Can CE Industry Keep Pace?
The global construction equipment industry has always operated in cycles—driven by infrastructure demand, commodity prices and policy momentum. But the current geopolitical turbulence centred around the US–Iran conflict is different. It is not merely another cyclical disruption; it is a structural shock that is rewriting cost equations across the value chain.
For India, which is in the midst of one of the most ambitious infrastructure expansion programmes in its history, the timing could not be more critical. The construction equipment (CE) industry had just begun stabilising after pandemic-led disruptions. FY26 ended on a cautiously optimistic note, with signs of recovery in sales and strong export growth. Yet, even as the sector regained its footing, the external environment shifted dramatically.
What has emerged is a new reality—one where the cost of building infrastructure is increasingly dictated not by domestic policy or project efficiency, but by global conflict, energy routes and supply chain fragility.
When geopolitics hits the ground
The impact of the conflict is most visible in energy markets. With a substantial share of global crude oil passing through the Strait of Hormuz, any instability in the region immediately translates into price volatility. For India, which imports the majority of its energy needs, this has direct consequences.
Lt Gen Rajeev Chaudhry, former Director General, Border Roads Organisation, articulates the severity of this dependence. He points out that a significant portion of India’s oil supply flows through this region, making the country particularly vulnerable to disruptions. The moment oil prices rise, the effects cascade rapidly—diesel costs increase, logistics expenses surge, and construction costs escalate.
In construction, fuel is not just another input; it is the backbone of operations. Equipment runs on diesel, materials are transported using diesel, and even project execution timelines are linked to fuel availability. As Chaudhary notes, logistics alone can account for nearly half the cost of a project, making any spike in fuel prices disproportionately impactful.
As Sudarshan Holla, Jt MD & COO – Commercial Vehicles, Shriram Finance, observes, the impact is already visible across logistics: “The ongoing conflict in the Middle East is beginning to disrupt logistics activity across the country. Higher fuel costs, rising tolls and input cost pass-through are set to push transportation costs higher.”
This is critical because logistics is the lifeline of construction. Even marginal increases in freight rates translate into substantial project cost escalations.
Aniket Dani, Director, Crisil Intelligence, notes that petroleum-linked cargo—accounting for a significant share of port traffic—has been directly impacted due to route disruptions. This has reduced throughput and affected revenues at key ports.
In roads, the effect is more immediate. Bitumen prices—closely linked to crude oil—have become highly volatile, complicating project execution.
This has direct implications for the CE industry. Road construction equipment, which had shown strong growth momentum, now faces uncertainty as project timelines and cost structures come under stress.
The domino effect on materials
Energy shocks rarely remain confined to fuel. They quickly ripple through core construction materials such as steel, cement and bitumen. These are energy-intensive industries, and any increase in fuel costs directly affects their production economics.
Across the sector, price escalations have been sharp and unpredictable. Contractors and manufacturers alike are grappling with a situation where material prices can change within days, if not hours. The volatility is such that even bids submitted recently may no longer reflect current realities.
Ajay Hans, Managing Director, GV Infra, captures this uncertainty with striking clarity. “In today’s scenario, cost escalations are not in our control. They are not controlled by contractors, not by policymakers, and not by engineers. They are being driven by external factors,” he says.
For contractors operating on already thin margins, this creates a dangerous imbalance. Many projects are awarded at highly competitive rates—sometimes even at negative margins—leaving little room to absorb unforeseen cost increases. As Hans explains, these pressures inevitably translate into delayed execution, rising disputes and, in some cases, compromised quality.
Logistics: The invisible disruptor
If fuel and materials represent the visible impact of conflict, logistics is the invisible disruptor quietly amplifying costs. Global shipping routes have been altered, transit times have increased, and freight rates have surged. For component manufacturers and OEMs dependent on imported parts, this has introduced a new layer of complexity.
B Seshnath, CEO and Managing Director, Walvoil Fluid Power India, highlights how these disruptions are playing out on the ground. “Earlier, shipments would take around 75 days. Today, they can take over 100 days. That means higher inventory, more working capital and greater uncertainty,” he explains. The implications are significant. Companies must now hold larger inventories to hedge against delays, tying up capital that could otherwise be used for expansion or innovation. At the same time, forecasting demand becomes more difficult, increasing the risk of both shortages and overstocking.
In effect, logistics has moved from being a background function to a critical cost driver.
Pressure on manufacturers
For construction equipment manufacturers, the situation is a delicate balancing act. On one hand, input costs—steel, hydraulics, electronics and logistics—are rising sharply. On the other, the market remains highly competitive, limiting the ability to pass on these costs fully to customers.
Shalabh Chaturvedi, Managing Director, CASE New Holland India, believes that this is forcing a fundamental shift in strategy. “Disruptions have become a norm. Companies must now build supply chains for resilience, not just for the lowest cost,” he observes.
This shift is particularly relevant in the context of localisation. India’s CE industry continues to rely heavily on imported components, especially in high-value segments such as hydraulics and electronics. The current crisis has exposed the risks of this dependence.
Seshnath underscores this point: “Localisation is no longer optional; it is necessary for survival.” The challenge, however, lies in execution. While capacity exists within India’s manufacturing ecosystem, capability—particularly in terms of quality, consistency and advanced engineering—remains a work in progress.
Manufacturing under stress
Despite the immediate pressures, the crisis is also accelerating structural transformation within the industry. Sunil More, Director – Factory Operations, SANY India, points to the multiple cost pressures converging on manufacturers. “Rising steel prices, high finance costs and logistics costs are directly affecting equipment pricing and business viability,” he says.
At the same time, More emphasises the need for deeper localisation and stronger domestic supply chains. India has the resources, the workforce and the technical base to build a robust manufacturing ecosystem. What is required is a coordinated push—across OEMs, suppliers and policymakers—to reduce dependence on imports and enhance domestic capabilities.
Kathir Thandavarayan, Partner, Deloitte India, frames this as both a challenge and an opportunity. He notes that India’s CE industry is on track to become one of the largest globally by 2030. However, sustaining this growth will depend on the industry’s ability to transition from an assembly-driven model to a manufacturing and engineering powerhouse.
Contractors at the breaking point
If manufacturers are under pressure, contractors are facing an even more acute crisis. The current bidding environment, characterised by intense competition and aggressive pricing, leaves little room for error. When costs rise unexpectedly, the impact is immediate and severe.
Hans highlights how this dynamic is playing out. “Margins are already thin. With these cost increases, they are turning into losses. This will lead to delays, disputes and financial stress across the sector,” he warns. He also points to a structural issue in contract design. Existing escalation mechanisms are often inadequate to address sudden and extreme cost fluctuations. As a result, contractors are left to absorb risks that are beyond their control. This, in turn, affects the entire ecosystem—from equipment demand to project execution and financing.
Rethinking fuel and technology
One of the key questions emerging from the crisis is whether it will accelerate the transition away from fossil fuels. The consensus among industry leaders is that while change is inevitable, it will be gradual.
Chaturvedi believes that diesel will continue to dominate the sector in the near term, given the nature of construction operations. “Electrification will come, but it will be phased—starting with compact and urban applications,” he explains.
More echoes this view, noting that electrification is already gaining traction in certain segments, but challenges remain in terms of infrastructure and scalability. In the meantime, the focus is on improving efficiency—through better hydraulics, optimised powertrains and smarter design. As Seshnath points out, even incremental improvements in fuel efficiency can significantly reduce operating costs and dependence on diesel.
Interestingly, the global construction equipment sector is showing signs of resilience despite these challenges. Data from Unacea indicates that exports remained broadly stable in 2025, even in the face of geopolitical uncertainty.
This suggests that while demand may fluctuate, the fundamental need for infrastructure—and the equipment that enables it—remains strong. For India, this presents an opportunity. With the right mix of policy support, localisation and innovation, the country can not only mitigate the impact of global disruptions but also strengthen its position in the global market.
The way forward
The US–Iran conflict has exposed vulnerabilities, but it has also highlighted areas for action. In the short term, companies are focusing on managing costs, diversifying supply chains and improving operational efficiency. In the long term, the emphasis is on building resilience—through localisation, technology adoption and stronger collaboration across the value chain.
Chaturvedi sums it up succinctly: “The cost of conflict is forcing us to rethink fuel, freight and localisation.” Ultimately, the industry’s response to this crisis will determine its future trajectory. If the current challenges lead to deeper structural reforms, stronger supply chains and more sustainable practices, the sector could emerge more resilient than ever.
Because in today’s interconnected world, the cost of conflict is not just an economic burden—it is a catalyst for transformation.
INDUSTRY RESPONSE: SHIFTING STRATEGIES
Short-term
- Strategic inventory planning
- Alternate sourcing and supplier diversification
- Cost optimisation and contract renegotiation
Long-term
- Deep localisation of components
- Stronger MSME ecosystem and local R&D
- Focus on fuel efficiency and lifecycle value
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