Storage Equipment Sector Set To Expand

Cyclical trend and other factors lead to growth

Business cycles are nothing new to the storage equipment industry or the broader material handling and logistics industry as a whole. With the recent exception of the go-go 1990's, the storage equipment industry has seen cycles that crest and bottom in approximately five-year intervals.

The reality of cycles was made perfectly clear in the downturn of 2001-2003, as can be seen in Exhibit 1 on a rate of change curve for the U.S. Racking Industry—an industry of $1 billion per year.

The racking and storage equipment industry as a whole, including racking, shelving, work platforms, cabinetry, drawer storage, shop furniture and containers, has generally trended and followed the pattern of the overall material handling and logistics industry.

In the case of racking, this correlation can be seen in Exhibit 2 by comparing the rate of change curve for racking to the Material Handling Equipment Manufacturers (MHEM) Forecast, which looks at approximately $20 billion of the $80 billion overall material handling industry.

Accepting the principle of cycles, it should be no surprise that a strong and accelerating recovery during 2004-2005 followed the 2001-2003 downturn. This also can be seen in Exhibits 1 and 2.

Many factors have contributed and continue to contribute in varying combinations to the current growth cycle, including:

• Corporate profits
• Increased capacity utilization
• Resurgence of automated/integrated solutions
• Retail growth
• New construction
• Confidence
• Outsourcing
• Globalization
• Consolidation.

That said, and in keeping with the five-year (approximately) cycle theme, we might expect a cyclic downturn in the 2008-2009 timeframe (though arguably not as severe as that seen in 2001-2003, for a number of reasons).

A look at the MHEM rate-of-change forecast into 2007 as seen in Exhibit 3 supports the view that growth will continue through 2007, albeit at a lower rate than that seen during 2004-2005.

As a predictor for storage equipment, MHEM suggests growth in the 8 to 10% range for 2006. Growth of 5 to 8% in 2007 would logically follow. These are seen as realistic measures for the storage equipment sector.

Much of the double-digit growth in storage equipment over the 2004-2005 period can be attributed to recovery of the rapidly accelerating raw materials and energy costs.

With more stable raw material and energy inputs, most of the 2006-2007 growth should be at the unit level. While some of the drivers of growth noted above have moderated somewhat, others remain robust. A key, as always, in contracting markets is to broaden product and market focus both geographically and within end-use sectors.

Visitors to MHIA's NA 2006 Exhibition and Conference (March 27-30, 2006, at Cleveland, Ohio's IX Center) will see that fact firsthand—somewhat a laboratory of how the Industry is structuring and preparing for the next round of cycles and the dynamics that will drive growth and profitability.