Slow Growth Ahead For Industrial Truck Market

2006 will still be among the best years in recent memory.

Suppliers and distributors of industrial trucks can look forward to limited market growth in 2006. Results from 2005 and general economic indicators lead me to believe that 2006 will not feature robust growth.

A Historical Perspective
For end-user orders in the United States and Canada, not including government and exports, the industry and overall economy experienced a 30% falloff in 2001 that lasted through 2002. Slow recovery began in 2003, and 2004 was also a recovery year. The bar graph in Exhibit 1 shows data for 2003 and 2004 for total units.

Breaking that information down by class as shown in Exhibit 2 is where we can really begin to understand what lies ahead. Class I trucks were up by 15.2% in 2004, and the numbers suggest that 2005 was relatively flat to 2004. The market for Class II trucks was up almost 20% in 2004, and 2005 was up an additional 7% over that figure. Class III also saw nice growth, up 21% in '04 and another 7% for '05. Moving into the IC world, Class IV had a good year in 2004, up 18.5%. However, 2005 actually showed a slight decline. It's pretty much the same picture in Class V, which was up significantly, 24%, in 2004 but almost flat during 2005. Historically, internal combustion trucks are an early indicator of what the overall truck market will do, which is one reason I don't see a lot of growth ahead in 2006.

In sum, the total market in 2004 was up 20% from the prior year. The jump in 2005 was more modest, in the 3 to 4% range. Using that baseline, 2006 also looks to show slight growth of about 3 to 4%, which will result in the sale of 186,000 to 190,000 units for the U.S. and Canada.

Economic Indicators
Forklift trucks do tend to follow the overall economy because material handling is a very consumer-driven industry. Capital investments certainly impact it, but what drives those? The need for more consumer products, either in manufacturing or distribution. That's why I look at the overall feeling of the consumer and the economy and that usually sets my tone for the upcoming market.

The national gross domestic product is growing at a rate of about 3%. We've seen a drop in consumer confidence, rising interest rates, the weakening of the dollar, higher fuel costs and inflation. There is enough uncertainty out there to cause a little bit of concern for what 2006 will look like. I'd love to be wrong on that guess, but the economic indicators don't support substantial growth.

That being said, the best market ever in North America was in the year 2000, when we moved about 200,000 units. So to be at or near 190,000 is not something about which we should hang our heads in shame. Flat sales in 2006 will still result in one of the strongest markets we've seen in the last decade.

Technology Impact
We're seeing a drive from customers for technologies that will improve their operations, things like fuel cells and RFID. Our customers are anxious for the material handling industry to help them become more productive through the use of advanced equipment. That's interesting to me because for a long time, we pushed technology into the marketplace. We are seeing that customers now value the contribution that material handling equipment makes to their operations and they're asking for more value from us. That will not change in the near-term.

If fuel cells prove to be a bona fide replacement for the current power source, there may be some buying spurts in the industry. It may cause companies to replace trucks sooner than they normally would, though we're still several years away from that. Emissions regulations may have an impact as well. As more and more states pass more stringent rules, we will likely see changes in the percentage of electric trucks purchased.

Beyond 2006
The overall economy is not as likely to have the huge growth that we saw in the mid to late 1990s. Growth these days is more metered. We feel better about slow, methodical, repeatable growth. Look at the Fed's actions, raising interest rates to try to control inflation. I strongly feel that this trend will continue throughout the next three to five years. There may be a spike up or down, but acceleration will be controlled during that period. Growth will be more steady and more realistic, at an annual rate of 3 to 5%.