June 28, 2010

Column | Korky Koroluk

Electric drives are the wave of the future

If anyone had any doubt that electric drives are the wave of the future for construction equipment, that doubt was put to rest recently, when Caterpillar, Inc., announced the purchase of Electro-Motive Diesel Inc., a maker of diesel-electric locomotives.

The deal, worth US$820 million will give Cat control of the second-largest locomotive builder in North America, behind General Electric. And it won’t be long before the technology acquired in the purchase begins to find its way from locomotives to other applications.

Electro-Motive’s locomotives are powered by diesel engines that generate electricity for motors that provide the power that turns the locomotives’ wheels. The combination gives the machines tremendous pulling power at low speeds without the use of a transmission.

Cat introduced an electric-drive bulldozer, the D7E, last year, and plans to begin selling electric mining trucks early next year. The world’s largest manufacturer of construction and mining equipment, says it plans to extend its electric-drive technology to the engines for ships and oil drilling.

Although Cat hasn’t marketed its electric-drive dozer as a hybrid, it fits most definitions of the word. The diesel engine drives a generator that powers the two electric motors that actually drive the machine. Reusable energy is captured in a flywheel during braking.

The result, Caterpillar says, is a dozer that delivers fuel savings of between 10 and 30 per cent when compared with conventional designs of equal weight and horsepower. It is also said to deliver greater productivity. As well, the company expects the dozer will deliver significantly lower lifetime service costs.

All this is important because of increasing environmental concerns and the virtual certainty of increasing oil prices in the long term.

Retiring chairman and CEO Jim Owens said that the acquisition of Electro-Motive gives Cat “a lot of complementary engine and electronic technology.” And CEO-elect Doug Oberhelman, who will replace Owens at the end of this month, said Cat is finding “all sorts of new applications” for the diesel-electric technology.

“It’s a great opportunity,” he said, adding that Cat has been “chasing” Electro-Motive “for about five years.”

Electro-Motive’s sales last year were US$1.8 billion. Caterpillar had 2009 sales of US$32.4 billion, down a 37 per cent from 2008.

But although Cat was hit hard by the recession, its overseas business has held up well. Countries like China, India and Brazil accounted for two-thirds of the firm’s total sales last year, doubling off-shore business in just six years. Owens said that leaves the company well positioned to benefit from the economic rebound that seems to be taking hold — albeit somewhat shakily— in the U.S.

Electro-Motive will retain its name and management team while becoming part of Cat’s Progress Rail Services unit. This will give Cat greater visibility in the railway sector at a time when rail transport is growing.

Like all transportation sectors, the rail business took a hit during the recession. But as economic recovery began, so, too, did rail transport. North American rail volume rose eight per cent in the first quarter of this year and so far in the second quarter, it is up 18 per cent.

At least part of that growth is being looked upon as a response to concerns about the environment. Rail is seen as a more fuel-efficient transport mode than trucking, which is one reason by Oberhelman foresees “a positive long-term future for the continued growth of the rail industry.”

The company has expanded aggressively, spending $4.8 billion on business acquisitions and joint ventures since 2004 under Owens’s leadership. And some industry observers expect at least one more significant acquisition within the next 18 months.

Korky Koroluk is an Ottawa-based freelance writer. Send comments to editor@dailycommercialnews.com

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