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The North American market report
Recession caused pain but improved good companies

Monday, 21 Feb 2011 ( #502 )
Special Feature
US materials handling equipment orders grew 18% in 2010 and are forecasted to grow 11-12% in 2011 and 2012. While some pundits say the industry will not reach the peak levels of 2006 as the market gradually recovers, Christine Cranney discovers that the 2008-09 economic recession has been the bane of - as well as a boon to - the industry.


Demand is returning

Manufacturing activity across the US has started growing again, although factory utilisation rates remain low compared to pre-recession times.  Since the materials handling industry is heavily reliant on industrial production activity, US demand for forklifts and other warehousing equipment is back.

MHIA's Hal Vandiver says the industry can expect to benefit from the materials handling needs of companies filling supply chain pipelines, re-establishing inventories or responding to pent-up demand.

Vandiver is right about pent-up demand. Businesses that have held back on renewing or replacing their fleets are now responsible for driving demand in materials handling equipment.

Hank LeMeur
Hank LeMeur, CEO of Pennsylvania-based Superior Tire & Rubber Corp, explains the pent-up demand that is seen in the US: "The recession is the result of a financial panic ... The 40% drop in truck sales in 2009 was largely deferred and that demand is starting to re-enter the market."

However, the forklift pie is much smaller post-recession, so it’s hardly surprising that Tim Smith, a 30-year veteran of the forklift industry and sales manager of North Carolina used forklift wholesaler Forklift Pro Inc, says many US materials handling companies are still doing it tough.

"They are dealing with lower sales, very strong competition and lower profits. I see a lot of dealers positioning themselves for a much smaller market," Smith says.

While Forklift Pro Inc observed sales rising over the past five months, it is seeing a "cautiously optimistic approach" to buying.

"In the past, we would sell truckloads of equipment to a dealer who was buying stock to replenish his inventory," Smith says. That same dealer is now only buying when he has a firm order.

"It’s definitely changing the way we do business," Smith adds.

Another used forklift wholesaler in Philadelphia, Pennsylvania, National Forklift Exchange Inc (NFE), says that while the current environment may be characterised by lower volumes, optimism has "definitely returned to the forklift business world".

NFE owner Rob Parkin says: "As wholesalers, we speak to the retail dealers every day and feel this is the year that shows the beginning of pent-up demand that spurs top-line revenue. After years of cost cutting to remain competitive, that top-line revenue will be a welcome relief. Prices of used equipment are firming up and the sale cycle is getting much shorter. The days of giving away just to get orders (have) come to an end."

This sense of optimism is keenly balanced by other concerns.

Velocity of money slows

Unit Load Handling Systems Inc (ULHS) president Brian Scally describes business confidence as one of the industry’s biggest concerns. "The velocity of money has slowed, causing most businesses to reserve their buying activity. Recently, this trend has begun to reverse … This bodes well for the recovery … and carries confidence to a higher level." ULHS is a forklift attachment and accessory supplier. It sells the ULH-brand and distributes other brands in the US and globally.

Steve Lippert, executive vice president of forklift wheel manufacturer Hamilton Caster & Manufacturing Co, thinks uncertainty about taxes and regulations is holding people back from spending.

"Meanwhile, we are entering another environment of rising costs with healthcare, raw materials and energy," he adds.

Frank Russo, general manager sales and marketing manager of TCM America (TCMA), explains that companies have scaled back on expenses to match forecasted revenue. He thinks that the industry will continue with that strategy for a while.

"The real problem is a lack of market confidence and this impedes companies from making long-term decisions requiring long-term capital and commitments.’

Russo urges materials handling suppliers to continue finding ways to help customers and dealers meet their individual financial goals while remaining strong and viable themselves.

Sky-rocketing prices

EnerSys' Ironclad, General Battery and EnForcer product lines.
EnerSys, North America’s largest service provider for forklift batteries and chargers, is worried about the escalating prices of commodities like oil, lead and copper. Higher raw material prices mean price hikes for its products, but it is important for the company - especially in this economically uncertain time - to keep its prices down to stay competitive.

This concern is experienced all the way through the supply chain. Superior Tire & Rubber Corp also lists managing sky-rocketing raw material costs as its "greatest concern".

Ontario, Canada-based all-terrain forklift maker Omega Lift cites steel prices as influencing its costs the most. The company wisely entered into long-term purchasing agreements with steel and other suppliers to secure controlled prices over longer periods of time.

Mathieu Ruault, forklift market manager with Massachusetts–headquartered brake-maker Altra Industrial Motion, says with the global economic recovery in the second quarter of 2010, most major manufacturers also faced challenges acquiring sufficient raw materials and finished components.

"Substantial expedited freight premiums were incurred in order to meet increased demand. In addition, increasing costs of raw materials and components, especially from Asia, (are) a major concern for 2011," Ruault says.

Despite those worries, Ruault says that brake orders for Altra have been solid and are expected to stay strong this year. The company, which makes brands like Warner Electric and Matrix International, has been engaged in the forklift market since the inception of electromagnetic brake technology for forklift applications.

Pittsburgh, Pennsylvania-based robotic industrial truck maker Seegrid is also concerned about rising steel and other raw materials costs but "not as much as others", says company spokesman Steve Smith.

"While we do have costs in raw materials, our proprietary vision-guided technology is what makes up the majority of our cost," Smith explains.

Seegrid was founded in 2003, responding to studies identifying a need in the market to cut costs and automate processes, using robotic technology in traditional materials handling environments. Most customers tend to be larger, well-capitalised firms and so it has not been largely affected by the recession.

"Since our product and technology saves money and increases efficiency, our inquiries and sales have come from those that are still interested in doing this regardless of the economy," Smith explains.

Financing the forklift

Forklift Pro’s Smith says that while the materials handling market is showing signs of recovery, the past few years have been hampered by a lack of quality financing for equipment users and low capitalisation for dealers. "We’re hearing that over and over from the dealers. Unfortunately, banks, leasing companies, etc. don’t appear to be opening their wallets back up yet. That one factor results in lower sales across the country."

Frank Russo from TCMA says many dealerships are now highly leveraged due to their poor cash position over the past two years. "So when they apply for loans, their balance sheets are not in line with new banking guidelines – making it difficult for them to borrow for their rental fleets or just stocking inventory."

Forklift Pro illustrates this predicament, as one of its major challenges is to gear up its inventory to this year’s projections and financing it with its last year’s cash flow.  "It will take some cycles to catch up," Smith admits.

Bo Maslanyk
Bo Maslanyk, vice president for sales and marketing of Clark Material Handling Company (CMHC) agrees that in the wholesale financing area, "money has been tighter", consequently impacting suppliers’ inventories and rental fleets. He thinks that retail financing for customers has been more readily available than wholesale financing and counts CMHC fortunate to have excellent financial partners.

"As an OEM, Clark is constantly working with financial institutions to assist our dealer organisation with funding," Maslanyk says.

Portland, Maine-based Southworth Products Corp, which claims to be the world’s largest manufacturer of ergonomic materials handling equipment for vertical lifting and work positioning, is not experiencing financing problems. President Brian McNamara says extended US government depreciation allowances and fast return on investment from Southworth’s products are cushioning the company from current financing shortages.

In Canada, Omega Lift’s sales director John Baker says many financing sources dried up over the past two years, forcing new equipment buyers to stay away. "[But now] the finance companies have come back, looking for deals [and resulting in] new product buyers coming back into the market as well."

Beyond the purchase price

Forklift suppliers traditionally face the challenge of educating forklift users that there is more to procuring a forklift than the vehicle’s acquisition price. The forklift’s price often weighs heavily in decision-making, but suppliers say it is the cost of ownership that is the key to a forklift’s value.

Interestingly, in tough times, some US forklift suppliers are discovering that instead of enquiring about the cheapest forklift, their customers are asking if the forklift they are paying their valuable cash for is going to do the job, and do it for a while.

The US’s leading forklift supplier since 2002, Toyota Material Handling USA Inc (TMHU), which has operated in the US for over 40 years, is happy to meet such customers. TMHU spokeswoman Melinda Beckett-Maines tells Forkliftaction.com News that as a result of the recession, customers are now looking at the true cost of ownership. "Most companies have become leaner …They need to see the value of their purchase. This means looking at productivity levels, run times, lift speeds, safety features, downtime, estimated maintenance costs and more."

CMHC is also dealing with customers focused on the bigger picture. Maslanyk says his customers are concerned with the "lowest cost of ownership as defined by lowest down-time, best uptime, lowest maintenance costs and lowest monthly lease payments".

However, Nissan Forklift Corp North America (NFCNA) has been experiencing the opposite with its customers. Marketing director Steve Cianci says: "Everything goes out for comparative quotes, with price ruling the day." He laments "longer-term, strategic thinking" being usurped by short-term financial gains.

Other industry suppliers like EnerSys and Superior Tire & Rubber Corp report that customers are willing to part with more money for better quality products.

EnerSys vice president sales and service Americas Jeff Long says the percentage of electric forklifts in North America has increased in the past few years. "Users see the savings in fuel, service costs and the cleaner atmosphere for their employees with electric vehicles … We [also] see more forklift sales people offering electric truck alternatives when end-users are asking to replace their internal combustion forklift fleets."

Superior’s LeMeur has seen sales of its premium product, the Cushotane KL, grow during the recession and even more now during the recovery. He thinks that the higher demand for quality forklifts and replacement parts will benefit high-quality American manufacturers in the long term. "End-users learned the importance of reliability and quality in such a tough time."

Trimming the fat

Made in the US, Big Joe Forklifts claims the IBH is the highest quality manual stacker on the market today.
Big Joe Forklifts has been a mainstay in North American factories and warehouses since 1951 when the Big Joe IBH push stacker was introduced. After years of producing its products domestically, the recession forced the Lombard, Illinois-based manufacturer to turn to China.

In 2009, Big Joe Forklifts’ management team reorganised into a new company, Big Lift LLC. The Big Joe brand and forklifts now belong to a partnership involving E-P Equipment Co Ltd of Hangzhou, China. Big Lift LLC still produces its heavier trucks like its popular PDC walkie counterbalance trucks and the IBH, while E-P manufactures its forklifts that are now challenging to produce domestically.

Sales director Bill Pedriana says the companies that stand to benefit as the market recovers "seem to be the ones that made hard choices and adapted quickest" to the lower demand of the past few years. "Those that had the burden of high fixed costs will find it more challenging to reinvigorate themselves and scale back up [compared to] smaller, more nimble organisations."

Tim Smith at Forklift Pro's Pineville, North Carolina headquarters.
Forklift Pro Inc’s Smith agrees: "It’s truly been survival of the fittest. Tough times weed out the weak. It makes everyone look at what they are doing right and what they can do better. One good thing is that we’ve been able to trim the fat. In the end, this one point could be a blessing to the industry as a whole."

The company used its down-time to boost its internal and external resources. It developed and enhanced its web presence with the goal of boosting sales through web solutions companies AIMG, DAIM and Industrial Web Solutions. It also used Forkliftaction.com for its marketing efforts.

The recession has compelled companies to operate more efficiently and leaner. Operational methods have improved for some manufacturers. Many have had to let people go - a painful process for employers and employees alike - but a few have not only retained staff, they have added new people.

Hamilton Caster & Manufacturing’s Lippert says the recession "made the winners better companies as waste was eliminated" and "if you were hiring, you had the strongest candidate pool ever."

CMHC is one of the few companies that seemed to have thrived in the recession: "At Clark North America, not only did we retain all of our experienced people, but we also added experienced key personnel (who) have helped us with our tremendous sales growth in the last few years," Maslanyk says.

CMHC introduced a stimulus program in 2009 to support its dealers and customers. It incentivised trucks and parts sales and did not cut employee salaries. It employed about six new people in 2010 and intends to employ another six this year.

Maslanyk explains that the company cut back on other expenses to operate a lean organisation and, as a result of its actions, was able to give its dealers and customers top-notch service via a motivated and experienced staff.

NFCNA’s Cianci says his company is faring "exceptionally well" post-recession. "We have seen our top and bottom lines grow significantly but, just as important, our marketshare continues to grow."
  
"There was an increased focus on process efficiencies, whether sales-based, operations-based or financially based.  We have become much more efficient and can flex up or down more easily during unsettling times," he explains.

Another forklift manufacturer, TCM, has had a major change in the past year. From April 2010, production ceased at TCM’s American plant in a company restructure. TCM consolidated and moved its sales, marketing and dealer support to its Columbia, South Carolina manufacturing facility.

Frank Russo
TCMA’s Russo says since the consolidation, the US subsidiary has enjoyed greater efficiency and more effective management. "We have learned what we can do without. We’ve embraced technology and have spent more time training and teaching our employees and customers about good business practices.

"Due to this change and the slowly improving economy, we are already making plans to resume production … Because of this recession, TCM had decided to reinvent itself and this action when viewed in later years [will] prove to be the best thing that could have happened," Russo continues.

Meanwhile, Canadian manufacturer Omega Lift was not only hit with decreased orders but longer lead times as its suppliers closed factories and reduced staff.

"Some of the products from suppliers were no longer available so we had to find alternate sources or re-design our products without those components," Baker says.

However, the company "embraced" the recession and saw an opportunity to source new, global suppliers. Omega Lift also expanded its dealer footprint to capitalise on specialty applications that required its customised all-terrain forklifts, an area where it could maintain margin and order volumes.

Other companies like NFE and Superior Tyre & Rubber Corp are planning expansions.

NFE wants to revamp its inventory. Parkin says there is a shortage of late-model, low-hour used forklifts and he plans to buy and stock as many as he can find. "That larger inventory plus a potential acquisition are the main reasons for us to predict a sales increase of 3 to 4% [for 2011]."

Superior is meeting higher demand by adding another 50,000 sqft (4,645 sqm) to its manufacturing facility in Warren, Pennsylvania. The company acquired the 15,000 sqft (1,394 sqm) facility adjacent to its present complex last year and plans to expand it further in 2013. The company currently employs about 200 people but expects its workforce to grow "at historic levels".

"The good news now is the industry has started to gain momentum and started to recover in significant volumes. Many of the American truck manufacturers are focused more on higher quality products. This  [recovery] directly benefits high quality, local suppliers more than lower quality imports," Le Meur says.

According to the Industrial Truck Association (ITA), the American forklift industry peaked in 2006, with 208,000 units ordered, and then declined 11%, 28% and 55% in 2007, 2008 and 2009, respectively. At the end of 2009, the industry began to see consistent month-to-month growth. The ITA said at its annual meeting in October 2010 that forklift orders were up 31% in that year to date compared to the same period in 2009. The association’s members predict there will be orders for about 130,000 forklifts in the US this year.
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