Expansion Continues for Storage Equipment Sector

Signs point to growth of 3% to 5%.

By John Nofsinger

Don't you just love it when a plan works? At this time last year, we looked forward to see if the expansion begun in 2004 for the storage equipment sector would continue through 2006. At that time, indicators pointed to growth in the 8 percent to 10 percent range. At this moment, it appears that 2006 shipment growth for the flagship racking component of the sector will be up 9 percent over a robust 2005.

We rely on several tools to assist us in looking forward. One such tool is the Material Handling Equipment Manufacturers Forecast (MHEM) updated quarterly by MHIA. MHEM is based on over $20 billion of core equipment that serves as a solid proxy for other industry equipment and technologies, like racking, shelving, cabinetry and shop furniture.

As we have come to learn throughout capital goods buying cycles, one of the best predictors of growth is the ability for the economy to drive sustained and predictable profits. Exhibit 1 correlates the MHEM to predictions of Corporate Profits forward. Note the strong correlation between the MHEM and Corporate Profits projections for 2007.

Based on research like MHEM, as well as input from research firm Global Insights, we see further growth for the Storage Equipment Sector in 2007 of between 3 percent and 5 percent. Exhibit 2 shows how this prediction is expected to impact the flagship racking component. It is important to note that much of the growth over the 2004 to early 2006 time frame was influenced by higher raw material and energy inputs. The view is that with stability in these areas, the 2007 growth projections will play out as real unit growth.

With the overall growth rate shifting from high to low, it will be important for producing and channel participants to focus on end-use sectors that remain in growth phases of the business cycle curve. These user groups are most likely to have the sustained/predictable profitability that we noted earlier as being essential to decisions to implement material handling and logistics solutions. One tool providing insights on this topic is produced by the Manufacturers Alliance. Exhibit 3 presents some important information as business plans are developed for 2007 and beyond.

As Exhibit 3 demonstrates, material handling as an overall industry is led by the position of major end-use sectors. Note how we lag or parallel many of these major sectors. Note also those sectors that are in or about to enter a period of accelerated growth. A focus into these end-use areas could go a long way toward assuring growth through 2007.

Another good indicator of growth in 2007 will be the confidence shown between producers and users at the upcoming ProMat 2007 Exhibition and Conference scheduled for January 8-11, 2007, in Chicago's McCormick Place South. All indications as this article is written point to a larger event, both in exhibits and attendance. The timing of ProMat 2007 is particularly ideal in solidifying growth through 2007. The event will give us quite a bit more to write about in the coming months on the continued health of the material handling and logistics industry.

   Current Issue   |   Past Issues   |   Search   |   Contact Us   |   Send Files    |   Advertising   |   MHEDA Home Page

The MHEDA Journal • First Quarter 2007 • Volume 36, No. 1 • Contents are Copyright © Data Key Communications, Inc.
All rights reserved. • Nothing may be reproduced in whole or part without written permission of the publisher.