Material handling is resilient. That much is clear, considering the astronomical declines of the past year. With indicators now pointing in the right direction, it seems we've managed to avoid an economic event horizon — a point of no return.
As the second quarter of 2010 gears up, the news is positive. According to the most recent material handling equipment manufacturing (MHEM) quarterly forecast released by the Material Handling Industry of America (MHIA), orders for material handling equipment are expected to grow 6% to 8.5% this year, a gradual recovery considering the devastating 37.4% full-year drop for 2009.
MHIA's predictions continue to follow a positive trajectory, but the future remains uncertain. Experts agree that business has been forever altered by the downward spiral.
So, what will be different in post-recession material handling? To find out, MHM met with top-ranking MHIA leaders, who are close to the issues, trends and challenges facing their members — material handling professionals — as they recover from difficult conditions and look ahead to better times.
The following exclusive interview with John Nofsinger, CEO of MHIA; George Prest, executive chairman; and Larry Strayhorn, vice chairman of finance, continues MHM's 65-year tradition as the voice of the material handling industry.
MHM: The next MHEM forecast is due out in June. Can you offer a preview?
Nofsinger: Each recent forecast has been a bit more bullish than the last. I wouldn't be surprised to see the June forecast for new orders in the 8% to 11% range, with shipments in the 5% to 8% range.
Prest: I believe the MHEM forecast is a fairly accurate tool in the aggregate, although the timing varies within the product groups. The new-order dollars may be closer to 8.5%, but I believe that, in real numbers (adjusted for inflation), it may be closer to 4% to 5% due to the increased costs of raw material.
Strayhorn: The market is showing stability right now. I have not heard of many companies that are burning up the market yet this year. The quotation pipelines are growing across all sectors, and for the first time in two years, I am hearing the phrase “quality opportunities.” Will we see 6% to 8.5% growth for the fiscal year? It is possible, but the second half will have to be stronger than the first.
MHM: What factors are contributing to the growing optimism of the MHEM forecast?
Nofsinger: The rate-of-change forecasting technique, while accurately calling the turns, has tended to undershoot the amplitude of the cycle, both going in and coming out, particularly one as severe as present. The bottoming of job shedding, improving corporate profits, improvement of consumer confidence, and pickups in major producing sectors (automotive, food and beverage, etc.) are all fueling optimism for gradual growth through 2011 and even steeper growth into 2012.
Prest: In large part, the optimistic outlook is driven by the fact that we have hit bottom in this cycle and there is a large capital pool out there that is on the sidelines, and as the recovery gains momentum, we will see investment.
Strayhorn: There has been a severe curtailing in capital equipment investment for more than two years. Capital projects that needed to be done were shelved in a defensive reaction to the market meltdown. This reaction has led to stronger balance sheets. When markets show stability, I think we will begin to see a gradual release of capital into the material handling marketplace.
There is also quite a bit of pent-up demand for productivity improvements, and when companies begin to come out of the slowdown, there will naturally be an evaluation between material handling technologies and additional personnel, and I think we will see the advantage go towards new technologies.
MHM: Recent reports have suggested more companies are adopting automation and technology to rein in costs and protect margins. One report from ARC Advisory Group projects automation expenditures in the food and beverage industry alone to reach $6 billion by 2013. Will the trend to continue automating material handling processes lead to more job cuts and therefore erode any short-term increases in consumer demand?
Nofsinger: Automation, as well as lean approaches, will be increasingly important to deal with both worker shortages (disruptive demographics) and as an alternative to outsourcing/offshoring. The question is more about the types of work/processes that will take place in the United States. More manufactured goods will ultimately need to be moved, stored, protected and controlled to support a growing population.
Prest: The trend to automate will, in fact, save jobs by making people more productive, which in turn, makes their companies more competitive in the world marketplace, i.e., less reason to offshore. It is clear to me that it will probably take longer to absorb the 8 million people that have been laid off in the last couple years due to the projected slow recovery, increased productivity and, in some part, automation. All in all, 85% to 90% of the workforce (depending on whose numbers you look at) are working now, and those consumers will certainly be feeling much more positive.
Strayhorn: As our population continues to grow, a fundamental shift in our processes will take place. As more and more manufacturing is done offshore, we will have to react with more efficient supply chains to move and distribute goods in a more efficient manner. This will result in more focus on automation to respond to growing demands for more speed and efficiency.
MHM: Talk about the changes material handling managers are likely to confront as carbon reduction policies continue to gain strength across North America. Will the need to reduce carbon footprint become an additional cost of doing business with no tangible return on investment?
Nofsinger: Once we get over thinking of sustainability as an imposed cost and begin imagining it as a profit center, we will begin to see ROI. A majority of public companies are now seeing sustainability as contributing to shareholder value over the long term. The situation is much like that which existed 25 years ago when Phil Crosby did his seminal work Quality is Free.
Prest: I believe it is too early to know what the real impact is going to be, since we do not have any clear legislation yet. It is evident that we need to be good stewards of the planet, and as we gain scientific knowledge and technological advances, we as an industry will have a very significant role in meeting the goals of sustainability.
Strayhorn: The desire or opportunity to reduce carbon footprint should be on the forefront of all of our thoughts as we design and deploy material handling systems. Right now, we all too often hear of it as an afterthought and a cost adder to any project. Environmental and social thought has to become second nature to all of us in the facility and systems design process.
MHM: Will the continuing consolidation of divisions, brands and units within material handling suppliers result in fewer choices for material handling end users?
Nofsinger: Quantitatively, perhaps. Qualitatively, quite the contrary; solutions and providers will be more robust and durable under the surviving structures.
Prest: Consolidation is a part of the economic lifecycle of products and companies. While some brands may disappear, there will also be new solutions and entrants to the market. As an example, I mentioned earlier that I am confident that the role of sustainability is one area that will drive creativity in the industry, which will ultimately bring new and better options to the market.
Strayhorn: We will always see mergers and acquisitions in our market. Companies will come and go. I do not see this activity impacting the market nor choices for end users. I believe what we are seeing today will provide the end users of our technology with better choices from stronger companies.
MHM: What advice can MHIA offer its members (and non-members in the material handling industry) that can help them benefit from upswings in the market without taking on too much risk in these uncertain times?
Nofsinger: Thoughts in no particular order:
Flexibility. As with all recoveries, cash and focus will be king, particularly in this one, which promises to be long and gradual. The friendly banker and supplier will likely be less help than in recoveries past.
Focus on strengthening the value proposition.
Avoid being a one-trick pony; diversify.
Make and nurture networks and partnerships.
Target promotional activities and be consistent and constant in the market.
Hold onto and develop key resources.
Prest: Use tools like the MHEM, get involved in product sections and/or your affiliated trade association or council, develop a plan and execute the plan!
Strayhorn: Go slow and be very cautious when hiring. Protect valuable resources. Make gradual changes and be careful not to overreact to the “big opportunity.” Concentrate on relationships and partnerships. And good luck!