Riding the Wave of Rising Equipment Prices: Conquer Costs and Stay Ahead with Strategic Equipment Financing…
Supply chain constraints, general inflation, and strong demand for equipment caused prices of equipment to increase significantly since 2020. According to the Producer Price Index (PPI), prices for machinery and equipment increased by 19% between January 2020 and March 2023.
PPI measures the “change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.”
– Bureau of Labor Statistics
In the context of machinery and equipment, PPI measures the price that manufacturers charge dealers and distributors for their products. Therefore, in a tight market for equipment, where dealers are increasing their margins, the prices that businesses pay likely increased by an even higher margin than what the PPI would imply.
The chart below outlines the PPI for machinery & equipment, using January 2020 as the index.
Trucks
One equipment type that increased in price significantly more than average was trucks. Between January 2020 and March 2023, the PPI for trucks and bus bodies increased by 32.9%. During late 2021 and early 2022, freight spot rates increased to unprecedented levels. These elevated spot rates encouraged many truck drivers to purchase their own trucks and start their own operation.
Additionally, the strong freight market encouraged many companies to refresh their fleet. The chart below outlines the producer price index for truck and bus bodies, using January 2020 as the index.
Notice that while the index was relatively stagnant during early 2020, during mid-2021 and 2022, the index increased substantially. Anecdotally, we noticed that the average price for a typical class 8 sleeper cab truck financed by EFFI increased from approx. $135k in January 2020 to over $170k in early 2023, approximately matching the correlating PPI increase.
Anecdotal evidence highlights a significant increase in the average price of a typical class 8 sleeper cab truck financed by EFFI, soaring from around $135k in January 2020 to over $170k by early 2023, closely tracking the corresponding PPI rise above.
Construction Equipment
The producer price index for construction machinery and equipment increased by 24.7% between January 2020 and March 2023. While the PPI for construction machinery and equipment increased at a lower rate than the PPI for trucks, it is above the average for all machinery and equipment.
Similar to the truck and bus bodies PPI, the PPI for construction machinery was relatively stagnant during 2020, before increasing significantly during 2021 and 2022. According to Equipment World, the average price for a used bulldozer increased from approx. $200k in January 2020 to over $250k in November 2022. The chart below outlines the PPI for construction machinery and equipment, utilizing January 2020 as the index.
The PPI for construction equipment rose by 24.7% from January 2020 to March 2023, surpassing the average for all machinery and equipment, albeit at a lower rate compared to trucks.
Manufacturing Equipment
Price changes for manufacturing equipment are measured by the PPI for the private capital equipment for manufacturing industries. Between January 2020 and March 2023, this index increased by 23.7%. This increase also outpaced the increase for the broader PPI index.
Similar to the other indices, the index that includes manufacturing equipment was relatively flat during 2020, before increasing substantially during 2021 and 2022.
The chart below outlines the PPI private capital equipment for manufacturing industries, utilizing January 2020 as the index.
The PPI for private capital equipment in manufacturing industries increased by 23.7% between January 2020 and March 2023, outpacing the broader PPI index.
In Conclusion
Overall, the producer price index for machinery and equipment increased by 19% between January 2020 and March 2023.
Many industries saw equipment price increases that significantly outpaced the average. Prices for trucks and bus bodies increased by 32% between January 2020 and March 2023. Similarly, between January 2020 and March 2023, construction equipment prices increased by 24%. Lastly, prices for manufacturing equipment increased by 23% between January 2020 and March 2023.
Overall, machinery and equipment producer price index soared by 19% from January 2020 to March 2023.
Given the increase in equipment prices, businesses should consider equipment financing now more than ever, as equipment financing allows businesses to acquire critical assets while spreading out the impact of the higher priced equipment across multiple years.
Companies must strategize to overcome the increasing cost of business, including higher labor, insurance, fuel, and equipment costs. To make the successful transition into the new economy, raise rates and maintain a high level of service to thrive. Companies that do this will be able to retain the best talent, reinvest in their own assets (operational and technological), as well as meet the cash flow required for seasonal fluctuations.
