I later checked Gamebanshee walkthrough. I did this exactly right.
First, tell the quest giver crane is broken. He tells you to go meet the dwarf in the dock who is apparently somewhat responsible for it (or something). He just says I should've told about it sooner, but then he just says something along the lines "it is very easy so even you can do it. Take this wheel and put it in its place."
After getting the wheel I went up to town to meet the owner of the lumber (as I was told to). Well, he apparently doesn't want to have anything to do with the damn crane and tells my party to go and fix it.
Then cue in journey back to Docks and the crane...