The early signs, at least, are promising. After a dismal 2009, manufacturers of conveying and sortation systems are once again getting what they believe are serious inquiries from potential customers about new installations.
As far as the manufacturers are concerned, the rebound can't happen soon enough. Last year was among the worst the industry has seen in some time. Through the first half of the year, sales tracked by the Conveyor Equipment Manufacturers Association (CEMA) were down by 18.8 percent. (Full year statistics will be announced next month.)
But equipment makers have reason for encouragement. Not only are they fielding more requests for quotes, but buyers themselves have indicated they're likely to increase their spending this year. In a survey conducted in mid-2009, DC Velocity asked readers about their plans for spending on conveyor equipment in 2010. While 19 percent indicated they expected to cut spending, 31 percent said they planned to spend more this year than they did in 2009.
For companies planning to buy new equipment, the timing couldn't be better. Right now, vendors are hungry for business. Most of the manufacturers admit pricing pressure is intense, and with manufacturing capacity plentiful, they are anxious to book business.
The intense market competition is just one part of the story. Like their peers in many other industries, conveyor manufacturers have worked hard to trim their own costs over the past 18 months or so. That means they can now cut a better deal and still make a profit.
William J. Casey, president and COO of SI Systems, says, "I know that we've done a lot of belt tightening, so our break even is a lot lower and that should translate into better-than-average profits." He admits, though, that competition for order fulfillment equipment business is "a dogfight."
Larry Strayhorn, president of TGW Ermanco, agrees. "We all sense it's a buyers' market, and they are taking every advantage they can to pit us all against each other," he says.
"This is a fantastic time for people to buy," adds Michael Johnson, senior vice president for unit handling systems at HK Systems. "They will never get a better deal than now."
Cautious but hopeful
The deals may be out there, but equipment makers aren't expecting a flood of orders in the immediate future. Todd Swinderman, current president of CEMA and director and chief technology officer for Martin Engineering in Neponset, Ill., says, "Most of our members feel like we're bouncing along the bottom. We don't expect to see a dramatic increase [in orders]." He does see some light ahead, however. "After seeing a sharp decline in orders in 2009, companies believe the worst is over and growth is on the way, if not immediately then by later this year."
Russ Devilbiss, chair of the conveyor & sortation systems product section of the Material Handling Industry of America (MHIA) and sales and marketing manager for Carter Control Systems, takes the same view. He says section members see glimmers of recovery. "I think we're hopeful things will be a lot brighter," Devilbiss says. Even so, he expects the comeback to be a slow one. MHIA's forecasts indicate that equipment sales won't see a significant rebound until the third and fourth quarters of the year.
SI Systems, an automated systems specialist whose clients are concentrated heavily in the pharmaceutical, health and beauty aid, entertainment, and office supply industries, is also seeing signs that customers are getting ready to spend again. Casey says, "We are starting to see the number of inquiries increase. I'm talking about what I would perceive, based on 40-plus years of experience, as some pretty solid ones. Customers are starting to loosen the purse strings a bit. We are not back to normal levels, but we have hit the bottom and are starting to get a little bit of bounce. It will be a slow but steady recovery."
Johnson of HK Systems is not quite so sure those inquiries will quickly turn into orders. "We have seen an uptick in quotes, and that gives us some hope, but honestly, the first half is going to be a difficult time," he says. "I sense a tentativeness with some customers. We are quoting larger systems, but I'll feel better when the orders come in."
That's not to say the picture at HK Systems is entirely bleak. Although demand for new installations is down, Johnson reports that the company has seen growth in a few areas, particularly aftermarket sales, modifications to existing systems, and retrofits. "We anticipate that will continue to be strong," he says. "That's usually an indicator of an economy in flux."
Pockets of optimism
Others in the industry sound a bit more optimistic. Ken Ruehrdanz, market development manager for Dematic Corp. and former chair of the MHIA conveyor & sortation systems product section, expects to see steady growth in demand for integrated systems this year. "The need for processing speed, increased levels of accuracy, higher customer service levels, more value-added services, with more ergonomics and sustainability built in, will drive the market need for integrated material flow systems in 2010," he wrote in response to a query from DC Velocity. "Warehouse operators continue to be driven to reduce warehouse logistics costs."
Some are already seeing signs of growth. John Sarinick, vice president and division manager for Beumer Corp.'s sortation group and vice chair of MHIA's conveyor & sortation systems product group, says his company started seeing an uptick in the summer. "True proposals turned up in the last quarter, and several [were] due here in January," he says. "We're hoping for a strong first quarter."
Sarinick expects growth to be led by dot-com customers, which are projected to recover more quickly than their brick-and-mortar counterparts. "Direct-to-consumer is looking to be a strong market for our products," he says. Facility upgrades will be another growth area, Sarinick adds. "With the economy down, customers are using automated systems to get more out of their [existing facilities] rather than building greenfield facilities as we saw in previous years," he says.
Bucking the trend
Not all equipment makers look back on 2009 as a disaster. Take TGW Ermanco, for example. "It was a pretty dismal year, but we did better than expected," says Strayhorn, who joined the company as president last April. "Actually, the group [which includes several material handling firms operating under the umbrella of the Austria-based TGW Logistics Group] grew a little last year."
The company is looking to build on that growth by shifting its strategy from supplying products to integrators toward developing material handling systems for end customers, Strayhorn says. "We are still going to maintain relationships and sell conveyor systems to our business partners, but we are breaking out of the box and approaching the market in a direct fashion," he explains. Strayhorn says it's necessary for the company to "break out of the commodity box [because] that's the worst box you can be in in our industry. It drives down margins and limits growth."
At least one company will look back fondly on last year. "Schaefer had a great year in 2009," says Jack Lehr, vice president of sales for Schaefer Systems, a large systems integrator for automated warehouses and distribution centers. He expects business to remain strong this year.
"Blue chip companies in our markets took advantage of our services to leapfrog their competition," he says. Specifically, Schaefer had success with large food distributors, major retailers, and electronic commerce fulfillment specialists. "They went against the trend," he says. "Companies that are segment leaders and had the capital took advantage of lower construction costs and the opportunity to get the lowest cost per unit."