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After a couple of years of
reduced demand, the materials handling asset class is on the rise.
And there are plenty of new entrants jostling for position in the
market. How will they measure up?
As with most asset classes,
materials handling has taken a hit over the past two years. This is
despite the fact that forklift and counterbalance trucks are a
necessity for those businesses that need to shift large quantities
of product.
“Materials handling demand levels
are a good barometer for the state of the economy because these
assets are used by such a variety of companies, from retailers to
manufacturers,” says Andrew Woodward, who recently joined Aldermore
to head up its materials handling team from Albury Asset Rental.
“This is also essential equipment and so it is often the last thing
the company pays for if it is about to fail.”
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By GlobalDataIn fact, the downturn we have
witnessed over recent times has changed the market to reflect what
has been happening in the UK’s businesses.
“Warehouse equipment has fared
better than other parts of the asset class and that’s a reflection
of where we’ve seen better performance in the economy. Larger
manufacturing and retail businesses operating warehouses have done
better than other parts of the economy,” says Woodward. “On the
other hand, counterbalance trucks have shown a greater reduction in
numbers and are yet to demonstrate a sustained recovery.”
He adds: “The number of new
counterbalance trucks sold in the UK has always historically
exceeded that of warehouse equipment. That has changed for the
first time over the last couple of years.”
One of the issues is that many
users have been extending existing contracts rather than seeking
new ones, partly because of the good terms they have been able to
retain.
“We’ve seen a fairly stagnant
market over the last couple of years,” says Woodward. “Customers
have historically generally taken out, on average, 60-month rental
agreements, and at the end of these they have had the option to
extend minimum term agreements into a secondary period of hire with
three month’s notice, often on the same, attractive terms as they
had on the contract. This has deferred much of the new truck sales
that had been expected over the last couple of years.”
Indeed, it seems that the recession
has reinforced a trend that was already starting to become apparent
before the crisis, as manufacturers have attempted to hold on to
customers in what has become a very mature market.
“We’re seeing a slight shift
towards longer terms,” says Duncan Hullis, director of UK sales and
European program management at De Lage Landen. “Five to ten years
ago, the average term was around four and a half years; now it’s
beyond five years as manufacturers seek to protect market share by
pushing out terms a little to reduce rental costs.”
Pent-up demand
Yet there comes a point at which
materials handling assets have to be replaced if a business is not
to come to a grinding halt, and many in the market believe we are
starting to see the emergence of some pent-up demand for new
equipment.
Figures from the British Industrial
Trucks Association (BITA), drawn from members, back this up.
Overall, 2010 saw a 24% increase in demand, with 21, 896 units
sold. Counterbalance trucks, which accounted for half the market,
were up by 28% and warehouse trucks were up by 20%.
“A lot of forklift truck users have
been making do over the last couple of years – they haven’t been
replacing,” says John Bradshaw, sales manager for materials
handling at Bibby Leasing. “If they have had the assets on
contract, they have sought to extend and if they own them outright,
they haven’t replaced. That is fine for 18 months to two years, but
it then becomes uneconomic.
“They become too costly – not just
in maintenance costs (which will usually be covered in any lease
agreement in any case), but in downtime. If a forklift truck is out
of action, the loading process halts. So, we’re just starting to
see the pick-up now.”
Hullis agrees: “In the UK, we saw
demand levels fall to around the same as the mid-1990s in 2009, so
that was a real setback for the market,” he says. “However, in
2010, we saw signs of a bounce-back, in the region of around 5% to
10%. We are expecting continued growth at around the same level for
2011.”
And so are many other players.
Given the essential nature of these assets, materials handling is
being seen as a good, steady market for leasing companies to be
involved in. As a result, the market has seen a number of
developments over the past 12 months as lessors attempt to position
themselves for an improvement in demand.
Market
innovations
Aldermore recently tied up a
cooperation agreement with US forklift truck manufacturer Crown
Equipment Corporation, and has its sights set on further agreements
this year.
Bibby Leasing, a relatively new
entrant to the market, signed a contract last year with Italian
forklift truck producer CESAB, owned by Toyota.
Meanwhile, Hitachi Capital has also
been getting in on the act, hiring former GE Capital employee Marie
Dunkley to head up its push into materials handling, and Rivermore
has recently brought Albury Asset Rental veteran Kevin Lofting out
of retirement to join its team.
“This is an attractive area for
us,” explains Dunkley. “It’s a good asset and there are some good
quality customers. We’re currently building up the business. The
vendor market takes rather longer to build than the direct market –
it’s about getting the right foundations with the right
vendors.”
Set for a
shake-up
It promises to be an interesting
year to two years for MH leasing. The UK market, which has
traditionally been serviced mainly by BNP Paribas in the form of
Albury Asset Rentals, may be set for a shake-up.
“We have started to see new
entrants in this market,” says Bradshaw. “It had been dominated by
one very successful player, but that is changing as companies such
as ours come into the market. There should be some healthy
competition ahead.”
However, it may not be an easy
market to crack. Margins are already tight in the UK, with little
room for differentiation on price, even on more specialist
equipment.
“Margins are pushed in this area as
it’s a mature market,” explains Bradshaw. “It’s immaterial for
lessors what they are funding – the same margins apply more or less
across the board.”
Indeed, recent research put out by
the Fork Lift Truck Association (FTLA) found that the average
weekly contract hire prices had fallen over the past 20 years, even
before adjustments for inflation.
In 2009, the average weekly hire
prices were 17.8% lower than in 1989, with reach trucks suffering
the greatest price deflation, dropping from £142 per week to £114 –
the FTLA says, in real terms, this is less than half price. This is
extraordinary, given the backdrop of increasing raw materials
prices.
Personal touch
For Bradshaw, the route to success
is demonstrating commitment to the market. HSBC Equipment Finance
is believed to have pulled out after years in the market and Bank
of Ireland has also gone.
“There have been some finance
companies and banks that have dipped in and out of the market,”
says Bradshaw. “The problem is that suppliers have long memories
and this is very much a market driven by relationships. Suppliers
have to feel confident that the people they are building
relationships with will last the distance.”
As a result, other points of
differentiation, he says, may be a hard sell.
“It’s a very mature market,” he
says, “and so I think it’s hard for players to differentiate
themselves. If a supplier looks after a customer and the customer
is comfortable with the figures, then the relationship tends to
continue – I don’t see a problem there that needs to be
solved.”
Rivermore director Adrian Langford
is similarly sceptical.
“We’re seeing financing companies
putting themselves forward in the market as specialists,” he says.
“They also point to ease of documentation. Quite how that plays out
remains to be seen – after all, we’ve witnessed other financing
companies come and go in the past.”
Yet others believe that a
specialist, personal approach is the way forward.
“We are looking to differentiate
ourselves on the level of service offered, but we also recognise
that we must be competitively priced,” says Woodward. “We have a
specialist team looking after this area and we feel that the
industry likes and respects specialists.”
Hitachi is also seeking to offer
the personal touch. “We want to provide something different,”
Dunkley explains. “A lot of organisations offer automation, but
this is a traditional market and so we want to provide a service
where customers can talk to people and where we can bring more
value.”
It may also seek to innovate on
terms – something the MH market has previously lacked.
“Financing companies need to look
at whether they can provide longer leases or different structures,”
she explains. “For some customers, it may make sense for them to
have more payments up-front, for example, and for others that
operate in seasonal industries, payments based around their busiest
times might be a good option.”
Meanwhile for the larger players,
increased efficiency around processes is the prize.
“We target the larger end of the
market to provide tailored solutions for manufacturers, offering a
global footprint, automated credit and e-commerce solutions,” says
Hullis. “We also have a structuring ability that enables us to
provide national accounts within countries and across borders. It’s
very different from the independent dealer market, which tends to
deal in small numbers of assets and used equipment and which
probably looks for a more personal service that some providers can
offer.”
However the market plays out, it
seems that MH is set for change over the next few years. This will
be no bad thing for customers as they will be able to choose
between various offerings to meet their requirements (as long as
financing companies remain committed to the market, of course).
While plain vanilla MH leases may be the order of the day for
many customers, those seeking something a little different may well
find a product that suits.
See also: Changes in demand for materials handling
equipment
See also: Expert Eye
