FASB and IRS Considerations for an Equipment Sale Leaseback

  

What is an Equipment Sale Leaseback?

An equipment sale leaseback is a financial arrangement where a company sells its equipment to a leasing company or financial institution and then immediately leases it back for continued use. Essentially, it’s a way for a business to free up cash tied to equipment it owns while still retaining access to that equipment for its operations.

Here’s how it typically works: the company sells the equipment at its current market value, receiving a lump sum payment. Then, it enters into a lease agreement with the buyer to rent the equipment back, usually paying lease payments over a set term. At the end of the lease, depending on the terms, the company might have the option to repurchase the equipment, renew the lease, or return it.

This setup can be useful for businesses needing liquidity—say, to pay off debt, fund expansion, or manage cash flow—without losing the ability to use critical assets like machinery, vehicles, or tech hardware. It’s kind of like turning a fixed asset into working capital while keeping operations running smoothly. The downside? You’re committing to lease payments, and over time, that might cost more than the original sale proceeds, depending on the terms and interest rates baked into the deal.

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IRS Considerations

When it comes to IRS tax considerations for an equipment sale-leaseback, there are several key points to keep in mind. The tax implications depend on how the transaction is structured and how the IRS views it—whether as a true sale and leaseback or as something else, like a disguised loan. Here’s a breakdown:

1. Sale of the Equipment

• Capital Gains Tax: When you sell the equipment to the leasing company, the IRS treats it as a sale of a business asset. If the sale price exceeds your adjusted basis (original cost minus depreciation), you’ll likely owe capital gains tax on the difference. For example, if you bought a machine for $100,000, depreciated it down to $40,000, and sold it for $80,000, you’d have a $40,000 taxable gain.
• Recapture of Depreciation: If you’ve taken depreciation deductions on the equipment, part of the gain might be taxed as ordinary income rather than capital gains under Section 1245 rules. This “depreciation recapture” applies to the extent you’ve previously deducted depreciation, and it’s taxed at your ordinary income tax rate, which could be higher than the capital gains rate.

2. Lease Payments

• Deductibility: The lease payments you make to rent the equipment back are generally tax-deductible as a business expense under Section 162, assuming the lease is a true operating lease. This can offset your taxable income, which is a big perk—especially if the equipment is still essential to your operations.
• Operating vs. Capital Lease: The IRS distinguishes between an operating lease (treated as a rental) and a capital lease (treated more like a purchase). If the lease term is too close to the equipment’s useful life, or if you have an option to buy it back at a bargain price, the IRS might reclassify it as a capital lease. In that case, you’d lose the ability to deduct lease payments outright and instead have to depreciate the equipment again, which could complicate things.

3. Ownership and Substance Over Form

• The IRS looks at the “substance” of the transaction, not just its label. If they determine the sale-leaseback is really a financing arrangement (e.g., you retain too much control or the terms suggest you never truly gave up ownership), they might disallow the sale treatment. You’d keep depreciating the equipment and treat the cash received as a loan, with lease payments split between deductible interest and non-deductible principal repayment.
• Factors they consider include: who bears the risk of loss, who pays for maintenance, and whether the lease terms effectively guarantee you’ll reacquire the equipment.

4. Potential Benefits

• Cash Flow Without Losing Deductions: By selling the equipment, you get immediate cash, and if structured right, the lease payments keep flowing as deductible expenses. This can be a tax-efficient way to manage liquidity.
• Avoiding Double Taxation: If done properly, you avoid owning the asset while still using it, sidestepping property taxes or other ownership-related costs that might apply in some states (though this varies).

5. Risks and Pitfalls

• Audit Scrutiny: The IRS sometimes flags sale-leasebacks for review, especially if the sale price seems inflated or the lease terms look suspicious. Documentation matters—keep appraisals, lease agreements, and business purpose justifications airtight.
• Loss of Depreciation: Once you sell, you can’t claim further depreciation on the equipment unless the lease gets reclassified as a capital lease, which might not be what you want.

Practical Example: Say your company sells a $200,000 piece of equipment (fully depreciated, so basis is $0) for $150,000 and leases it back for $3,000/month over 5 years. You’d report a $150,000 gain, likely as ordinary income due to depreciation recapture, taxed at your business rate (e.g., 21% for a C-Corp, so $31,500 in tax). Then, you deduct $36,000/year in lease payments, saving you taxes on that amount annually (e.g., $7,560/year at 21%). Over time, the deductions could offset the initial tax hit, but you’d need to crunch the numbers based on your rate and timeline.

Conclusion: The IRS is fine with sale-leasebacks as long as they’re legit—real ownership transfer, fair market value, and a genuine lease. Consult a tax pro to structure it right, especially for big-ticket items, because missteps can trigger reclassification or penalties.

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FASB Considerations

When addressing Financial Accounting Standards Board (FASB) considerations for an equipment sale-leaseback, the focus is on how the transaction is accounted for under U.S. Generally Accepted Accounting Principles (GAAP), specifically ASC 842, the current standard for leases. A sale-leaseback occurs when a company sells an asset, like equipment, and then leases it back from the buyer, allowing it to free up capital while retaining use of the asset. Here’s a comprehensive look at the key FASB considerations:

1. Determining if the Transaction Qualifies as a Sale

To account for the transaction as a sale, FASB requires that control of the equipment transfers to the buyer-lessor. This aligns with the revenue recognition principles in ASC 606 and includes criteria such as:

• The buyer-lessor must have the ability to direct the use of the equipment.
• The buyer-lessor must obtain substantially all the remaining economic benefits from the equipment.

If these conditions are not met, the transaction does not qualify as a sale and is instead treated as a financing arrangement.

2. Classification of the Leaseback

The leaseback’s classification—either as an operating lease or a finance lease—is critical under ASC 842:

• Operating Lease: Indicates the seller-lessee has relinquished control, allowing the transaction to be treated as a sale.
• Finance Lease: Suggests the seller-lessee retains significant control, resulting in a “failed sale” where the transaction is accounted for as financing.

The classification depends on factors like the lease term, present value of lease payments, and whether the lease includes options that mimic ownership (e.g., a purchase option at a bargain price).

3. Accounting Treatment Based on Classification

The accounting treatment hinges on whether the transaction is a sale and the leaseback type:

If the Leaseback is an Operating Lease (True Sale):

• Derecognize the Equipment: Remove the equipment from the seller-lessee’s balance sheet.
• Recognize Gain or Loss: Record any difference between the sale price and the equipment’s carrying value immediately.
• Lease Accounting: Recognize a right-of-use (ROU) asset and lease liability based on the present value of lease payments, with payments expensed over the lease term.

If the Leaseback is a Finance Lease (Failed Sale):

• Retain the Equipment: Keep the equipment on the balance sheet, continuing to depreciate it.
• Financial Liability: Record the sale proceeds as a liability (akin to a loan), not revenue.
• Payments: Allocate lease payments between interest expense and liability reduction over time.

4. Additional Considerations

• Repurchase Options: If the seller-lessee has an option to repurchase the equipment (e.g., at a price below fair value), it may prevent the transaction from qualifying as a sale, leading to financing treatment.
• Disclosure Requirements: ASC 842 mandates disclosures about sale-leaseback transactions, including terms, financial statement impacts, and recognized gains or losses.

Practical Example: Imagine your company sells equipment with a carrying value of $100,000 for $120,000 and leases it back:

• Operating Lease: You’d recognize a $20,000 gain, remove the equipment from your balance sheet, and record an ROU asset and lease liability for the leaseback.
• Finance Lease: You’d keep the equipment on your books, record the $120,000 as a liability, and account for payments as financing costs, not a sale.

Conclusion: FASB considerations for an equipment sale-leaseback center on verifying the transfer of control and correctly classifying the leaseback. Proper application of ASC 842 ensures the transaction reflects its economic substance—either as a sale with an operating lease or a financing arrangement with a finance lease. Given the complexity, consulting an accounting professional is advisable to ensure compliance.

This article was originally posted on our main blog on March 2, 2025

Your Guide to Purchasing and Financing an Excavator

Purchasing an excavator is a major financial commitment, so it’s essential to familiarize yourself with the buying process and make a well-informed choice.  Below is a general guide to help you navigate buying and financing an excavator:

• Determine Your Needs: Before buying a excavator, you need to determine the type of excavator you need for your current and future projects. There are several types of excavators available, including crawler excavators, wheel excavators, dragline excavators, mini excavators and skid steer excavators. Each type of excavator has its own advantages and disadvantages, so it’s important to choose the one that is best suited for your short and long term needs.
  
  
• Choose an Excavator Dealer: Once you have determined the type of excavator you need, you should choose a reputable dealer. Look for a supplier that has experience in the industry and offers quality excavators. You can ask for referrals from other contractors or search online for reviews and ratings.
  
  
• Shop the Auctions: Purchasing a used excavator at an auction can be a more affordable option for those on a tight budget. However, it is important to thoroughly inspect the excavator before making a purchase to ensure it is in good working condition.  Depending on the age of the excavator, most lenders will finance excavators purchased at an auction house.

• Check the Excavator’s Condition: Before finalizing the purchase, it’s important to check the excavator’s condition thoroughly. You should inspect the excavator’s structural integrity, mechanical components, electrical system, and safety features. If possible, you should also test the excavator’s performance to ensure it’s in good working condition.
  
  
• Determine the Total Cost: In addition to the purchase price of the excavator, you should also consider the cost of transportation, installation, maintenance, and insurance. These costs can add up quickly, so it’s important to factor them into your budget.
  
  
• Choose a Financing Option: Once you have determined the total cost of the excavator, you should consider your excavator financing options. You can choose to pay for the excavator in cash, obtain a loan from a bank or financial institution, lease or rent the excavator.
  
  
• Cash Payment: If you have sufficient cash reserves, you may choose to pay for the excavator upfront. This option provides the advantage of avoiding interest payments and owning the excavator outright.
  
  
• Bank Loan: If you don’t have enough cash reserves, you may obtain a loan from a bank or financial institution. The loan amount and interest rate will depend on your credit score, business history, and collateral. You should compare the interest rates and terms of different lenders to choose the one that suits your needs.
  
  
• Lease: If you don’t want to commit to a long-term investment, you can choose to lease the excavator. Leasing provides the advantage of lower monthly payments and flexibility to upgrade or return the excavator at the end of the lease term. However, you won’t own the excavator at the end of the lease, unless the lease has end of term purchase options.
  
  
• Finalize the Purchase: Once you have chosen the financing option, you should finalize the purchase. You should review and sign the purchase agreement, financing agreement, and any other legal documents. You should also make the necessary payments and obtain the necessary permits and insurance.
  
  
• Maintenance and Operation: After buying your excavator, it’s important to maintain and operate it properly. You should follow the manufacturer’s recommendations for maintenance, hire qualified operators, and ensure the excavator is operated safely and efficiently. This will help prolong the lifespan of the excavator and minimize downtime and repair costs.

Should I Buy a New or Used Excavator?

The decision to buy a new or used excavator depends on a variety of factors, including your budget, the purpose of the excavator, the expected usage, and the availability of financing.

If you have a higher budget and require a excavator with the latest technology, a new excavator may be the better option. New excavators often come with warranties and maintenance packages, which can give you peace of mind and ensure that the excavator operates reliably. Additionally, a new excavator can offer the latest safety features and meet the most current industry standards.

However, if your budget is more limited or you don’t need the latest technology, a used excavator could be a more cost-effective option. Used excavators are often significantly cheaper than new excavators, which can save you a lot of money upfront. Additionally, used excavators that have been well-maintained and inspected can still provide reliable and safe operation.

Ultimately, the decision to buy a new or used excavator will depend on your specific needs and circumstances. Before making a decision, you should thoroughly research the options available to you, consult with experts in the field, and weigh the pros and cons of each choice.

Popular Websites to Buy Excavators:

When purchasing an excavator, several websites offer a wide selection of new and used machinery. Here’s a list of some of the most popular websites to buy excavators:

•  MachineryTrader.com – One of the most comprehensive platforms for buying and selling construction equipment, including new and used excavators from various manufacturers.

•  RBAuction.com – Ritchie Bros is a global marketplace for heavy equipment, including excavators. Ritchie Bros. holds online and live auctions and has a massive inventory from top brands.

•  IronPlanet.com – IronPlanet specializes in used heavy equipment, offering detailed inspection reports, bidding options, and buy-it-now features for a wide range of excavators.

•  EquipmentTrader.com – Offers a marketplace for new and used heavy equipment, including excavators, with a focus on local listings.

•  CatUsed.cat.com – Caterpillar’s official used equipment website, featuring high-quality used excavators, often with warranty options.

•  MyLittleSalesman.com – A well-established marketplace for construction equipment with listings for new and used excavators from various dealers and private sellers.

•  Facebook.com/Marketplace – A leading marketplace for private party equipment sales.

Each of these websites offers different buying options, from direct purchases to auctions, providing flexibility for different needs and budgets.  It’s always a good idea to do your research and compare prices and features before making a purchase. Additionally, be sure to check the seller’s reputation and read customer reviews before making a purchase to ensure that you are getting a quality excavator.

Excavator Financing Options:

There are several financing options available for companies looking to purchase an excavator:

• Bank Loans: Traditional bank loans are a common financing option for purchasing an excavator. Banks typically offer competitive interest rates and repayment terms that can range from several months to several years.

• Equipment Financing: Some lenders specialize in providing financing for equipment purchases, including excavators. These lenders may offer more flexible repayment terms or better rates and terms compared to other financing options.

• Equipment Leasing: Leasing an excavator can be a cost-effective way to access the equipment without a large upfront investment. Leasing terms can range from short-term rentals to long-term leases, and some may include maintenance and repair services.

When considering financing options for an excavator purchase, it is important to carefully evaluate each option and compare interest rates, repayment terms, and any additional fees or charges. It may also be helpful to consult with a financial advisor or accountant to determine the best financing option for your specific situation.

This article was originally posted on our main blog on September 29, 2024.

Your Guide to Purchasing and Financing a Crane

Buying a crane can be a significant investment, so it’s important to understand the process and make an informed decision. Here is a complete guide to buying and financing a crane:

1. Determine Your Needs: Before buying a crane, you need to determine the type of crane you need for your current and future projects. There are many types of cranes available, including tower cranes, mobile cranes, crawler cranes, and overhead cranes. Each type of crane has its own advantages and disadvantages, so it’s important to choose the one that is best suited for your short and long term needs.
   
   
2. Choose a Crane Supplier: Once you have determined the type of crane you need, you should choose a reputable supplier. Look for a supplier that has experience in the industry and offers quality cranes. You can ask for referrals from other contractors or search online for reviews and ratings.
   
   
3. Check the Crane’s Condition: Before finalizing the purchase, it’s important to check the crane’s condition thoroughly. You should inspect the crane’s structural integrity, mechanical components, electrical system, and safety features. If possible, you should also test the crane’s performance to ensure it’s in good working condition.
   
   
4. Determine the Total Cost: In addition to the purchase price of the crane, you should also consider the cost of transportation, installation, maintenance, and insurance. These costs can add up quickly, so it’s important to factor them into your budget.
   
   
5. Choose a Financing Option: Once you have determined the total cost of the crane, you should consider your crane financing options. You can choose to pay for the crane in cash, obtain a loan from a bank or financial institution, or lease the crane.
   
   
6. Cash Payment: If you have sufficient cash reserves, you may choose to pay for the crane upfront. This option provides the advantage of avoiding interest payments and owning the crane outright.
   
   
7. Bank Loan: If you don’t have enough cash reserves, you may obtain a loan from a bank or financial institution. The loan amount and interest rate will depend on your credit score, business history, and collateral. You should compare the interest rates and terms of different lenders to choose the one that suits your needs.
   
   
8. Lease: If you don’t want to commit to a long-term investment, you can choose to lease the crane. Leasing provides the advantage of lower monthly payments and flexibility to upgrade or return the crane at the end of the lease term. However, you won’t own the crane at the end of the lease, unless the lease has end of term purchase options.
   
   
9. Finalize the Purchase: Once you have chosen the financing option, you should finalize the purchase. You should review and sign the purchase agreement, financing agreement, and any other legal documents. You should also make the necessary payments and obtain the necessary permits and insurance.
   
   
10. Maintenance and Operation: After buying your crane, it’s important to maintain and operate it properly. You should follow the manufacturer’s recommendations for maintenance, hire qualified operators, and ensure the crane is operated safely and efficiently. This will help prolong the lifespan of the crane and minimize downtime and repair costs.

Should I Buy a New or Used Crane?

The decision to buy a new or used crane depends on a variety of factors, including your budget, the purpose of the crane, the expected usage, and the availability of financing.

If you have a higher budget and require a crane with the latest technology, a new crane may be the better option. New cranes often come with warranties and maintenance packages, which can give you peace of mind and ensure that the crane operates reliably. Additionally, a new crane can offer the latest safety features and meet the most current industry standards.

However, if your budget is more limited or you don’t need the latest technology, a used crane could be a more cost-effective option. Used cranes are often significantly cheaper than new cranes, which can save you a lot of money upfront. Additionally, used cranes that have been well-maintained and inspected can still provide reliable and safe operation.

Ultimately, the decision to buy a new or used crane will depend on your specific needs and circumstances. Before making a decision, you should thoroughly research the options available to you, consult with experts in the field, and weigh the pros and cons of each choice.

Popular Websites to Purchase a Crane:

There are several websites where you can purchase a crane. Here are some of the most popular:

1. CraneNetwork.com – This is a great website for buying and selling new and used cranes of all types. It has a vast inventory of cranes from trusted brands and sellers.
   
   
2. Bigge.com – Bigge Crane and Rigging Co. is one of the largest crane companies in the world, and their website is a great place to buy or rent a crane. They have an extensive inventory of cranes of all sizes and types.
   
   
3. Mascus.com – This is a global marketplace for heavy machinery, including cranes. You can find both new and used cranes from sellers all over the world.
   
   
4. IronPlanet.com – This is another website that sells both new and used cranes, as well as other heavy equipment. They offer auctions and fixed-price listings, so you can find the right crane at the right price.
   
   
5. EquipmentTrader.com – This website has a large inventory of cranes for sale from dealers and private sellers. You can search by type, brand, location, and other criteria to find the perfect crane for your needs.

It’s always a good idea to do your research and compare prices and features before making a purchase. Additionally, be sure to check the seller’s reputation and read customer reviews before making a purchase to ensure that you are getting a quality crane.

Crane Financing Options:

There are several financing options available for businesses looking to purchase a crane:

1. Bank loans: Traditional bank loans are a common financing option for purchasing a crane. Banks typically offer competitive interest rates and repayment terms that can range from several months to several years.
   
   
2. Equipment financing: Some lenders specialize in providing financing for equipment purchases, including cranes. These lenders may offer more flexible repayment terms or better rates and terms compared to other financing options.
   
   
3. Leasing: Leasing a crane can be a cost-effective way to access the equipment without a large upfront investment. Leasing terms can range from short-term rentals to long-term leases, and some may include maintenance and repair services.
   
   
4. Equipment auctions: Not really a financing option, but purchasing a used crane at an auction can be a more affordable option for those on a tight budget. However, it is important to thoroughly inspect the crane before making a purchase to ensure it is in good working condition.  Depending on the age of the crane, most lenders will finance cranes purchased at an auction house.

When considering financing options for a crane purchase, it is important to carefully evaluate each option and compare interest rates, repayment terms, and any additional fees or charges. It may also be helpful to consult with a financial advisor or accountant to determine the best financing option for your specific situation.

This article originally posted on our main blog on April 20, 2023.

Optimistic Future for Mining Industry

As analysts forecast the future for the mining industry, most are in agreement that the outlook is positive and the upward trends from the last two years will continue.

Both small mining companies and large corporate giants such as Rio Tinto, Freeport-McMoRan and Anglo-American reported solid earnings, increasing positive profit margins and improved cash flow for FY2018. This is a continuation of the trend we’ve seen over the last couple years where robust macroeconomic fundamentals, large reserves and deregulation under President Trump jump started the mining industry from its previous slump.

Although mining appears to be back, and healthy, the landscape is different than it was just a few decades ago. Now, mining companies are focused on copper, nickel, lead, tin and gold as opposed to traditional materials such as iron and coal; resources that have dipped due to political pressure to move to alternative sources of energy.

President Trump campaigned on the promise to save coal, and his administration has taken action over the past couple years to bring coal back from the dead, and his attempts have helped stabilize the demand for coal. Natural gas continues to increase in demand and be considered the bridge fuel as North America transitions to alternative energy sources. What that means for the coal market remains to be seen.

Mining equipment market experiences simultaneous growth.

The expected growing in the mining industry is also having an effect on the Mining Equipment Market. It wasn’t too long ago that the global mining equipment market size was valued at USD 120.82 billion; however, with analysts anticipating CAGR of 11.7%, the global mining equipment market is expected to jump to USD 284.93 billion by 2025 per Grand View Research.

As the mining industry forges ahead with its recovery, we are seeing companies both large and small position themselves to take advantage of future profits coming their way. Mining companies are purchasing new and used mining equipment and retrofitting their current fleets while they have the cash flow to do so. The recent improvements in the mining space is now attracting more capital and mining equipment finance companies are looking to deploy capital to help facilitate the continued mining industry recovery.

Positive yet cautious.

Although the mining industry in Canada and The United states appears to be trending up, mining companies are still cautious about the potential risks that always threaten their operations. Issues such as tension over water usage from local communities, political unrest that impacts their operations across the globe and the general public’s preference to move toward clean and renewable energy and sustainable business practices. These threats are always present, but if managed, we don’t anticipate they will negatively impact the projected recovery.

Mining in The United States and Canada is back for now.

Even though there are risks the mining industry will need to overcome over the next few years, the overall forecast for the industry looks positive. Improving on a recovery that started a few years ago, the mining industry and the mining equipment market will continue to see significant growth for at least the next year, and most likely experience multiple years of continued success.

*This article was originally posted on our Medium Blog on June 1, 2019

The Machine Tool Industry 2018

The machine tool industry received some positive news in 2017 as it was the first year to see positive gains in consumption. Reporting firm Statista found that consumption in 2017 was 1.6% more over the previous year. Although this seems like a small blip on the radar, with the constant ups and downs of the machine tools industry, any shift in the right direction is always celebrated.

This is just the beginning, in fact, according to that same report, experts are predicting positive gains in consumption over the next few years which is great news for machine tool lenders and buyers in the U.S. and across the world.

The Top Five Machine Tools Lenders

EDA recently published its annual report on the machine tool industry analyzing the most successful lenders and buyers alike. According to their research, the top five machine tool lenders are the following:

1.     CNC Associates Inc.
2.     Banterra Bank
3.     DMG Mori Seiki USA
4.     Ellison Tech
5.     Hartwig Inc.

All five of these lenders accounted for 42.6% of the total units sold. Of all of the top 20 lenders that EDA followed, they filed a combined 481 new machine tool related financial statements in November 2017.

Number one on this list, CNC Associates, had a great year as they accounted for 15% of the total share with 72 units sold in EDA’s report.  Additionally, industry research firm AMT reported that October 2017 machine tool orders were up 7.6% over October 2016’s numbers.

Who’s Buying?

EDA also compiled a list of the top five buyers in the U.S. as follows:

1.     Kennametal                 Pennsylvania, USA                  16
2.     TE Connectivity           Pennsylvania, USA                   9
3.     Aerofit                          California, USA                         8
4.     C&C Machine Tool       Minnesota, USA                       8
5.     FMI Holdings               Texas, USA                               8

Buyers come from a variety of different industries, and as we mentioned, the success of various manufacturing sectors ultimately drives the success of the machine tools financing market as well.

Explaining the Ups and Downs

Over the last few decades, the machine tools market has seen many changes that seem to happen for no apparent reason. Most recently, IndexBox reported that the value of the entire industry in the U.S. decreased by 4.5% from 2014 to 2015. It can seem hard to determine exactly what is hurting the machine tools industry but many have pointed to a few different ideas.

China’s Expanding Manufacturing Sector

Many analysts believe that China’s increasing hunger for more machine tools largely drives the market and keeps the highs higher than expected and the down periods less devastating than in decades past.

Additionally, more manufacturing overseas, in general, has given the world manufacturing industry a boost. The primary reason that more companies are investing in production abroad can largely be contributed to the near-zero interest rates over the last decade.

Low Interest Rates 

Low interest rates caused many U.S.-based companies to invest in production overseas where the labor is cheaper. This is detrimental to the U.S. market but provides these overseas businesses a boost in their manufacturing and in turn, their machine tools purchases.

We can’t look into a crystal ball to predict exactly what the market will do in 2018, however with industry analysts all predicting an increase in the machine tool consumption and recent shifts in economic policy, expect 2018 to be a good year for the industry.

*The original article The Machine Tools Industry 2018 posted first on Viking Equipment Finance Voog Blog page.

The Logging Industry 2018: Boom or Bust?

Logging equipment purchases are off to a strong start, but many experts fear that the U.S. import duties will hurt the industry.  Late last year, the U.S. Department of Commerce ruled that it would levy total countervailing duties (CVD) and anti-dumping duties (ADD) at 20.83% on lumber imports from Canada. Canadian lumber exporters were quick to get a jump on their prices before the duties took effect, and lumber prices have remained at record-highs ever since.

Now that four months have passed, what effects has the industry experienced? Experts are concerned for the future and warn of a supply gap if importers and exporters aren’t careful, although equipment purchases still remain strong.

More Money for Less Lumber

Increased prices on lumber have taken a toll on the entire supply chain. From exporters to importers and the final consumer, everyone is paying more for lumber. Many experts are signaling that these prices won’t ease anytime soon, so U.S. companies are actively finding ways to help mitigate any financial risks. Luckily for United States companies, the U.S. housing market is entering a slow period, meaning lumber won't be in as much of a demand. This could change in the coming years, however, so industry leaders must stay ready.

To help put off a potential supply gap in softwood, many importers are relying on European lumber exporters to fill the gap that higher-priced Canadian lumber once held. 

Even with these high lumber prices in mind, logging equipment is off to a strong start this year, with recent data showing strong sales numbers from logging equipment finance companies and buyers alike.

A Look at the Data

Industry research firm EDA recently posted financial data for the most popular equipment types sold in the U.S. Felling equipment is highly ranked in many lists, closely followed by building equipment. These are the ten most popular equipment types from EDA’s database:

EQUIPMENT TYPE                           BUYERS          UNITS

LOG LOADER                                    41,547              89,621
SKIDDER                                           46,872              89,598
GRAPPLE SKIDDER                         24,636              60,225
CHIPPER                                           36,962              58,767
FELLER BUNCHER                          18,252               43,563
CRAWLR DOZER (LOG)                  20,806               38,263
STUMP CUTTER                              23,829               33,041
SAWMILL                                          19,883               25,644
WHEEL LDR (LOG)                          11,647                23,443
EXCAVATOR (LOG)                         10,087                23,435

EDA also has data on the top logging equipment lenders and buyers for the month of February 2018:

Top Lending Companies

JOHN DEERE INDL CREDIT                       78
CATERPILLAR FIN SVC CORP                   46
DE LAGE LANDEN FIN SVC                       25
WELLS FARGO VENDOR FIN SVC LLC    18
STEARNS BANK                                         15

Top Equipment Buyers

BLUE STAR EQT LLC               DETROIT, MI                           10
LOGGING EQUIPMENT           BANDIT                                      5
LOGGING EQUIPMENT           MORBARK                                 5
TREESMITHS INC                    SPRING BROOK TWP, PA        5
LOGGING EQUIPMENT           ALTEC                                        5

Predictions for the Rest of the Year and Beyond

Although the lumber prices continue to remain at record highs, many industry experts predict that demand for forestry equipment will continue to rise into the next year. The U.S. will lead the pack in the demand for newer logging equipment, although nations in the Asia/Pacific region follow closely behind.