CONSTRUCTING THE EUROPE O F T O M O R R O W CONSTRUCTING THE EUROPE O F T O M O R R O W Financing and insuring tower cranes CECE aisbl Bd. A Reyers 80 B-1030 Brussels (Belgium) Tel: +32 2 706 82 26 info@cece.eu www.cece.eu
1 > INTRODUCTION and purpose of the document The current lack of financial support from banks and insurance companies is refraining potential tower crane customers from buying this type of construction equipment. Historically, tower cranes have been a very profitable product, because of their long life and their fast return of investment. However, since the economic crisis, it is very difficult for companies to find financing for such an important investment. Recently banks and insurance companies became very hesitant to finance and insure tower cranes any longer because of: The lack of knowledge of this product. The problem in identifying and tracking the assets. The difficulties in measuring the return of investments. In addition, according to recently adopted regulations applying to the banking sector (as per Basel III), banks are more reluctant than they were in the past to finance construction equipment in general. Finally, due to the recent general decrease of renting rates, investing in tower cranes became less interesting from an economical perspective than it was before the financial crisis. The purpose of this document is to provide banks and insurance companies with an accurate idea of what is a tower crane; why this equipment should be financed; what is the value of such an asset; how to track a tower crane and how to ensure a return of investment.
3 1. What is a TOWER CRANE? A Tower Crane is a type of construction machinery used to lift, lower and move materials around a jobsite. Its work is based on a balance: the counter jib carries a counterweight which allows the jib to lift a load. THE TYPICAL APPLICATIONS OF A TOWER CRANES ARE THE FOLLOWING: Residential and commercial buildings: housing projects Power plants: cooling tower construction, nuclear reactors building etc High-rise building construction Infrastructure projects (e.g dams, bridges, harbor docks, viaducts ) Wind turbines Shipyards and industrial yards (moving loads) Quarries & mines: maintenance use/ service cranes Plant projects (steel plants, refineries, petrochemical plants )
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7 TYPES OF TOWER CRANES: Luffing jib cranes Saddle jib cranes Self erecting cranes
9 STRUCTURE OF TOWER CRANES: Structurally, tower cranes are composed of different parts: - The crane base (anchors, cross frames, stationary or travelling undercarriages, portals, crawlers, self-propelled chassis) - The Mast, composed of mast sections - The Slewing part: Counterjib Cat-head Jib Cabin & control systems Drive mechanisms (hoists, slewing and trolleying or luffing gears) - Options: climbing equipment (allowing cranes to achieve the required heights)
11 The modular nature of cranes should be seen as an advantage, since tower cranes are ones of the very few products which can be sold/shipped/used globally. In addition, all tower cranes that are compliant with European directives (CE marked) are equipped with appropriate safety devices, which are integrated to prevent accidents at the construction sites, e.g load limiters, limit switches, auditory warnings, emergency stops. Tower cranes also have different sizes, depending on their load capacity (from 1 to 100 t) and jib length (from 20 to 90 m). Height can also vary from 20 to 60m (free-standing). Such a height can be increased up to 300m or more (e.g fixed to the structure).
13 2. INVESTING in a tower crane: what does it mean? HOW LONG IS THE LIFE OF A TOWER CRANE? The life duration of a tower crane depends on its design, use and maintenance. A correct design and an appropriate choice of materials might ensure a very long life to tower cranes. In case the crane is used as intended, correctly stored, regularly inspected and properly maintained (in accordance with the manufacturers manuals) its average life can easily exceed 20 years. A TOWER CRANE IS A LONG TERM INVESTMENT The long lifetime of tower cranes enables the investor to create cash flows for a long period. Therefore, the investment in a tower crane can also be economically interesting even if the payback period takes more than 5-7 years. The rental business model earns its money in the long term and has proven to provide very stable returns with a small manageable overhead structure and adjustable fix costs. In addition, the value of the asset remains high at the moment of reselling the tower crane. In order to ensure the success of this business for the lender and the borrower it is obvious that long-term investments require long-term financing. The high quality of this product and its long life makes it also interesting for the second hand market. Normally tower cranes change their owners several times in their life. Investing in a used tower crane can also generate profit, provided it is fully functional. Since most crane manufacturers are able to guarantee services and spare parts for their products for more than 15 years, the investment in used equipment is highly attractive.
15 HOW TO KEEP TRACK OF YOUR INVESTMENT? Identifying and tracking the tower cranes and their parts is nowadays 100% possible. Most of European manufacturers, including the drafters of this document, feature a tracking process deriving from being ISO 9001 certified. This does not only allow the financing institutes to identify their assets but also to avoid having assets counterfeited. For banks and insurance companies it is therefore very important to ensure that the cranes are equipped with tracking tools. There are different types of tracking systems added to each section and parts of the crane. These include: Serial Numbers Barcodes RFID (radio frequency identification data) WHICH PARAMETERS INFLUENCE THE RETURN ON INVESTMENT? Although depending very much on the market conditions, a tower crane has a return on investment time which is much shorter than its life. As a consequence, a tower crane can be easily repaid several times in its whole life. The residual value of a crane relies on various factors: - Brand reputation - Model size (mt) - Model type (e.g luffing, horizontal jib, self erecting) - Year of manufacturing - Level of technology (kind of drives, control system, safety features, other options) - General conditions of intended use The chart below illustrates a business case based on reasonable assumptions. The case shows the residual values of tower cranes in comparison with their costs amortization. Crane deprecia+on/ Costs amor+za+on in percentage 100% 100% 80% 70% 80% 70% 72% The tracking of a tower crane may include all types of maintenance activities such as repairs, maintenance checks, inspections, equipment modifications (approved by the manufacturers). 100% These information are recorded in: Maintenance books, 80% Inspection books, 70% Machine data recorders, 60% Moreover there is the possibility to identify the location 50% of the machine all over the 50% world and at any time (e.g. by means of GPS). 40% 30% 50% Crane deprecia+on/ Costs amor+za+on in percentage 40% 100% 30% 20% 80% 10% 70% 72% 0% 60% 54% 45% 40% 36% 35% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 60% 60% 54% 50% 45% 40% 36% 35% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 18% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Cranes deprecia7on value in % Costs amoritza7on % Crane Costs 20% 18%
17 > CONCLUSION: The information outlined in this document provides a clear picture of the type of investment Tower Cranes may represent. Such equipment represents a very reliable and safe investment, due to its characteristics, the technology behind it and its life duration. The CECE tower cranes manufacturers who have drafted this document have also put in place all necessary instruments to fight against the presence of noncompliance and/or counterfeited tower cranes and their parts. Those measures should guarantee to credit institutes and insurance companies they will always be able to keep track of their investment.