Special Report: Business prospects for the materials handling industry in 1999
With the sharp surge in orders last Spring, this index for forklift bookings should be about level for 1998 with its value for the prior year, despite softening demand.;Look for this index-which measures equipment and systems-to be off some 6% in 1998 from its value in 1997, and to return to the pace of 1997 by mid-1999.;Expect some inflationary pressures for materials handling equipment this year. Cahners Economics predicts the annual change in producer prices will climb above 2% in 1999.With demand for th
By Staff -- Modern Materials Handling, 1/1/1999
Much like holiday parties, the pace of U.S. business in 1998 was at festive, perhaps even feast-like levels for many in materials handling. Industrial truck wholesale orders may zoom to a new record high of nearly 180,000 units for the year. Conveyor shipments through nine months of 1998 hit $4.16 billion, up from a record total for the same period in 1997 of just under $4 billion.What's next? Probably some belt tightening in 1999. Yet, end users of materials handling equipment and systems hardly will go on rigorous "diets," nor is famine likely anytime soon.
Why so much strength last year? A strong U.S. economy. Low inflation and low interest rates. Solid spending by consumers. Growth in service businesses. Continued investment by industry in capital improvements, albeit with some recent slowing. These were among factors cited by top execs of the Industrial Truck Association (ITA) and the Conveyor Equipment Manufacturers Association (CEMA).
A forklift forecast. "Retail orders as well as wholesale factory level orders were both very positive though the first 10 months of 1998," observes Larry Borre, ITA president (and vice president, Barrett Div., Nissan Forklift Corp. North America).
"When all the data are in, 1998 may be our number one year for wholesale factory orders in the U.S. and Canada," Borre also suggests. "Consumers are still very active. Their demand for goods translates into more goods moved and more trucks to move them," he adds. Other factors: "Low interest rates and more trucks leased or financed have made forklifts more affordable."
Even so, Borre expects "1999 will be a turnaround year for the industry." Retail order levels may drop 5% this year, and fall 8% in 2000, he predicts.
Growth of the past few years "has been phenomenal," Borre says. "It's surprised everyone." And he says he'd be pleased to be surprised again.
Conveyor contraction. "Nineteen ninety-nine looks like a tough year," remarks CEMA president Ben Hinterlong (and president, Thomas Conveyor Co.). Even with a strong showing for shipments through three quarters of last year, new orders for the same period tallied only $4.16 billion vs. $4.59 billion in 1997. "We will be hard pressed to come close to 1997's strong year-end figures when all the data for 1998 are in."
In particular, Hinterlong notes that new bookings were off 16% for the nine-month period through September 1998 for CEMA's unit handling conveyor sector vs. the 1997 figure. Reasons: Demand from the auto and appliance industries-big users of these systems-is slowing, he suggests. Delivery services and package handling companies no longer are expanding at the rates they once were, further diminishing orders for unit handling systems. And a few delivery companies have halted new projects.
"Conveyors don't wear out," Hinterlong says, pointing to his industry's reliance on new capital investment projects, often in the multimillion dollar range, to propel growth.
Declining industry index. The Modern Materials Handling magazine exclusive index of orders for equipment and systems fell an estimated 11.7% between the second and third quarters of 1998, notes Daryl Delano, director of Cahners Economics. This index tracks orders for forklifts, conveyors, and other materials handling equipment and system categories.
This sharp third-quarter dip in the index followed a smaller 3.7% decline during the previous three months. It coincided with a sharp deceleration in the annualized growth rate in orders and production throughout most of the manufacturing sector.
Conveyor orders: Third-quarter 1998 orders for unit handling conveyors were 19.8% below the second-quarter total. The latter total was more than 10% lower than the first-quarter level. Unit conveyor orders were 21.9% lower during last year's third quarter than during July-September 1997.
Delano estimates that unit handling conveyor orders for 1998 will be about 15% lower than in 1997- which would be about 8% better than the year before.
"Although the final numbers for 1998 aren't in yet, there's no escaping the fact that conveyor orders last year were much weaker than in either 1996 or 1997," Delano says.
Industrial truck orders: Demand for forklifts declined 10.7% between the second and third quarters of last year. Total July-September 1998 orders were 9.0% lower than the total for the third quarter of 1997. For the first nine months of last year, total industrial truck orders were still running a slight 0.5% ahead of the orders pace for the first three quarters of 1997.
Due to the very strong numbers posted during the early months of the year, however, "we believe that total industrial truck orders during 1998 were little changed from the strong 1997 total-although the trend was decidedly negative during the second half of last year," Delano says. "We currently see a scant 0.2% loss in total 1998 orders, compared to a 1997 gain of almost 30%."
As a result of the very disappointing second and third quarter results from the conveyor and forklift segments of the materials handling industry, Delano says, "we're now estimating that when the final numbers are in, the Modern Materials Handling index of orders for 1998 will average 6.2% lower than the 1997 level."
That drop for 1998 suggests "not a good year, of course, but it gives back less than half of the 14.3% orders gain that the industry achieved during 1997," he says.
"Indications are that demand conditions for the materials handling industry will stabilize in early 1999," Delano suggests, "and begin to improve during the second half of the year. We're cautiously optimistic that this will translate into an overall order increase of about 9% this year."
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