He couldn’t have summed it up in more simple terms, but there was a sense of anxiety on the show floor at McCormick South, Chicago about when exactly this decline is going to happen and, moreover, how bad it will be.
Hal Vandiver, MHIA executive vice president, business development, replies: “The material handling expansion cycle appears to be sustainable well into 2007.” And, even better news, he continues, “is that as we move through the deceleration growth phase of this business cycle, early indications are that the pending contraction will not be a harsh one as we experienced in the 2001 through 2003 period.” The word on the street, he concludes, is for a “soft landing” in 2008.
Timothy Tevens, president and CEO of Columbus McKinnon Corporation says: “I believe the Federal Reserve has worked hard to dampen the growth to control inflation. Their plan appears to be working and we will have relatively low inflation, low growth – but not a recession.”
Joe Gibbs, director of sales and marketing at Acco, says: “Overall we are still going strong,” but he believes the market has already peaked. “I think it will stay at current levels,” he says of business prospects in 2007.
Steve Kosir, president Konecranes Americas, says demand for products, solutions and services remains strong. He says: “We have had several years of successive improvements in economic conditions and strong overall demand.”
He noted an improvement in orders of more than 20% last year and sales growth by “even more than that,” he adds.
Kosir admits it’s “difficult to say” if the market has peaked and “I am always cautious when referencing forward looking statements.” But, he continues, “since our quoting activity and customer inquiries has kept pace with last year I currently see no reason to believe 2007 will be any different.”
New York-based Gorbel’s marketing manager Jeff McNeil agrees. He says business is “up significantly” and believes that not only will there be more growth in the coming year, he does not expect the growth rate to slow. “There are still market segments that have not reached their peak and we are targeting them for growth in 2007,” he says.
McNeil says that so widespread is the growth that he “cannot really identify any one trend in the marketplace that is driving our sales. We attribute most of our growth,” he continues, “to a good economy and healthy capital spending.”
Dustin Nielson, director of materials handling market management at JET, a subsidiary of Walter Meier Holding (WMH), agrees that 2007 will be another big year.
Pennsylvania-based Harrington Hoists has experienced healthy growth rates across its whole product offering during the entire fiscal year (ending March 31 2007), says president Ned Hunter. “We expect that health to continue through the end of the quarter. Feedback from our distributors remains cautiously positive,” he adds.
Hunter accepts that the growth rate of the market will slow in the coming quarters, “but we see positive signs that potential for growth remains in the US market,” he says.
Of this calendar year, Hunter says: “We expect to see some components of the hoist and crane market soften in the US and we expect to see some softness based on geographic location.” However, he continues, “we remain optimistic that the overall market for hoists and cranes will be resilient and that our distributors will continue to see growth.”
Statistics
The Hoist Manufacturers Institute (HMI), the Crane Manufacturers Association of America (CMAA) and the Monorail Manufacturers Association (MMA) collect and disseminate proprietary statistics monthly on behalf of their member companies.
After enjoying unprecedented expansion early in the 1990s, these industry segments were in decline from the fourth quarter of 1998 until the third quarter of 2003.
The North American Industry Classification System (NAICS) code 333923, which includes overhead travelling cranes, hoists and monorail systems, peaked at $4.9billion in 2000 declining 8.2% in 2001 and a further 35.8% in 2002 to close at $2.9bn for the year.
The segment began its recovery with growth of 4.3% in 2003. These statistics are greatly affected by the inclusion of aerial work platforms and automative winches in the NAICS definition of this segment.
Hal Vandiver concludes: “Our 2007 forecast is the market to peak at almost the levels of 2000.”
Demag US president John Paxton says business is good across all sectors – in cranes, hoists and monorails. He reckons most sectors in 2006 were up “between 15 and 25% on the previous year.” Demag is receiving healthy orders from the oil and energy, aircraft, construction, and steel processing industries.
Paxton continues: “All three product sectors are continuing to grow and are expected to level off at the high levels for 2007.”
He recalls discussions he had in 2002 when there was widespread fear that manufacturing was leaving North America. At the time, he says, many said the US would never get back to the levels that were seen in 1997 and 1998.
“I’m very happy that this is not the case and that the crane and hoist markets have returned close to those levels,” he says.
For Paxton, 2007 will be a year of “continued high levels of business but with flat growth.” He says the expansion seems to be driven by high corporate profits coupled with improved capacity utilisation, and acceptable consumer demand. He explains: “The corporate profits are being invested into productivity improvements and increased capacity.”
Brian McNamara explains that the industry follows fairly predictable business cycles – particularly in duration. “As a practical matter,” he says, “the material handling and logistics industry has generally cycled from high-to-high or low-to-low about every four and a half to five years.”
Occasionally, as was the case through most of the 1990s, conditions like the longest ever expansion of the US economy have masked the cycle.
McNamara says that while the most recent cyclic decline was influenced by some extraordinary events, the downward trend was well underway following the dot.com implosion of the late 1990s and, in fact, he stresses, preceded the events of September 11 2001.
“The good news,” he continues, “with cycles is that what goes down has always gone back up to new and greater heights as economies expand.” This, he explains, is precisely what happened to the industry beginning in late 2003.
The material handling industry, according to McNamara, is largely driven by capital goods purchases. “As we are led by this dynamic,” he says, “it is a good idea to look at where major consuming sectors are in their business cycles.”
The Manufacturers Alliance (MAPI) track the cycles of the major manufacturing sectors.
The majority of these sectors remain in a period of growth, “albeit at a reduced rate,” says McNamara, that will fuel continued expansion over the coming 18 months to two years. Material handling and logistics, he concludes, “is clearly benefitting from this growth as led by these consuming sectors.”
The MHIA feels confident in its predictions, citing several leading indicators. These include the National Institute for Supply Management PMI Index, FRB Industrial Production and Capacity Index, Consumer Confidence, Housing Starts and a Consensus Index by The National Association of Business Economists.
The MHIA believes that, while each index is different, “we find they reliably anticipate material handling and logistics industry activity to a period of nine to 21 months.”
Tim Tevens notes continued growth across “all sectors of the economy.” But he points out that growth in the US is modest compared to other developing areas of the world. For example, “China and eastern Europe are growing much faster because they need to develop their infrastructure and have more investments going into their economies,” he explains.
Difficult to make comparisons
As the US economy “recovers,” as Tevens puts it, he says it is difficult to make comparisons to the previous year. “So far this financial year,” he says, “business is growing more slowly than the previous year.” But Tevens insists there will still be growth.
He continues: “Given the restructuring we have done in early 2001 through 2004 and our significant debt reduction and cost improvement efforts, even with slower growth our income is growing much faster.”
Tevens believes the US market has “more steam.” He says that although the recovery is now several years old, “we have really just entered the phase where we have reached the average operating level for the economy.”
In terms of capacity utilisation, Tevens says “the average for the last 10 years or so has been 80% and we just achieved that figure this past summer. Normally,” he continues, “we see the economy operate above that level for a much longer period of time.”
Robby Heeskens, managing director of Stahl CraneSystems’ US subsidiary, based in Charleston, South Carolina, says it booked 9% more orders in 2006 than the previous year and sales were up by 19%. The total sales volume was about $13m with almost 1,000 wire rope hoists distributed all over the US.
Despite recent negativity, Stahl says it has a “good chance” of increasing sales by 400-500 hoists this year.
Cam Randell, marketing coordinator at Ontario, Canada-based O’Brien Installations, noted a “huge peak” in 2006 but claims the company will be “even busier” this year – expecting to sell 100 jibs to the US market alone in 2007.
Jim Vandegrift, vice president general manager, R&M Materials Handling Inc says that “higher energy prices, higher material costs and a decelerating housing market will be the catalysts to a cooling session.”
Sales-wise, R&M experienced increases in 2006 of 15 to over 50%, depending on the product category. In reflection of this, its backlog has increased approximately 30 to 40% over the same period the previous year – “a reflection of our increased order levels,” he adds.
Vandegrift says the company experienced “meaningful growth in both bookings and shipments in 2006 as compared to the same period in 2005.” A growth rate, he says, “that far exceeds the overall growth within our marketplace.”
With the North American market experiencing sustained growth during the past several years, it would, he says, “only be natural that the growth rate will begin to decrease at some point during the coming year.”
R&M hopes to continue its steady growth in market share and, moreover, Vandegrift hopes for this growth to “counteract any negative growth from external economic forces.”
Jeff NcNeil (Gorbel) says the machining, construction and automotive sectors are the three key industrial segments at this time.
He explains: “The implementation of lean manufacturing principles by manufacturers has caused them to change their processes to be more flexible.” He says the flexibility comes from using people and concentrating on equipment that makes people more productive and efficient. “Process changes in manufacturing drives demand for our types of lifting solutions,” he says.
Tim Tevens (CM) highlights the energy sector as a driving force behind business, while, “to a certain extent, non-residential construction” is also booming.
Steve Kosir (Konecranes) says logistics, warehousing, steel, copper, aluminum, mining, power generation and waste-to-energy have been increasing capacity to meet the higher demands in their own markets. “Even automotive and pulp and paper are showing signs of being active,” he says.
Whiting Corporation is receiving good business from the automotive, railroad, steel and utilities (hydro, fossil fuel and nuclear) sectors.
Whiting Services, Inc., a sister company, provides crane service and inspection for Whiting products as well as cranes built by other manufacturers.
President Jeffrey Kahn says: “Whiting isn’t the biggest player in the North American crane market, but it plays an important role. Whiting’s niche is serving customers who have demanding expectations in terms of quality, special engineering and/or customer service.”
One tricky application, Kahn recalls, which shipped last year was a three-crane order for Bechtel National for nuclear waste handling at the Department of Energy’s Hanford, Washington site.
Whiting has been in its new facility in Monee, Illinois for six years, after being in Harvey, for 107 years. While part of the reason for the move was the ageing facility, Kahn states that “in order to continuously improve at a rapid pace, a culture change was needed. It’s been much easier to achieve that by leaving a 107-year-old building behind and starting with a facility designed for improving our velocity and quality.”
Jim Vandegrift (R&M) says driving business are the petrochemical, steel and military/defence industries and foreign automotive assembly.
On the remote control front, there appears to be great scope for growth. Ramon Faure, research manager of Spain-based Itowa, was certainly upbeat about his company’s prospects.
Miguel Tellez, industrial engineer, Tele Radio America LLC, says the market in this field has certainly not peaked yet. “Since we started our subsidiary company in the US, sales are growing exponentially,” he says. “We are also strengthening our network both in North and Latin America and the response on the market to our product has been excellent,” he adds.
Compared to Europe, he continues, both the US and Canada as well as Latin America, are far behind in market penetration and presence of radio remote controls in cranes and other industrial applications. “This,” he says, “means that there is still a big potential in sales during the next years in this market.”
Of this year, Tellez says: “Hopefully, we will see something similar to what we experienced during 2005 and 2006 – an intensive growth in sales both for our ‘young’ American enterprise and for the radio remote control market in America in general.”
So, crisis it isn’t – but the market will get slightly worse before it gets much better.
