How contractors are coping with uncertainty

February 12, 2024

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With traditional financial indicators in disarray, it’s hard to get a good read on when the backlog of shelved projects will be released and how construction will unfold in 2024. However, we know that projects will be highly competitive when the market does pick up. SMS Equipment experts Blair Addison, Regional Sales Manager, Northern Alberta and Matt Chatters, Regional Sales Manager, Edmonton, explain how contractors are doubling down on the basics to ensure they are ready to execute when the next wave of major projects becomes a reality.

When you consult with customers about their future, what are some of the economic indicators that you are looking at?

Blair: Housing is a big issue in Canada right now, so we’re looking at all related indicators. In the past year, real estate prices have declined, so many investors are waiting on the sidelines for the market to bottom out. But at the same time, we’re seeing record population growth in Canada, particularly in Alberta. So, with vacancy rates going down and rent prices going up, governments are pressured to take action.

Another aspect of this is that many developers are nervous about the increases in interest rates and are reluctant to release projects. So, our customers are facing a lot of inaction on the part of developers.

Matt: We’ve had roughly a million people come into Canada in 2023, so the housing market will eventually respond to that. Initially, that trickles down to underground work, subdivision developments, and other land development projects. But people will be moving cautiously, and companies must execute very efficiently.

What about construction projects related to mining applications?

Blair: Many of our customers support the mining industry, so keep an eye on the various indicators. Western Canadian Select Crude (WCS) and International Crude (WTI) are big ones – 2023 was a rough year for energy prices in general, so we’re monitoring that closely. We also look at other commodities that affect our customers, like lumber and gold.

Matt: We also look at trends regarding sustainable operation. In response, we expect that more contractors will be using electric and hybrid equipment. Of course, this also helps contractors in their efforts to tighten up efficiency.

What impact will government policies have in the near term?

Blair: One of the most significant right now is the impact of Alberta’s carbon capture initiatives. That’s created a real shift from the major oil and gas pipelines, which have slowed down, to carbon capture pipelines. That has changed the work from 36- or 40-inch pipelines to 12-, 16-, or 20-inch ones. That opens the door to more competition because contractors with smaller machines can bid on them.

Governments have also stepped away from supporting wind and solar projects. So, contractors are building small and medium-sized pipelines for carbon capture instead of pads.

Looking at Canada as a whole, everybody is looking to see if governments make a major move on housing and what the incentives might be.

What do you see contractors doing moving forward?

Blair: I think contractors will need to prepare to respond quickly and execute very well. There will be a lot of competition and even more pressure on cost control and quality. So, it all boils down to fundamentals. Companies will have to be able to bid accurately and then, once they have the work, ensure that things go as efficiently as possible.

There are many aspects of this, and a lot of it relates to equipment. Having the right machines for the job and the right attachments is critical. That equipment needs to be appropriately maintained to ensure that downtime doesn’t disrupt a job and delivers the highest possible TCO.

Matt: Some of the newer technology will help contractors find a competitive edge. We’re seeing a lot of demand for some of the smaller hybrid excavators, which opens the door to all kinds of projects. We’re also seeing a lot of interest in some of the latest control and monitoring technology. For example, Komatsu’s Smart Construction Dashboard is a great tool for managing day-to-day work more closely.

I should mention that SMS Equipment is unequalled in support of digital technology. That’s been a top priority for us for many years. One example is that we’re the only major dealer to support both Topcon and Trimble platforms, and we can support a mixed fleet under a single contract.

The Bottom Line:

As contractors face an uncertain business environment in 2024, they’ll seek new ways to extract the maximum value from their equipment. SMS Equipment has teams of experts across Canada who can advise on getting the fundamentals right. This includes best practices such as matching the equipment to the work, selecting the optimum maintenance plan, and leveraging alternative methods for financing equipment acquisition.

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