Slow Growth Forecasted for 2016
January 21, 2016
MHEDA dealers across North America anticipate growth, though not as robust as years past
By Steve Guglielmo
Every year, the 1st Quarter issue of The MHEDA Journal is devoted to forecasting the industry for the year to come. To do this, we not only get forecasts from our partner associations like MHI (page 65), ITA (page 66), MAPI (page 72) and CEMA (page 71) but also predictions from MHEDA members in our dealer and supplier forecasts. Not only does this information paint a clear picture of what to expect for the upcoming year, but taken as a whole, it uncovers trends that might not have been apparent immediately.
This year, as has been the case for the past five years, MHEDA dealers expect growth across all segments of the industry and regions of the country. Unlike the past five years, however, growth expectation is tempered. Whereas last year, more than 97 percent of respondents expected to see growth and nobody expected a decrease, this year several members expect the economy to be flat and a few members even expect a small decrease in sales compared to 2015. Is this because sales have been so strong in the last few years that they can’t possibly keep growing at that rate or does it portend a looming slowdown? It will be interesting to keep an eye on these trends as the year progresses.
The following are responses from MHEDA dealers across North America about what they expect to see in 2016. Like last year, we decided to group companies by region, rather than segment, due to the continuing diversification of product offerings within companies.
Northeast
Going into 2015, the Northeast was the least optimistic region, predicting a 6.25 percent cumulative growth. This year, the region is even more tempered in its forecast, expecting 5.41 percent growth. A combination of things is contributing to this forecast, chief among them an expected flattening of new equipment sales. However, as new equipment sales taper off from highs in previous years, the opportunity to profit from service presents itself, and the Northeastern MHEDA members are ready to take advantage, with each company looking to add service technicians next year. As it is nationwide, consolidation is also impacting growth expectations in the Northeast.
Rental equipment will be driving Mid Atlantic Industrial Equipment (York, PA) to an expected 7 percent growth in 2016. David Lang, Mid Atlantic’s CFO and Principal, expects a sluggish economy to hinder industry growth next year. “An indecisive economy overall will cause sales of new equipment to drop,” he says. To combat the uncertainty of new equipment sales, Mid Atlantic is investing in rental equipment and technician training in 2016. In addition to the technician training, the company expects to add technicians to its staff. Lang also expects e-commerce to have an impact on sales in 2016.
Continued growth in Class 1 and 2, flat Class 3 and shrinking Class 4 and 5 business adds up to a flat year overall for Brooklyn, New York’s Key Material Handling. General Manager Robert Kehley saw an unpredictable 2015, where sales weren’t consistent month over month as an indicator for 2016. “The more electrics that are sold, the less major shop repairs, which will require a change to the service mode,” Kehley says. Like Mid Atlantic, Key will be adding technicians in 2016 to combat the slow growth expected. The company will also be investing in Hydrogen Fuel Cell Projects. Like many in the industry, Key has been impacted by the industry-wide trend toward consolidation and Kehley expects that trend to continue going forward.
A continuing investment in technology to drive productivity and efficiencies combined with a redesign of the company website and use of social media are two of the things that will be driving Liftech Equipment Companies (East Syracuse, NY) to growth in 2016. Mike Vaughan, Liftech’s CFO, expects to see single digit increases in equipment sales but approximately a 10 percent growth in aftermarket sales. “We can handle increased unit sales with our existing staff but will need to hire technicians to support aftermarket growth,” says Vaughan. He continues, “Customer needs have certainly changed and they are looking for more of a qualitative versus an equipment purchase relationship. We continue to look at ways, through things like telemetry, to be more proactive at helping customers manage their material handling needs.”
Maintainco Inc. (South Hackensack, NJ) President James G. Picarillo expects to see a 5 percent growth in 2016, spurred primarily by the fact that it is an election year and there are companies with cash to spend. To accommodate that growth, the company intends to add both sales and service personnel. Maintainco is looking at the possibility of adding new facilities next year. While the company expects to grow in 2016, that growth isn’t as robust as it could be. According to Picarillo, “Healthcare and regulations increase costs, which will be passed on to the consumer.” He also sees the continued consolidation in the industry making margins on new equipment smaller, which impacts profits and adds stress.
East Providence, Rhode Island’s M & G Materials Handling Company is forecasting a growth of 6 percent in 2016. However, that growth won’t come from an improved economy but from the loss of a competitor, according to President Kenneth Mac Donald. “The overall market will remain flat,” Mac Donald says. “However, opportunity for growth comes from the loss of a competitor’s distribution channel.” Like many others who were interviewed, M & G expects to add technicians, owing to the attrition of older workforce. “The industry still has overcapacity and an aging distribution channel. Manufacturers are struggling with that, thus consolidation will continue with both manufacturers and distributors.”
This year’s lone Canadian respondent, Wecon Systems Ltd. (Mississauga, ON, Canada) expects a 4 to 5 percent growth in 2016. Primarily driven by 3PL and E-Commerce fulfillment centers, Wecon will be adding sales, service and installation personnel in 2016 to accommodate the growth. Says VP of Operations Will Egerton, “We here in Canada typically follow the US, so we should see here what you have seen over the last couple of years.” If the Canadian dollar moves closer to the value of the US dollar, sales could be even better for Wecon, though Egerton predicts that the company will have to figure out how to do business with the 75-80 cent dollar for the foreseeable future. “Our Canadian Dollar is making it difficult to import,” Egerton says. “The saving grace is that everybody has to do it, so we aren’t at a competitive disadvantage. Just a hurdle.”
Southeast
Respondents in the Southeast are very bullish heading into 2016. Respondents expect a cumulative 8.94 percent increase in 2016, compared to a projection of 6.9 percent heading into 2015. Every respondent we spoke to anticipated growth for next year, with Storage and Handling pacing the region with an anticipated 15 percent growth. Industrial trucks predicts a cumulative 9 percent growth, Diverse companies expect 8 percent and Engineered Systems anticipate 6.25 percent growth.
New businesses entering the South Carolina marketplace will drive an expected 8 percent growth for CMH Services (Columbia, SC) in 2016. Buddy Smith, CEO, expects growth across the board in service revenue, rentals and new equipment sales. Like most other respondents, CMH Services will add service technicians in 2016 and will also look to add a sales management position. In recent years, customer expectations have shifted, leading to a need for increased flexibility and ROI analysis. Smith expects the industry as a whole to continue to grow in 2016.
United Sales Distributors, Inc. (Morganton, GA) expects additional product offerings and new customers to pave the way for 5 to 10 percent growth next year. “Many of our largest customers are reporting flat or lower sales for the last quarter and 2016,” says President and CEO Danny Sansevieri. “However, we are adding products and customers and as a result will experience some growth.” One advantage Sansevieri has noticed in recent years comes from the responsiveness that being a smaller company allows. “Many of our larger customers are considering smaller companies such as ours because we are more responsive and able to meet changes more effectively.” Though USDI expects growth, government regulations such as the healthcare law and certain tax burdens will temper that growth. Sansevieri expects the overall industry to decline in 2016.
Mathand, Inc. (Woodstock, GA) anticipates 15 percent growth in 2016. “We have customers already telling us their spending budgets for upcoming projects in 2016,” says President Connie Costner. “The economy continues to improve. Businesses are growing and spending money for capital improvements.” Mathand anticipates adding two project managers by the end of 2015 and is making additional changes to its organization structure to be better equipped to handle that increase in business. Another positive indicator for 2016 is that manufacturer lead times have increased, meaning they are doing well. In the first half of the year, Mathand will be moving to a new 10,000 sq. ft. building with approximately 2,500 sq. ft. of office space and 7,500 sq. ft. of warehouse space.
An improving construction industry and strong pharmaceuticals are two of the areas that will contribute to an expected 15 percent growth for Atlantic Coast Toyotalift (Winston Salem, NC). President Jay Williford sees the election year as a positive because he believes it will prevent the government from passing legislation that would interfere with the economic climate in 2016. The company recently upgraded its business system and is working toward paperless billing. Like many MHEDA members, ACT anticipates adding technicians next year. The industry-wide trend toward consolidation has benefited ACT, as Williford notes, “It has created confusion among our customer base and will continue to drive customers towards solid dealers with good service.”
“We will have some territorial expansion and believe that the sales folks we have added in 2015 will become more productive,” says Richard Sinclair, President of Jefferds Corporation (St. Albans, WV). That, combined with a new line to be added in 2016, will lead to a projected 5 to 7 percent increase in sales next year. As has been the case for the past several years, however, the weak energy sector and heavy tax burden in West Virginia is holding the area back from reaching its full potential. Sinclair believes Jefferds may become more dependent on Virginia sales going forward. One major shift Sinclair has seen in recent years is a trend toward electric trucks. “We have seen a serious shift to electric product and to 80-volt trucks. We have the people and the product to support the transition.”
Carolina Material Handling President Mid Middleton sees optimistic consumers and a trend toward growth in the market, leading to an anticipated 10 percent increase in sales in 2016. The Greensboro, NC-based integrator plans on adding several positions next year to accommodate that projection, including an assistant accounts receivable clerk, assistant logistics clerk and a new outside salesperson in the company’s year-long training program. Carolina also intends to release a new product in the 1st Quarter of the year, which will contribute to growth. As many have pointed out, Middleton agrees that service is the going to be among the biggest growth-engines next year.
Carolina Handling (Charlotte, NC) President and CEO Dave Reder anticipates 3 to 5 percent growth in 2016, mirroring the anticipated industry growth of 3 percent. A continued strong economy and customer demand will carry the company through the year. Reder anticipates adding sales people and sales support staff, as well as technicians throughout 2016, and has been adding staff in recent years to accommodate growth. Reder sees rental and service as areas with are constantly strong and Carolina Handling is poised to take advantage of those markets. Going forward, Reder says that industry consolidation will make it harder to find quality distribution for products and services, making it more difficult for smaller operations to compete.
Aluminum for the automotive sector will be the primary driver of Springer Equipment Company’s anticipated 10 percent growth in 2016. Though President Ted Springer sees business slowing down toward the end of the year as we move closer to the elections, he expects the overall industry to be up 2 to 3 percent over 2015. Springer calls training the most important investment the company will make in 2016. As many MHEDA members have said, the government is hindering the industry’s ability to reach its full growth potential. Says Springer, “The country is somewhat resilient but the ACA has added many challenges. It will take many years to undo what has been done but we will prevail!”
“Our pipeline is very full this year and some projects have been pushed into 2016,” says Advanced Equipment Company President Daryle Ogburn. “If the economy stays strong, 2016 should be a good year for AEC.” Ogburn expects a 5 percent growth in 2016, spurred primarily by customer optimism about the future. “We are currently working on an initiative to increase our equipment sales,” Ogburn says. “We have become so project focused that we have lost our concentration on selling equipment.” Ogburn sees strong but slow growth for the industry in 2016 and a continued trend toward automation. Another trend he’s noticed is many forklift dealers adding storage and handling and engineered systems groups, which increases competition for AEC.
Midwest
Heading into 2015, the Midwest region was the most optimistic in the country among MHEDA members, forecasting a cumulative 10.4 percent growth. This year, expectations are a little bit more muted but members still anticipate strong growth in 2016, with an average of 7.11 percent growth anticipated. Nobody in the region expected sales to decrease from last year but a couple of members did anticipate flat growth. Industrial trucks are expected to lead the region with an expected growth of 18 percent, followed by Storage and Handling at 7.2 percent, Diverse Products at 3.25 percent and Engineered Systems at 2.5 percent.
Elite Supply Chain Solutions (Hudson, OH) President Scott Hennie anticipates 2016 to be level with 2015 sales. “Comparable year-over-year sales will be down, but growth into new markets will be up,” says Hennie. He notes that presidential election years typically see a slowdown in the 4th quarter, around election time, which will also contribute to the level growth. In 2016, Elite intends to add staff in sales, engineering and project management. In early 2014, Elite joined MH Logistics. Hennie sees that consolidation as an industry-wide trend that will continue going forward, which will lead to fewer “small companies” in the industry.
Onalaska, Wisconsin-based Remis Power Systems, Inc. expects the addition of new product lines and increasing PM agreements to spur 25 percent growth in 2016. Vice President Melissa Remis says, “We are seeing an uptick in manufacturing and electric vehicle use,” which will help drive that growth. In addition to the new product lines, Remis has invested strongly in infrastructure by building a corporate office and continuing to fine-tune the NetSuite total ERP Solution that the company implemented in 2015. Remis was not immune to the effects of consolidation. Says Remis, “Consolidation hurt us locally. The bigger companies try to keep all their purchasing with one vendor instead of the smaller local companies. Consolidation is the name of the game now. We have to work with our distribution partners to create the networks that they can access through one contract nationwide.” Remis anticipates industry-wide growth going into next year.
Conveyer & Caster – Equipment for Industry (Cleveland, OH) VP of Sales Rick Andrews anticipates a growth of 6 to 7 percent for 2016, due primarily to continued growth in market share and new business. CCEFI intends to add staff to both its technical and sales personnel next year. Andrews notes that consolidation has helped the company, saying, “We are always looking to continue growth through addition or acquisition. I believe it’s a trend that will continue. There are still many long-standing small distributors whose principals may not have planned for an exit strategy or company continuation plan. The impact will greatly depend on how well the small distributors’ planning process is, whether they just fade away into the sunset or actually strategically plan for the future.”
RMH Systems (Waukee, IA) COO Todd Maxwell sees automation playing a vital role in the company’s growth in 2016. “Labor shortage is driving automation in all areas,” says Maxwell. The rise in automation combined with expanding business with current and new customers lead RMH to predict a 5 percent growth next year. The most significant investment that RMH is making in 2016 comes in systems, with a new ERP system. Maxwell has seen customer needs and expectations shifting in recent years leading the company to, “dive into areas we are uncomfortable in so that we can gain the knowledge we need to take care of our customers,” Maxwell says. Maxwell does not anticipate the results of the presidential election to impact the economy one way or another but does note that the gridlock in Washington will create uncertainty, making customers slow to move ahead with capital improvements.
“Aggressive growth internally to recruit more market share in aftermarket and equipment sales, not necessarily growth of our market itself,” leads Lift Parts Service COO Kyle Free to predict an 11 percent growth in 2016. The company is adding technicians and support staff next year to support those growth efforts. In recent years, Free has noticed that customers are more reliant upon services rather than attempting to manage things themselves, which has led Lift Parts Service to increase its aftermarket personnel to handle that upswing.
Over the past four years, AK Material Handling Systems (Maple Grove, MN) has grown at an average of 9.4 percent per year, a trend that CEO Al Boston sees continuing in 2016. The company intends to continue to execute strategies that are already in place as part of its five-year forward plan to take advantage of the growth potential in its market. Boston anticipates adding sales, accounting and warehouse staff in 2016. While he anticipates continued strong growth, Boston does note that big systems integration projects will slow down in 2016 and that the strength of the dollar is already and will continue to effect exports and slow some growth down. He notes that, traditionally, election years help the economy and he hopes that 2016 will be no different.
“The trend we see is that our customers remain extremely busy and do not appear to be slowing down at all,” says CSI Materials Handling (Westmont, IL) President Mike Wall. That continued strong demand leads Wall to forecast 5 percent growth for 2016. To accommodate that growth, CSI will add sales staff. Wall anticipates adding a salesperson in January and probably another mid-year. While customers remain busy and demand is high, Wall notes that they now expect a faster response on everything from quotes to delivery. “We are adapting because if we don’t, they’ll go elsewhere.” Consolidation has begun to impact CSI, as the company is now seeing new competitors in the region that weren’t there previously. It’s a trend that Wall expects to continue. “We’ll have to continue to provide top-notch service and keep up our training and education for our employees so that we’re well-equipped to compete with anyone,” he says.
Riekes Equipment Company (Omaha, NE) President Duncan Murphy expects 2016 to be level with 2015. “Ag commodity prices are down and impacting related ag industries,” he says. “Equipment manufacturers and their support plants are laying off people and cutting productions. Many other industry sectors are doing okay but the mix end effect is 0 percent.” Murphy also notes the general impression of caution within the region, as customers are not proceeding on expansion unless they have to. Says Murphy on the industry-wide economy, “Opportunities exist where one can present options that will reduce cost or increase productivity. More with less. It must be measurable.” He anticipates the 2016 economy to be similar to 2015. On consolidation, he says, “The expectations and interaction with our major suppliers are in a state of flux. Not necessarily bad, just different. We must work to get to know the new people in power. The biggest negative change, which is also related to an aging set of owners and managers, is the disintegration of traditional dealer alliances. Cooperation was routine, now it can be difficult.”
Southwest
A common refrain throughout the Southwest region of respondents is that the 2016 economy will be dictated, in large part, by what happens to the oil and gas industry. Overall, the region projects a cumulative 6 percent growth in 2016, compared to a 9.25 percent growth in 2015. All respondents in the region anticipate growth in the coming year, just not as robust of growth as was experienced last year.
“Increased population in our APR and slow but steady improvement in oil and gas business,” lead Sunbelt Industrial Trucks CEO Bill Rowan to forecast 3 to 5 percent growth for 2016. In 2015, oil and gas related businesses slowed Sunbelt’s growth, while other areas picked up the slack to contribute to an overall strong year. This year, Rowan expects oil and gas to begin to turn around and 3PL/distribution will continue to grow. Rowan expects much the same for the overall industry, with solid, slow and steady improvement and shrinking margins on new equipment. “Our customers are no different than the general public,” he says. “They want it now and they want it at the best price. We measure everything we do and share these results with our customers. We want to set the bar high for their expectations of how we perform.” He adds, “Positive attitude will impact our results more than any other variable. We can’t always control what happens but we can control how we react.”
Customer expansion projects will be the primary driver of an expected 4 percent growth for Nelson Equipment Company (Shreveport, LA) in 2016. While President Mark Nelson expects modest growth next year, that has been revised slightly from earlier projections. “There was a slowdown in the 3rd quarter that is causing a downward trend in forecasting for 2016,” he says. Like other companies in the region, a large part of the success or failure will come from how the oil and gas industry performs in 2016. Another thing that could severely hamper growth next year comes from the continued tension in the Middle East. Says Nelson, “If tensions continue to increase into a full combat situation, there will be an unknown impact to the 2016 economy as a whole.”
For W.W. Cannon, (Dallas, TX) 2015 was a record year. President Greg Brown expects to build on that record in 2016, as he forecasts sales to increase next year on the back of company marketing efforts and a continued strong economy. The company is adding staff to prepare for this increased growth and Brown anticipates continuing to add staff throughout 2016 as well. One especially strong market that will help W.W. Cannon achieve its projected growth is in service. And though consolidation hasn’t had a direct impact on W.W. Cannon yet, Brown does expect consolidation to continue. As he says, “Only the strong survive.”
West
For 2016, the Western region forecasts a cumulative 6.75 percent growth, closely mirroring 2015’s prediction of 6.42 percent. While the West was in line with most other regions, it had the largest variance of predictions, with some members predicting more than 20 percent growth, while others actually predicting a decrease in sales compared to 2015. Within the region, Industrial Trucks fared strongest, with a 9.33 percent expected increase. Engineered Systems forecasts 5 percent growth and the Diverse Mix expects 7 percent growth.
Larger orders placed this year and invoiced for next year lead’s Forklift Services of America VP of Operations Jeff Darling to forecast a 9 to 11 percent increase in 2016. Despite that anticipated growth, Darling says that there are indicators that the general economy will slow down in 2016, impacting material handling. This will manifest itself in new order activity for large units decreasing this year. “The biggest hindrance is the lack of qualified technicians,” Darling says. “Going forward we will have to go ‘grow our own.’” The company’s biggest investment next year will be the installation of a new ERP computer system. In the region, Darling points to “increasing taxes along with lack of road maintenance and highway expansion, which continues to negatively impact the movement of goods and services in the markets we serve. The longshoreman strike created significant hardships locally and nationally.” Overall, Darling sees customers increasingly demanding “immediate service” which presents a challenge. Despite these factors, however, 2016 should be a year of growth.
Housing demands in the Rocky Mountain region will contribute to an expected 3 percent growth for FMH Material Handling Systems (Denver, CO). President John Faulkner expects FMH to add staff in 2016 to help facilitate that growth. That staff will be in areas such as sales, IT and safety. Though he expects growth, Faulkner notes that higher taxes will hold down capital spending in segments of the business. To offset some of that slow down, FMH will be making an investment in its rental fleet next year. The company has a strong social media presence that has seen tangible results and keeps the FMH name in front of customers.
“As a group, we are focusing on growing our business, while our competition seems to be going through some OEM issues,” says Watts Equipment CEO Shirley Perreira. “2015 was not a strong growth year, but it was steady all year and the businesses around us are growing. It usually takes a year for the warehouses to catch up to that.” The company has already added technicians to the team and Perreira expects them to make a difference in 2016, as it generally takes six months to a year to prepare them. Even though Watts has brought on those technicians, though, automation will play a big role in the company’s success going forward. “Instead of adding positions, we are actually looking to go more automated. Computers out in the field, work orders coming in via WiFi and ready to close the same day. We want to do more with fewer people. Work smarter, not harder.” Watts recently added 30 new units to its rental fleets and are continuing to look to add more in the near future.
Improved market conditions, additional product lines and an expanding market all portend a 20 percent expected growth in 2016 for Storage Equipment Systems (Phoenix, AZ). President Jim Radzik tells us that the company will be launching new lines in the first quarter and has plans to add sales and engineering staff. “A stable economy and modest interest rate changes will be growth improvement factors,” Radzik says. “The ability of the government to become more unified or not will positively or negatively affect growth.” The consolidation trend hasn’t touched Storage Equipment Systems yet, but Radzik expects that eventually it will.
“With the robust growth we have seen on the west coast, I believe the industry will take a breather,” says Pape Material Handling President Chris Wetle. “I expect a small decline of 3 to 5 percent in our marketplace that would include all classes.” Wetle says that most of Pape’s customers have made substantial purchases in the past two to three years and are set for 2016. The drought that has impacted the west coast, combined with increasing interest rates will also contribute to a modest 2016. Regarding consolidation, Wetle says, “We have expanded our footprint and look toward more consolidation going forward.” He sees it as a trend that will continue to impact the industry for good and bad, saying it will lead to, “less passion for the material handling business and better balance sheets.”
Raymond Handling Concepts Corporation VP of Finance Donald Jones expects sales to increase 15 percent or more in 2016. The primary engines of that growth, he says, are market share increases and baseline economic growth. One indicator that Jones saw in 2015 is companies making major investments in warehouse design and automated warehouse solutions. Though Raymond Handling expects a small increase in staffing, the company has been preparing for this growth and is confident it can handle the increase in sales. Jones told us that no market is totally recession proof but that the company’s base maintenance programs should be the closest to it, as customers could switch from replacing to repairing equipment. The company has a strong social media presence and has enjoyed strong, tangible results from it.
FloStor Engineering (Hayward, CA) President Robert Weeks expects 2016 to be similar to 2015, with slight growth driven by Internet sales and small parcel handling. FloStor has added salespeople and intends to add a design engineer and project manager in 2016. Industry-wide, Weeks expects steady growth and an increasing demand for automation. Next year, FloStor will be looking to be more involved in system design work. While Weeks doesn’t expect the outcome of the presidential election to change much, he has seen customers become reluctant to make quick decisions on purchases due, in part, to the dysfunction in Washington.
