Industry Should Approach 2024 With Measured Optimism
By John Paxton, CEO of MHI
When you examine the job market and interest rates, 2023 was a story of extremes. The unemployment rate hit a 54-year low, while the interest rate hit a 22-year high. Neither metric is expected to substantially move during the first half of 2024. Instead, the material handling industry should expect a more normative performance for these indicators, as well as an ease in inflation as we near the end of the year.
Job Market to Remain Stable
The unemployment rate can only dip so low. While it’s projected to creep up in 2024, a modest uptick from a historic low still spells a healthy job market. Many forces including the CHIPS and Science Act, the rise of automation powered by artificial intelligence in warehouses, and the push to implement green technologies could help support job creation in the manufacturing industry.
Our 2023 MHI Annual Industry Report captures an intention to increase investment in technology. According to our survey of more than 2,000 supply chain professionals, 74% of respondents said that they planned to up their investment in supply chain technology and innovation. Specifically, 90% said they plan to invest more than $1 million.
Our report also supported the growing importance of AI. Compared to 11 key innovations, respondents found that AI had the most potential to create a competitive advantage.
Reshoring is another tailwind for the material handling industry. With escalating hostility between the United States and China, more American companies are bringing manufacturing closer to home. Speaking at MHI’s Annual Conference in October 2023, Jason Schenker, president of Prestige Economics, stated that Mexico is now the biggest trade partner of the United States. “This is a big deal … we could see manufacturing jobs both in the U.S. and in Mexico remain really strong as companies try to disentangle the supply chains and pull more, especially dual-use technologies, out of China,” he said.
Global Economic Outlook is Declining
Alternatively, other global struggles such as the Ukraine war and the Israeli-Palestinian conflict are expected to produce negative economic conditions. The Ukraine war will likely continue to push up crude oil prices, contributing to inflation. Meanwhile, further attacks upon Israel could affect the country’s production of advanced chips. This will further exacerbate the global chip shortage that plagues such industries as automotive and consumer electronics.
Slowed global growth is another potential headwind for the material handling industry. In an October 2023 report, the International Monetary Fund projected that advanced economies would face a growth slowdown “from 2.6% in 2022 to 1.5% in 2023 and 1.4% in 2024, amid stronger than-expected U.S. momentum but weaker-than-expected growth in the euro area.”
Although inflation did somewhat ebb in 2023, it still looms large. To combat it, the Federal Reserve is expected to keep interest rates high. Unfortunately, along with high interest rates comes expensive capital, which could dampen the supply chain’s enthusiasm to invest in new technologies.
The bright spot is that inflation is likely to decline as the year progresses. In an update to its economic outlook for 2023-2025, the Congressional Budget Office stated, “Growth in the price index for personal consumption expenditures (PCE) slows from 3.3% in 2023 to 2.6% in 2024 and 2.2% in 2025.” It attributes this potential slowdown to such factors as weakening labor markets and flagging growth in home prices.
While 2023 featured some extremes, 2024 is tracking to deliver more stable conditions. There will be a decline in both job openings and global growth, which is unwelcome news. However, it is important to keep in mind that only modest declines are projected. Additionally, not all declines are bad. The material handling industry should certainly welcome a decline in inflation and interest rates for the second half of 2024.
Everything Old is New Again
By Brian Feehan, President, Industrial Truck Association (ITA)
Politics are cyclical in nature, with no shortage of headline-grabbing news from Washington, D.C.; “Will The Federal Reserve Raise Rates? Will Congress Pass a Debt Ceiling Increase and Negotiate a Budget? Will U.S. Foreign Trade Policy Initiatives Pass Congress? Will Presidential Election Politics Gridlock Washington?” These are the exact words I wrote for the 2016 MHEDA Journal – now we need to add a few items: regional conflict and who the speaker of the day is.
Uncertainty is uncomfortable. Many things are beyond our control. However, we can utilize information to help make good decisions. I would like to take a few minutes to highlight the current economic conditions in the United States, provide some insight into the market conditions of our industry in North America and highlight some of ITA’s priorities. According to the International Monetary Fund’s latest World Economic Outlook report, the global economy is projected to grow 3% in 2023 and show a slightly slower growth of 2.9% in 2024. However, potential risks to future growth remain, especially in countries with advanced economies, due to persistent high levels of inflation and rising unemployment. Although, it is currently at a moderate rate.
The advance estimate of real gross domestic product (GDP) increased at an annual rate of 4.9% in the third quarter, driven by a return of growth in consumer spending for both goods and services, despite a contraction in real disposable income of 1%. Real GDP grew by 2.2 and 2.1% during the first and second quarters of 2023, respectively. Compared to the first quarter, the deceleration in real GDP in the second quarter primarily reflected a slowdown in consumer spending, a downturn in exports and a deceleration in federal government spending. It’s interesting to note that the manufacturing sector accounts for 11% of GDP.
The unemployment rate for the third quarter ticked up to 3.7% compared to 3.6% during the previous quarter. The rate has been consistently lower than the natural rate of employment for well over a year, which often signifies, along with a robust economy, wage growth, increased inflation and a shortage of labor.
Job openings have exceeded the number of unemployed persistently since mid-2021 and this dynamic continues. There were 0.7 unemployed persons per job opening as of August 2023. As mentioned earlier, labor shortages go hand-in-hand with wage growth and, as a result, increased inflation. Inflation reached a 40-year high in the U.S. during June 2022. The Federal Reserve reacted with aggressive quantitative tightening measures to combat the burgeoning rate of inflation.
Consequently, the average effective federal funds rate in October 2023 was 5.33%. Minutes from the Nov. 1 Federal Open Market Committee (FOMC) meeting show agreement to maintain the federal funds rate at a target range of 5.25 to 5.50% as they are uncertain of the effects of the tighter credit conditions. They will continue to monitor conditions with a strong commitment to reduce long-run inflation to a goal of 2%.
According to the U.S. Census Bureau, new orders for manufactured durable goods in August, up five of the last six months, increased $0.5 billion or 0.2% to $284.7 billion. This followed a 5.6% July decrease. Machinery, up four of the last five months, led the increase, $0.2 billion or 0.5% to $37.8 billion.
Manufacturers’ unfilled orders of material handling equipment decreased for the second consecutive month in August, falling by 1.1% month to month to $19.2 billion. However, for the year-over-year comparison, unfilled orders are up 4.4%.
U.S. new light-vehicle sales in September 2023 increased year over year for the 13th straight month. September 2023’s seasonally adjusted annual rate of 15.7 million units represents an increase of 14.4% compared to September 2022. Many industry experts expect 2023 will continue at this level, however, the cost of financing a new vehicle is also rising. The average auto loan interest rate in September 2023 was 7.4%, the highest level since 2008.
Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,283,000 units – which is 11.3% lower than the July rate of 1,447,000 units. This is the lowest level since June 2020 as mortgage rates have doubled since the end of 2021 causing many potential buyers to pause on deciding to purchase a new home. Single-family homes start declining as well, showing a 4.3% drop to an annual rate of 941 million units.
North American Forklift Market
Retail orders for the North American market reached 188,000 through September 2023. One can extrapolate to an annualized figure of nearly 250,000 based on the first nine months of the year. If this holds, it would be well below the 344,000 units for 2022 but would reflect a normalization of market conditions.
The retail orders split for electric versus internal combustion-powered trucks through the first nine months of the year shows a two-to-one ratio respectively. Electric trucks were at a level of 126,000 while IC trucks posted a total of 62,000.
On a percentage basis, the electric truck segment increased its share to 67% compared to 65% for 2022. Conversely, the IC truck market decreased to 33%, giving back 2 percentage points over the calendar year 2022.
Year to date through September, class one truck orders total 46,000 compared to 71,000 for all of calendar year 2022. The combined total for classes four and five reached 62,000 year to date compared to 119,000 in the previous year.
The North American market for factory orders by engine type for the combined classes four and five shows LPG with a dominant share of 83.4% year to date through September. Diesel engines registered a share of nearly 12% while gasoline-powered trucks garnered a share of 4.7 %.
Warehouse trucks continued their long run trend of expansion through September 2023 by posting a share of 46% of the warehouse–counterbalance comparison. Meanwhile, counterbalance trucks sustained their shrinking annual footprint by posting a share of 54%. During the calendar year 2022, the shares were 45 and 55% for warehouse versus counterbalance respectively.
U.S. Policy Market Influencers?
U.S. trade policy—and with it the rules and institutions that make up the global economic framework—has rarely been static. But over the past five years, beginning with the passage of the U.S.-Mexico-Canada Agreement and continuing with the current administration’s trade initiatives being negotiated with partners in Europe, Asia and the Americas, the future of trade rules is being established today. These rules incorporate new elements such as climate change and sustainability, labor protections and supply chain security.
Infrastructure in the United States is deteriorating. The Infrastructure Investment and Jobs Act (the infrastructure bill) provides for $1.2 trillion in spending, $550 billion of which would be new federal spending to be allocated over the next five years. The historic investments include everything from clean energy to broadband and will significantly reframe the future of infrastructure in the U.S.
In the U.S. we are also facing increased regulatory pressure in an effort to reduce emissions. The California Air Resources Board (CARB) is working on a new regulation that will significantly reduce the number of internal-combustion-engine powered forklifts starting in January 2026 with the intent to drive the market towards electrification. In addition, CARB is beginning new work on tier-five diesel regulations.
ITA continues to engage with CARB on its latest regulatory proposals in an effort to minimize any potential negative impacts facing the industry and our customers. We view the legislative and regulatory landscape as having challenges and opportunities for the industry, and we continue working with stakeholders to capitalize on these opportunities.
I would like to wrap up by saying thank you to all of you who joined us in celebrating the 10th anniversary of National Forklift Safety Day on June 13. We believe National Forklift Safety Day creates a real opportunity for our industry to collectively highlight the importance of safety and the need for operator training. The importance of ensuring all employees operating powered industrial trucks are properly trained is the law in the United States, makes good business sense and improves safety. In addition to raising awareness of safety, National Forklift Safety Day has enabled us to build and strengthen our relationship with the U.S. Occupational Safety and Health Administration as well as other government stakeholders. Mark your calendars now for the next National Forklift Safety – June 11, 2024.
I would also like to say thank you to Liz Richards for her years of friendship and commitment to the industry. Liz will certainly be missed. As all great leaders do, Liz has positioned MHEDA for success in the future and I congratulate and welcome Jeanette Walker in her new role. We look forward to working with you for years to come. Thank you.
CEMA Reports on Its Upcoming Path Forward
Johnny Wheat, Current President of the Conveyor Equipment Manufacturers Association (CEMA)
Johnny Wheat shared his excitement for the industry and its path forward in 2024 on the heels of CEMA’s Fall Meeting.
“Strong attendance created the opportunity to share and collaborate with some of the best leaders in the industry, and propped up by strong 2023 sales, made for a memorable and productive conference,” Wheat explained. A member of CEMA since 2014, Wheat is also the Chair of the Joint Screw Conveyor and Bucket Elevator Section and a member of the Conveyor Chain and Sprocket Section, Finance/Budget Committee, Meetings Committee and the Bulk Handling Section, in addition to his “day job” as President of 4B Components, Ltd.
As a highlight of the meeting, the financial update through Q2 of 2023 was provided to members. CEMA tracks new orders and shipped sales volume in nine classes of Unit Handling equipment and four classes of Bulk Handling equipment.
“Progress is in the numbers,” Wheat said when sharing CEMA’s estimates and projections below.
CEMA estimates that overall industry orders and bookings for January through Q2 2023 increased a full 1% as compared to the same period in 2022. Total orders for January through June 2023 reached $9.4 billion. Fiscal year 2022, for comparison, saw an estimated 9% increase in overall industry bookings compared to 2021, with an estimated $19.8 billion in orders.
The first two quarters saw shipments for the overall industry decrease slightly, by an estimated 0.5% compared to the same period in 2022, with total shipments of $9.8 billion. In comparison, for 2022 total industry shipments were estimated to be up 7.6% over 2021, with total shipments of $21.7 billion.
Trending positive in the first half of 2023, Unit Handling orders were estimated to be up 5.0%, while Unit Handling shipments decreased by 9.1% compared to the same period in 2022, after an annual increase in 2022 of 9.3% over 2021.
The Bulk Conveying sector was also coming off a strong 2022, when CEMA estimates sector orders were up 7.7% with shipments up 6.6%. For the first half of 2023, CEMA estimates orders were down 3% while shipments were up 14.6%.
Comprised of the conveying industry’s foremost companies located in North, Central and South America, CEMA serves as the industry’s leader in safety and standards, producing high-quality safety labels for all types of conveyor equipment as well as important and useful technical guidelines, standards and industry manuals, including these authoritative publications used for conveyor design worldwide:
- Belt Conveyors for Bulk Materials 7th Edition (“The Belt Book”)
- Bucket Elevator Book Best Practices in Design
- CEMA Application Guide for Unit Handling Conveyors: 2nd Edition (“The Unit Book”)
As a service to the industry, some materials are also available in Spanish, and many are provided at no cost.
Founded in 1933, CEMA celebrated 90 years of commitment to the industry in 2023. While CEMA has adapted to meet the needs of its members’ ever-changing business environments, the mission of the association hasn’t wavered through the years:
- To promote the common interests of CEMA members and the conveyor industry of the Americas.
- To promote standardization of design, manufacturing and application on a voluntary basis and in such a manner as will not impede the development of conveying equipment and component parts or lessen competition.
For more information on CEMA, including additional statistical data, visit cemanet.org.
