I have written extensively about bottlenecks in washout cycles. I have talked about what the customer will look like in the future. Data points to large farms getting bigger and the number of "hobby farms" or rural lifestyle property owners growing in number, not size. So this leaves the producer in the middle. Year-after-year, this group shrinks in quantity, and current conditions are not favorable to small start-ups. So where is the next frontier for used equipment? In my opinion, it’s Eastern Europe, Africa and Asia.
I recently traveled to Ukraine looking for new markets to sell used equipment. Countries like Ukraine, Hungary, Romania, Moldova as well as the continent of Africa, Central and Southeast Asia, to name a few are great places to look. These countries are thirsty for equipment and have amazing soil to grow crops. My attraction to this market is the equipment they want. The ag equipment I have talked about in past articles are a perfect match. For these countries, 2014 and older model machines are the right price point and hour range. 2,000+ separator hour combines, 6,000+ hour tractors, 3,000+ hour sprayers, older planters and cheap tillage pieces are in high demand. The biggest hurdle to overcome is payment and the extension of credit.
It shouldn’t be a big surprise that credit is short in these countries. To say loans are not available is not valid, but if your customer does make it through the painstaking and incredibly long process, the interest rate will make the 1980s look like free money. Payment is and will continue to be the biggest hurdle to overcome in these markets.
One positive is, there are several programs available to help with payment, such as the EXIM Bank (Export-Import Bank of the United States). Recently the EXIM Bank was reinstated. Its programs are very important to financing customers overseas. It will lend money on bank guarantees from your customer's bank or other in-country lending institution. Doing this, the customer will have credit to pay you and get their equipment to the port. So if you have a shipment in transit for 90 days, EXIM can provide funding to your customer payable in 90 days, for example, or once the equipment has cleared customs at the port of destination. Doing this allows you to get paid, and the customer doesn't have to tie up their cash for 90 days. It's as close to a win-win as possible.
The other part of exporting equipment is finding the right freight forwarder. The freight forwarder will genuinely make or break the process. They will take care of booking all transportation from your location to the port of destination. The paperwork will be handled by them, and it will be done right the first time. You will have some basic information to complete, but the freight forwarder does the heavy lifting. Be very conscious of this. If the process doesn't seem easy, you’re working with wrong people. I have worked with several companies and some I should have just done it myself and others I forgot I was sending something halfway around the world.
Like I have talked about in past articles, machines older than 10 years old are getting harder and harder to sell. They are a commodity and will continue to be as long as the machine population stays high. The need to be creative with U.S. customers and think outside of the box in foreign markets has never been more critical. The need to find new markets for these machines will be the difference between your dealership's long term success and just being just another face in the crowd.
Customers will trade equipment this year, and a lot of it will be the same hours, years and condition. There will be excellent equipment and awful equipment. The key to success will be creating new end roads that stop the trade cycle and elevate pinch points in used inventory. Auctions have a place in the equipment business — and some of these machines are going to get sold at auction — but it is not the only option available. I would encourage you to reach out to your State and Federal Departments of Commerce and explore the opportunities and programs available. All it will cost you is your time!
Related Content:
The Washout Cycle — A Used Equipment Manager’s ‘Crystal Ball’
[Podcast] Anticipating the Changing Customer Base
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