese companies make a profit only when operating at 70-80% of capacity.
But the quality of Chinese machines has risen tremendously in the past five years, said Phillips. While there is already a glut of unsold machines in China, most major Chinese manufacturers are committed to exporting 40% of their production in the coming several years.
So, where will all this Chinese machinery go?
Southeast Asia, Africa and South America, said Phillips. Senior Chinese politicians visit these countries to sign deals for Chinese companies to build infrastructure that will be paid for by the Chinese Government. Chinese construction equipment then follows on. The greatest obstacle for Chinese manufacturers is their inability to form a good distribution network even though the products are as good or within 5% of Western market leaders.
Another problem is the price of Chinese machines, said Phillips. “An exported Chinese excavator is around only 5% cheaper than market leaders. Dealers are reluctant to take on Chinese OEMs because they have patchy services and parts supply.
”The residual value of Chinese machines is very poor because of all this. “If you have a second-hand Chinese machine in your fleet, it’s actually worthless on the open market. When you are making your purchasing decision, that factor will be a fundamental.”
Phillips questioned the business case for opening so many factories in China as well as placing them in isolated areas. He said that a large Chinese manufacturer of goods for another market entirely started building wheeled loaders three years ago.
Phillips told of how he visited a factory outside Shanghai whose production capacity was 50,000 excavators a year but last year they produced only 7,000. Close by was another excavator factory being planned, also with a capacity of 50,000. “In this one street they had a capacity of 100,000 units, bearing in mind that Europe sells about 20,000 units.”
He predicted that the government will have to close down some capacity at the risk making people unemployed which could result in social unrest.
Digitalisation of the worksite
Is the European construction sector ready for digitalisation of the construction site? According to an electronic straw poll of summit attendees, only 20% of the sector is in the starting blocks.
Will the digitalised economy affect the construction sector?
1) Totally – 71%
2) Limited effect – 26%
3) Not affect the sector – 3%
But is the construction sector ready to accept the benefits of digitalisation?
1) Construction is at the forefront of all sectors – 16%
2) Not ready for the advent of digitalisation – 81%
3) No benefits will come from digitalisation – 3%
Is EU action needed to avoid a skills gap for the digitalised economy?
1) No, action must be led by national governments and the private sector – 11%
2) No, it’s a job for the education sector to ensure no skills gap – 36%
3) Yes, totally an EU responsibility – 54%
How important will have digital skills be for getting a job?
1) Essential to have them – 13%
2) Partially essential – 82%
3) Not essential – 5%
The digital skills gap
There is still a gap between what German engineering students do in school and what digital knowledge the construction sector needs them to have, said Tobias Stinner, a 26-year-old Masters of Mechanical Engineering student. Stinner is also an employee of Wirtgen and has been working for the past three years on development of a cold milling machine.
Through his studies at RWTH Aachen University – Germany’s largest technical university – and his work at Wirtgen, he jointly holds several patents. Stinner told World Highways that his digital knowledge for development of machinery was likely greater than the average student’s because software application was his hobby. Part of the problem is that software application is an option for a lot of mechanical engineering programmes, so not every student will have what the construction sector needs, he said.
It is an inescapable fact that today’s construction machinery runs on software, said Markus Schneider, 31. But there remains too much emphasis within mechanical engineering courses on the durability of construction machinery, said Schneider, a Phd student at Dresden Technical University and who is working on an environmentally friendly ‘green’ wheel loader.
After his first engineering degrees, Schneider spent a year and a half “covered in oil” in all kinds of weather on worksites where he helped commissioned machinery and sort out mechanical problems. He said what is needed is more courses on the multidisciplinary field of mechatronics -- a mixture of systems engineering, mechanical and electrical engineering, telecommunications and control engineering and also computer science.
