Material Handling’s Future Tied to Upping U.S. Capacity

Oct. 17, 2012
Today during the Material Handling Industry’s Fall Meetings in San Antonio, representatives from the major product sections of MHI gave their assessment of this country’s fiscal health based on their own fiscal health. Hal Vandiver, MHI's executive ...

Today during the Material Handling Industry’s Fall Meetings in San Antonio, representatives from the major product sections of MHI gave their assessment of this country’s fiscal health based on their own fiscal health. Hal Vandiver, MHI's executive consultant, said that for the next two or three years we can expect lackluster growth overall, judging by housing starts and employment. Furthermore, unemployment is expected to be above normal for the next two or three years. That means consumer durables will be low. So we’re not headed for a consumer rebound, he said.

“We sell to the people who produce industrial products,” he reminded. “It’s important for us to understand capacity utilization. We’re interested in seeing it at 80%. That number is being approached but we’re not there yet. Plants are not ramping up to take up the capacity that exists. We see a decline in corporate profits beginning in 2014. That means in 2015 and 2016 we’ll probably see a reduction in capital spending. There are some things going on in export markets that won’t be good for us. There will be wacky things going on in Europe and China that will impact us.”

That said, there were bright spots among the product section reports following Vandiver’s introduction. Here’s a breakdown of material handling’s big-ticket barometers:

Lift Trucks

“It’s instructive to look at the cliff industrial forklifts fell off between 2006 and 2009,” said Brett Wood, chairman of Toyota Material Handling, U.S.A., Inc. (TMHU), appearing as a guest of MHI. He was referring to the more than 50% decline in lift truck business during that time. “But in the last two years we’ve seen some steady recovery,” he added. “About 125,000 units last year. It’s catch-up demand from customers who held off on orders between 2006 and 2009. This year we’ll finish up 5% over last year. The forecast for 2012 is 152,000 units, which is a good healthy sign for the forklift industry.”

In 2009 electrics peaked with 67% of the market. That’s a sign of the type of customers that buy forklifts during a recession, he said.

“The food industry only specializes in electrics. Those specializing in engine power really took a hit. That slipped off in 2010 and 2011 and electrics normalized back to 60% of the market. I see that growth increasing again due to emission regulations and overall lower cost of ownership of electrics. Every year in December usually ends in a peak. This year will be indicative of what next year will bring because of the election in November. If it’s a normal December then I think we’ll be in good shape but if it’s low we’ll look at that as a cautionary note. That’s why the ITA is forecasting a very conservative 1% growth over last year, but if December ends strong I think you’ll see that revised to 2-3% over last year.”


Steve Buccella, vice president of corporate sales & business development at Dematic Corp., said traditional conveyor, sortation and accumulation used as a buffer to deliver goods in a sequential manner will give way to shuttle and miniload applications where buffers are vertical and use less floor space and have more random access. The onset of a pull rather than push strategy, pulling on demand vs pushing and staging before pushing through the system, is making accumulation buffers smaller and putting more requirements on a system to provide better flow.

“So we’re seeing conveyors as subsystems needing to operate as an automatic variable speed subsystem to reduce the amount of starting and stopping and to accommodate flow,” he said. “Goods to person order fulfillment is becoming more popular than traditional person to goods order fulfillment. That means the conveyor system is becoming more tightly configured with motorized roller applications and tighter coupling between the buffer system and the pick station.”

The conveyor system must work more quickly and on a more on-demand fast delivery method to accommodate those pick stations, he added. “Systems must become more modular and scalable so they can grow. And because uptime is such a strong requirement you’re seeing more smart system monitors especially on local devices.”

And with e-commerce growth comes the need to become greener by shipping less air and getting better truck utilization. That means more item picking and we’ll be forced to ship in more bags, cartons and cases. Case orientation is becoming more important as conveyors interface with more automation like robotics. More and more convenience foods that require freezer applications and equipment in freezer environments will increase. That’s why the meantime to repair, especially for mission critical systems, is becoming more important. Conveyor product lines are becoming simpler with more commonality of parts to increase uptime. Motorized rollers continue to go down in price to accommodate that.

“So e-commerce is driving the demand for more automation but these systems are becoming less conveyor-centric,” Bucella concluded. “We still think there will be a net gain for conveyor equipment. Since 2009 there’s been tremendous growth. Almost 23% in the first half of the year so there’s cautious optimism for the rest of 2012.”

Automated Guided Vehicles

Hal Vandiver, filling in for Sarah Carlson of Daifuku Webb and Chair of the AGVS product section, noted that in 2011 AGV sales were $108 million, or 925 vehicles, and that’s the strongest performance since 2000. More AGVs are being found in warehouses and DCs. In 2012 sales decreased slightly from 2011. More AGVs are using alternative guidance such as magnetic tape and optical. The sales forecast is 5-10% lower than 2011. But for 2013 JD Power is predicting a slight increase in automotive sales so AGV sales should remain steady.

Automatic Storage and Retrieval Systems

Brad Moore, vice president of sales at Swisslog, said that with capacity utilization increasing, companies have gotten lean and they don’t want to go back to not being lean. They’re looking to ASRS and automation as a way to support that by giving them the ability to flex. Some are looking at ASRS as a value-add, being able to sequence products and get them out the door. Using the density of ASRS to go vertical and using the capacity they already have will save companies from building new assets, he concluded.

Supply Chain Execution Systems

John Hill, director of St. Onge Company, said in the last few years, replacements, upgrades and new levels of functionality have kept this group above water and saved it from falling off the cliff in 2009. WMS in 2011 ran at $4.3 billion. That includes not only WMS, but yard management systems and labor management systems as well. Transportation management systems (TMS) offered the best bang for the buck in the systems community, Hill opined, noting that ROI is often less than a year. That’s growing at about 10.3%, outstripping WMS. Then he put the automatic identification and data collection space in context.

“In AIDC, 40 years ago there were six companies with total sales of $9 million,” Hill said. “In 2011 total sales were about $22 billion. Forecasted growth is $31-plus billion by 2016, with the lion’s share coming from RFID. It is coming on strong in the areas of real-time locator system and asset management systems. Bar coding will be with us for a long time.”

He supported that statement by noting he just saw a demonstration of the latest innovation in bar coding: a ring scanner attached to an iPhone used in a warehouse.

AIDC is growing at 7.5% and on the supply chain system side over the next five years about 8.4%. The internet of things—physical objects embedded with sensors and actuators that communicate with each other and their owners—are linked through wired and wireless networks, often using the same Internet Protocol (IP) that connects the Internet. This vision of connectivity is expected to drive growth in all the material handling technologies discussed here—dramatically—by 2025, he concluded.

Wrapping this session up, Vandiver said today’s buyers of material handling systems are sitting on their hands pending the presidential election.

“They don’t really know what the rules of the game will be over the next few months,” he said. “And despite sitting on a lot of cash they’re making a decision not to make a decision until they know the environment for regulations and taxation, particularly from the federal government. This plus what we’re seeing abroad puts us in a risk position. If we don’t get consumer confidence, that will further exacerbate slow growth.”

I did get to ask Mr. Vandiver about merger and acquisition activity among material handling companies, and his answer indicates how visible the product categories just discussed are becoming at a strategic investment level:

“I’m getting phone calls just in the last couple days from analysts interested in what’s going on in material handling and that’s unusual.”

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