Orders for material handling equipment are a good indicator of this country’s economic health. That’s why we’re happy to report good news coming out of the conveyor industry.
It appears to be on the verge of emerging from a severe slump that began back in 2001.
After hitting a record high in 2000, U.S. manufacturers’ shipments of conveyors and conveying equipment fell by more than one-third. In addition to being hammered by weak domestic demand, U.S. producers have been hurt by rising imports, with leading external sources of supply including Germany, Japan and Italy. However, the pace of shipments decline slowed considerably in 2003, as the U.S. economy grew with renewed strength and corporate profits climbed at double-digit rates.
With business conditions expected to improve further in 2004, capital expenditures by industrial consumers like you are expected to surge following an extended period of weakness. According to a report done exclusively for Material Handling Management by Long Research, conveyor shipments are expected to rise an estimated 9.1%. Shipments are projected to increase an additional 8.1% in 2005 before slowing somewhat, growing 6.5% in 2006. Overseas, a decline in the value of the dollar against the euro and yen will help make U.S.-manufactured conveying equipment more affordable, boosting export sales. Of course, a hike in steel prices could have an adverse effect on conveyor costs.
Other risks to a rosy market outlook include high energy prices and the constant threat of terrorist activity, which could negatively impact U.S. consumer and business confidence — and spending. If security conditions continue to improve in Iraq and further successes are achieved in the global war on terrorism, confidence levels should improve further, helping to spur increased conveyor demand.
For this month’s Association Report, MHM invited Bob Reinfried, executive vice president of the Conveyor Equipment Manufacturers Association (CEMA), to comment further on these and other industry trends.
MHM: What’s the biggest challenge facing conveyor equipment manufacturers in today’s economic climate?
Reinfried: Maintaining customer loyalty. Our members are challenged to continually prove their value to their customers to earn business. They know our conveyor manufacturers provide a quality product. They’ll continue purchasing systems and components from them, even though their price might not be the lowest, if they see that value. Still, pricing pressures will persist. There will be more business consolidations in our industry. With some manufacturers closing their doors, foreign competition, especially from the Pacific Rim, is causing concern and only the strong will survive. That’s not just material handling. Many industries feel the same thing. B>MHM: What consequences will there be for end users?
Reinfried: Eventually this will be a bad thing for them. With fewer and fewer conveyor companies out there, eventually when things break loose some time in '04, there may be more business out there than there are qualified manufacturers to handle it. Then as more and more business is firm on the books and orders are taken, these companies won’t be as eager to go get the business and might not worry about bidding it higher. The attitude could be, "If we get it, great; if not, that’s fine, too." We’ll be busy for the next six to 12 months anyway.
MHM: So we’ll go back to a seller’s market?
Reinfried: I think we will. That will certainly be true in segments of the market. One area where we’ve seen companies fade away in the last couple years are those that work with automotive companies. There are only three to five conveyor companies being contacted by the Big Three. Sometimes members anticipate that some startup companies may have difficulty surviving due to increasing price pressures in the automotive sector.
MHM: How are your members feeling about their business climate in general over the next couple years? Are they staffing up?
Reinfried: Right now inquiry levels are up and size of inquiries are up. Members think 2004 will be better than '03, but they don’t think the pickup will be until later in the year. Then the surge will continue into '05. The question is, is it sustainable and when will it be, because they’ve seen nothing consistent yet. Once they do, then maybe they’ll start hiring. But they don’t want to hire right now. They don’t want to invest in training only to let them go again. They’d rather work overtime or maybe bring in some temporary help. There have been a lot of productivity improvements made in the past couple years and they may not need the level of staffing they did before. Some members have told me that until it gets really crazy they’re going to use overtime.
MHM: With the power going back to manufacturers are there innovation or safety implications to be worried about? How motivated will OEMs be to pursue R&D aggressively?
Reinfried: I think they’ll have to. For example, with RFID tagging, there are many new technology requirements. Our challenge will be to make conveyors smarter and provide product traceability. Wal-Mart has said they want RFID up and running by January.
Another consideration is noise. The higher the speed the louder the noise. As far as safety, CEMA has sold more than 13 million safety labels, but that’s only part of a safety program. There’s training at the facility and the user needs to be alerted to potential hazards. Every conveyor company is looking for ways to make safer equipment. I sit on the ANSI B20 committee, which is the safety standard for conveyors, and there are still quite a few avoidable accidents involving conveyors.
MHM: With all the safety features on today’s conveyor systems, why are these accidents occurring?
Reinfried: Most of them involve maintenance people rushing to get a job done or not locking out the power before getting under the conveyor to do something. It’s human error. They’ve been trained properly and the equipment has been manufactured in a safe manner, but just as when you go through an intersection when the light turns yellow, people take risks. That’s human nature. Employers need to train employees properly. Putting labels on the equipment can be highly effective because they include a message and a pictogram showing the potential hazard.
MHM: Do today’s customers understand the importance of good maintenance procedures to system longevity?
Reinfried: A prudent customer will maintain their equipment because if they’re not lubricating their chain well enough and that system goes down, they’re losing money. Having properly trained maintenance personnel is required, and whether it’s someone on the staff or an outside service provider, they’d better follow the material that the OEM provided them. If they don’t, their equipment won’t last as long and they’ll experience unnecessary downtime
MHM: How do you see CEMA’s role changing in the near future?
Reinfried: As markets change there are new people and innovative ideas coming in all the time. One of our big projects is publication of a new edition of our book on Belt conveyors for Bulk Materials. We’re working on our sixth edition now. With an annual operating budget of a half million dollars, this project is a significant undertaking by CEMA. We elected to spend up to a quarter million dollars to revise this publication, which will be marketed worldwide when completed in December. Although this predominantly affects bulk conveyor manufacturers, and two-thirds of our members are on the unit handling side of the business, the entire association pulled together to satisfy industry demand for this signature publication.
MHM: We just surveyed our readers on their conveyor purchasing plans. Our study showed that 22.4% of respondents plan to purchase a new conveyor system in 2004; 18% plan to spend more than $1 million while 29.4% plan to spend less than $250,000. What comes to mind when you hear these figures?
Reinfried: Forty percent of our companies have sales of less than $10 million a year. They’re the ones filling the orders for $250,000 to $500,000. Quite a few of our members are component manufacturers, and once a system is sold, the OEM has to buy components from these companies. So that’s good news.
MHM: Talk about the economic environment globally. How are the current exchange rates affecting business?
Reinfried: Domestic suppliers won’t see much of an effect but exporters have seen a real benefit. They expect that rate to change after the November elections. Steel prices as well as availability have been an issue for quite a few of our companies. Health care used to be their number one problem, now it’s steel. When they are getting surcharges of 20 percent to 30 percent or more and they’ve been told this could last three years, eventually these costs will have to be passed on to their customers. Some have already done that, but others have had an adequate supply of steel. These pricing pressures are entering the market. MHM
Conveyor Industry Sees Beginning of Recovery
The Conveyor Equipment Manufacturers Association (CEMA) reports that 2003 new orders were up for the conveyor industry for the first time in two years. CEMA estimates that new orders totaled $4.8 billion 2003, a 6 percent increase over 2002. New orders outpaced shipments slightly (3 percent). CEMA President Bill Casey announced the results at the association’s annual meeting in March in Palm Springs, California.
CEMA tracks new orders and shipped sales volume in seven classes of unit handling equipment and five classes of bulk handling equipment. Trends are totaled and graphed for all product classes in Bulk Handling Equipment, Unit Handling Equipment and total CEMA members.
The executives representing CEMA member companies who attended the annual meeting were pleased to see new equipment orders begin to recover in 2003, and were hopeful that the trend will continue in 2004. Founded in 1933, CEMA is the trade association of leading North American conveyor equipment manufacturers and engineering firms.
CEMA also makes available to both member and non-member companies safety labels for all types of conveyor equipment as well as useful technical information and manuals. For further information on CEMA or its member companies, to get information on the new "Belt Book," to order safety labels or to get technical information, visit the CEMA Web site at www.cemanet.org.
CEMA is completing the sixth edition of its "Belt Conveyors for Bulk Materials" book, which will be available in December. This is the first total revision of the book since 1980.