Posted by: Danielle Moore at November 26, 2021
News about the world’s shipping and logistics problems is everywhere. Do an online search, and you’ll find plenty of photos of container ships anchored out at sea, sometimes waiting weeks before they can get into port to offload their goods and pick up new freight for other destinations.
Production from overseas factories has also slowed down due to employee lockdowns and a shortage of raw materials for manufacturing. Add to this a big surge in post-lockdown activity, a push for smart machinery to replace human labour, and a bumper agriculture season in Australia, and we’re now facing the often-quoted ‘perfect storm’ with equipment supply.
These factors have all combined to create a significant shortage of new machinery and business equipment available in this country, which in turn is driving up prices rapidly.
If we look just at the agricultural sector, for example, Farm Online reports new tractors sales for July showed a 19% increase over last year’s figures. While favourable farming conditions are one reason for the increased demand in this sector, it has also been boosted by the federal government’s instant asset write-off scheme and high commodity prices.
Securing your equipment in the future may take longer and cost more
While you may be in the market for new machinery and are baulking because of stock delays and eye-watering prices, the bad news is things aren’t going to be getting better anytime soon.
One of the main reasons for this is that interest rates are starting to move upward, as threatened for some time now. You may have experienced this first-hand if you’ve applied for a vehicle or equipment loan in the past month or two.
This is not because banks or finance companies are getting greedy – it’s simply that the cost of funding is on the rise. This is particularly true for vehicles or plant, which pose a higher risk to lenders than, say, a mortgage on a house.
That’s why we recommend getting your Capex plans together now. The cost of machinery and the interest you’ll be paying for financing will not be any better this time next year. If you’re not planning now, you might end up being caught out and have to pay more for the same item of machinery and at a higher interest rate.
Consider second-hand equipment
One good option for lowering the cost of equipment that you may not have considered is to buy used. It is also more likely that you’ll be able to source it quicker and more easily than new machinery. There’s also the environmental benefit of using assets and materials already available; extending the useful life of assets helps conserve our planet’s valuable and limited resources.
But, like new equipment, second-hand machinery is also going through its own mini-boom, compounded by high commodity prices and long wait times. That’s why, if you’re opting for used equipment, it’s essential to conduct thorough due diligence before committing to the purchase.
Steps we recommend:
Once you’ve made your decision, whether it’s for new or used equipment, it’s also critical to arrange finance in advance and get it locked in before interest rates rise even further. A reputable capital partner can advise you on the best debt structure, loan terms, and interest rates, so you get the best capital solution available.
Get in touch with us to find out more about what’s happening in the equipment financing market.
The Trustee for the Rebus Capital Partners Unit Trust ABN 88 452 904 420. Authorised Credit Representative 523233 under Australian Credit Licence 536100.