Material Handling Business Points to Recovery

March 1, 2002
John Nofsinger, CEO of the Material Handling Industry of America, reports on trends in the material handling equipment market.

John Nofsinger, CEO of the Material Handling Industry of America (MHIA), says that judging by bookings for this year’s North American Material Handling Show and, particularly, next year’s ProMat Show, manufacturers seem optimistic about a strong recovery. MHM interviewed Nofsinger recently about trends in the material handling equipment market. After reading our Q&A, if you’d like to ask him some questions of your own, he can be reached at [email protected]

MHM: What’s your take on the market for used material handling equipment? Do you see it as a threat to the sale of new equipment?

Nofsinger: Used equipment tends to get cobbled up. Systems are bought and often sold in pieces. The rack goes somewhere and some of the conveyor might go somewhere else. It may bring to the market people who weren’t going to buy new equipment anyhow. They figure, “I really wasn’t going to buy new material handling equipment, but if I can get something for the right price and it’s good, I can organize the back 40.”

MHM: But can that buyer get exactly what he needs?

Nofsinger: The used equipment tabloids have a zillion pages in them. In Charlotte a few years ago, IBM had something like 18 small AS/R machines to sell. They were on the market for the better part of five or six years. They were somewhat specialized machines, and the more specialized equipment is, the harder it is to place. And, when you get into that level of industrial automation, users aren’t going to tie their business fortunes long term to a solution if it’s not right. A seller needs a lot of luck to find the right person to buy specialized equipment. Otherwise, it tends to get garage-saled.

MHM: Are more companies going to third-party logistics providers to avoid making big capital investments in material handling equipment and systems?

Nofsinger: The trend toward third parties is an even bigger sea change (in the sales of new equipment and systems) than shifts in the market for used equipment. The 3PL guys are not inclined to make any investment that doesn’t pay for itself in the current term of contracts — generally three to five years. The tendency is to avoid taking over old infrastructures, a lot of things that might have been bought earlier by the original equipment manufacturer. The material handling industry has a transition to go through to position itself as a recognizable and credible profit contributor to the people running these 3PL structures.

MHM: Does 3PL represent that big a market?

Nofsinger: The percentage of contracted warehousing and distribution is getting meaningful now, up into the 25 percent to 30 percent range. That says the buying influences for a big percentage of what traditionally was done in vertical operating structures is often somewhere else now. As material handling becomes a component of a broader logistics scheme, the traditional lines and functions are blurred. Users will demand that mechanical handling and transportation knowledge and control reside in one place. Flexibility to mass customize is driving change.

MHM: A lot of people also say that with manual labor comes flexibility.

Nofsinger: On the one hand, the risk is less. If someone in the market preempts you a year from now, at least you won’t be sitting there like Webvan with a building full of expensive decommissioned white elephants.

MHM: What’s the business outlook from the equipment manufacturers?

Nofsinger: We recently did a confidence survey of our members. On the whole, there’s a healthy cautious optimism. In spite of bookings being down at this time vs. a year ago, manufacturers are seeing improving business activity especially in the last several weeks. It’s been a matter of getting rid of 2001. Things that had been put on hold are being brought forward again and that is starting to generate enthusiasm. One of the good things about material handling equipment is that under one set of economic realities it can be part of the answer and in another the answer totally.

MHM: How’s the North America Material Handling Show (NA 2002) shaping up?

Nofsinger: The number of exhibitors is consistent with two years ago. The space is down slightly because the average booth is a little smaller. But we have the same balance and mix of technology and number of exhibitors. We may even end up with more exhibitors than two years ago. We laid the show out this year in four solution centers. We seem to have a heavier weighting on the component, equipment and manufacturing solutions side than we thought we would. The warehousing and distribution side is about what we thought it would be. The solution providers integrated themselves into the fulfillment and warehousing center. They really didn’t want to get tarred with the e-stick. They said “Get me close to the area where people are looking for fulfillment and delivery and I’ll automatically see those interested in e- solutions.

MHM: And what about next year’s ProMat?

Nofsinger: We set a record for the space draw by about 15 percent. More than 185,000 square feet of space was selected on opening day. Exhibitors were beating the doors down to get at the event. And, if we’re getting a big groundswell of interest and confidence for an event set for early 2003, that says during 2002 people will start serious project monies. With exhibitors paying early to reserve space, this industry is sending a strong message. Their optimism is real and stands to reward handsomely.