Total materials handling equipment shipments (including both domestic and imports), have increased about 9% since mid-2003. Meanwhile, orders for the two most closely tracked types of equipment—conveyors and industrial trucks—are higher, raising expectations that shipments will continue to rise.

This increase in demand is due almost exclusively to domestic orders for materials handling equipment since exports have remained steady. It is also being driven by the need for smarter handling with leaner inventories as more goods pass through the distribution system and manufacturing activity picks up. Investment is also being driven by: cost cutting to offset rising supply chain costs; equipment replacements after a 36% decline in investment since 2000, and; an unusually favorable investment environment.

More goods passing through factories, ports, warehouses and stores have prompted equipment purchases to expand handling capacity at some sites. The goods component of Gross Domestic Product (GDP) expanded at a 10% annual pace in the second half of 2003, and will grow at a 6.5–7.5% rate in the first half of 2004.

More and better handling equipment is one option to cut internal supply chain costs. Now it is a very attractive option because special tax rules expiring at the end of 2004 permit quicker depreciation of capital investments. Also, corporations are flush with cash after intense cost cutting pushed margins to near record levels.

So far most of the investment has gone into existing buildings since construction spending on warehouses and manufacturing facilities fell below the replacement level almost two years ago. It is not now back to the point where net additional space will be needed. That will happen soon. Spending on warehouse construction, excluding consumer self-storage, has increased 17% in the last year. Meanwhile, factory construction spending is essentially unchanged.