Second-Hand News: As Supply Chain Backups Ease, Remarketing Space Continues to Evolve

One of the many business consequences of the pandemic was the impact on second-hand equipment—used, off-lease or repossessed units—for the dealer community. End-users held the line on new equipment acquisitions, choosing to extend current gear leases or opting for buyouts. Other clients sought to obtain new MFPs, but as manufacturer shipments were delayed, dealer/reseller vendors were forced to employ used models as placeholders.

The upshot is that the population of used/refurbished units significantly dwindled during the better part of a three-year stretch. It didn’t take long for the prices of used equipment to reach unprecedented heights as their availability became somewhat taxed. It created a whirlwind environment for the remarketing community in terms of both domestic and foreign markets. And with logistical headaches and soaring costs touching all means of transportation, it added another degree of difficulty throughout the reverse supply chain.

With supply chain backlogs reportedly showing signs of relenting, it will bolster returns for the remarketing sector, which relies on pre-owned equipment turn-ins to fortify its stock. We’ve culled a trio of the industry’s leading remarketers to learn more about the impacts this and other business factors will have on the second-hand market. Our panel consists of Raj Thadani, president of Ross International, Mars International and Marks Logistics; Brad Stammer, vice president of sales for All Leasing Services (ALS) Wholesale Copiers; and Ed Spriegel, president of ARCOA Group and Midwest Copier Exchange.

Supply chain issues significantly increased the demand for used/off-lease/repossessed equipment. How did that impact your ability to source?

Thadani: Our source of pre-owned equipment is limited to the extent that the dealers and lessees return them. During the peak of the supply chain issue, we saw a significant drop-off in return volume. At the same time, we saw an increase in domestic demand. But, our buyers became more flexible with configuration, model series and especially with meters. Dealers were more willing to accept higher usage levels than previously. As a result, we also saw an improvement in inventory turn time.

Stammer: The pandemic itself cut supplies way down. It was less supply and greater demand more than anything. We’ve made a recovery and we’re doing fine. We’ve made other adjustments, but we haven’t been able to find additional supply. The bottom line is, when fewer companies are working in their office, there are going to be fewer machines…that’s just the way it is. We weren’t able to go anywhere and source other machines. We’ve been approaching leasing companies, and we’ve gotten a few from them. But for the most part, their remarketers are in the same boat as we are. Everyone was getting top dollar for the units, so the remarketers weren’t underperforming. If they were underperforming, then they were doing a really bad job. But there were definitely fewer units out there to be had, so we had to up the ante a little bit to make sure we got what we needed.

We saw an increase in demand for our services, as dealers had right-sized their operations. Dealers looked to us for operational support, and our services were a good fit at this time of uncertainty.

– Raj Thadani, MARS International

Spriegel: At first when COVID started, we saw a drop in machines coming in. As time has passed and supply chain issues improved, we’ve seen a steady increase in returns. Also, having an ITAD division allowed us to source machines directly from businesses that were downsizing their office footprint.

What were some of the trends you noted in 2022 from a remarketer standpoint?

Stammer: It would definitely be the lack of machines. Based on what I’ve heard from other remarketers, leasing companies and manufacturers, we’re all in the same boat. Inventory levels are down about 30%. In 2022, it was more consistent across the board, while we saw a lot of uncertainty in 2020 and 2021. Pricing at the beginning of 2022 was really good, probably as good as I’ve ever seen it. But for the last three to four months of 2022, pricing has been trending downward as much or more than it was on the upward swing in 2021 and 2022.

I think the demand globally has gone down. The Chinese economy is bad and they were a big source of gobbling up machines, so that hurt pricing very much. I think it’s more a factor of that than the new machines becoming more readily available. Other than boots on the ground, I don’t have any other data that shows it. Dealer demand is definitely down because of the new machines becoming available. The manufacturers are definitely pushing their dealers to get those machines in place.

Spriegel: High demand and lower inventories moved prices up in 2022, both in the domestic and international marketplaces. There were significant cost increases in the first half of the year across the board for logistics from LTL shipments through ocean freight. Prices finally began correcting in Q3 and are likely to continue to drop as demand has leveled out. In Q4, we’ve seen a decrease in pricing in the export markets due to strengthening of the dollar and other geo-political issues. We’re also seeing demand softening domestically.

Thadani: We saw a drop in volumes until the third quarter, but we’re now seeing an increase in return volumes as more new equipment becomes available. That also means there’s less demand for used equipment; it’s not a huge drop, and it’s only domestically. The export markets are still strong. We also saw an increase in sale prices during most of 2022. However, this is changing as supply is increasing and demand is stabilizing. We saw an increase in demand for our services, as dealers had right-sized their operations. Dealers looked to us for operational support, and our services were a good fit at this time of uncertainty.

In terms of used equipment coming back that had been kept on longer due to lease extensions, I don’t believe it will impact their value as much as people think. Even if it added a year or two of life to machines in the field, their usage levels went down significantly during the pandemic. So while being an older model impacts value, the decline in print volume due to people not working in the office will not result in much of an impact. It remains to be seen. Much of it depends on the vertical market, such as a doctor’s office versus a law firm, which worked from home. I think we’ll see copiers with low usage coming back.

I think the demand globally has gone down. The Chinese economy is bad and they were a big source of gobbling up machines, so that hurt pricing very much. I think it’s more a factor of that than the new machines becoming more readily available.

– Brad Stammer, All Leasing Services

As the supply chain improves, there are no concerns about a glut of used copiers hitting the market in a short period. When the new equipment comes in, dealers will only have so much bandwidth to install them, so I think the installations and returns will happen over a longer period of time.

In such a highly competitive space, what were the points of differentiation that separated your company from the rest of the pack?

Spriegel: The number-one differentiator for us is our people. We have an amazing team that’s been here for a long time. They understand and care about our customers and adapt quickly to changes. From the top down, we value relationships over transactions. Also, being the only wholesaler that is ISO 9001 certified as well as having a separate division that is R2, ISO 14001 and RIOS certified, offering ITAD (IT asset disposition) and end-of-life recycling services, is a big selling point.

We also developed a program for the dealer channel that we call eRaaS (electronics recycling-as-a-service). This is a revenue-generating program dealers can offer to their larger customers such as schools, law firms, health organizations and any operations with head counts over 100 that are concerned with and value the importance of data security, not to mention the safe and secure disposal of IT assets and peripherals.

We have an amazing team that’s been here for a long time. They understand and care about our customers and adapt quickly to changes. From the top down, we value relationships over transactions.

– Ed Spriegel, Midwest Copiers

Thadani: We maintained our focus on meeting customer needs. We have long-term relationships, and we did all that we could to meet their needs. We had to be nimble in terms of our own operations. We witnessed large swings in activity, the need for warehouse space and manpower. Our own asset-based trucking operation helped us manage our export shipments as the trucking industry was constrained with chassis shortages and driver availability. Our trucks also played a critical role in delivering product to our domestic customers in a timely manner.

Stammer: Honesty and integrity have been the hallmarks for our company throughout its existence. When we sell a customer something, we mean exactly what we tell them and will follow through on our promises. If any problems crop up, we’ll do what’s necessary to make it right.

Did you encounter any issues from a logistics standpoint? If so, how did you handle them?

Thadani: Like everyone else, we’ve had to adapt to the many challenges within the logistics space. To begin with, we faced a sharp increase in fuel prices, manpower costs and warehouse space costs, which was exacerbated by a shortage in vehicle availability, container availability and driver availability. UPS, FedEx and all the big carriers were in the same position, and we all had to adjust our pricing. Costs went up across the board. Having our own asset-based trucking operation helped us during this time, as we could control trucking to the ports and back.

Stammer: Other than costs, logistics hasn’t really been much of an issue. All our transportation hasn’t really been affected; we’re able to get containers, and trucks are going in and out. The biggest thing is our transportation costs are so high, which is a little bit of an issue. We’re used to being able to get something across the country at a reasonable rate; now it’s not the case. It’s had an impact on some of our customers.

Spriegel: We’ve been fortunate for the most part due to having our own fleet of trucks on the road. Sure, we saw increases in operating costs. However, it’s not to the degree of others that rely on third-party logistics providers. The availability of shipping containers for export was a significant issue for us in 2021 and the first two quarters of 2022. The third quarter brought some relief as the availability of containers increased due to the drop in demand from overseas manufacturers.

What can we expect to see in 2023 from your segment? Do you foresee market growth? What factors could come into play?

Stammer: Unfortunately, no. With many people working at home, not being able to make copies, it forced them to make hard choices. Companies have learned to live with fewer machines than they had in the past, so I don’t see a big pickup in sales. 2023 is a big mystery to me. It’s three years since the pandemic hit, and there weren’t a lot of leases written after the first two months of 2020. I’m optimistic, but it remains to be seen whether we’ll experience an uptick.

Spriegel: At this point, it’s hard to say. I wish we had all the answers. But like always, we’ve seen the ups and downs in our industry, and we’ll adapt and thrive as we always have. At a high level, we think pricing might come down a little more and then moderate as time goes on, but this all depends on how the economy plays out both domestically and internationally. The one thing that concerns me is that when the U.S. economy slowed in the past, we could rely on foreign markets to be stable or grow. Now, all countries are experiencing a slowdown, thus affecting demand and, consequently, pricing. Also, as we return to normal, we’re seeing increases in the number of returns, and as this continues, we expect to see softening of pricing for equipment.

Thadani: Our outlook for 2023 is positive. We expect a strong increase in return volumes as the OEMs and dealers clear their backlogs. The sale prices for used equipment will decline as we see an increase in return volumes and demand stabilizes. We also anticipate an increase in requests for our services. Based on current economic trends, the increasing costs of manpower, warehousing (the availability of warehouse space in the Northeast is below 2%) and fuel will continue to pose a challenge. The level of new deals written this year will give us a better idea of what’s coming beyond 2023.