Another year is in the books and already many are speculating what will happen in 2020. Will the economy keep plowing ahead? Are signs of weakness signaling a downturn? Who knows? Predicting the future is much like predicting the weather. No one can really say for sure until it is almost here.
Certainly, there are many attempting to tell us this or that will happen. But for right now, let’s look at the tea leaves of available information and see what it will share. The major research focuses on capital investment and labor trends, followed by construction. Information is from Modern Materials Handling, Logistics Management and the research company, Market Research Future.
Investments in New Material Handling Products
Let’s start with the best news first. According to a report from the Equipment Leasing & Finance Foundation, material handling equipment could see some modest improvement in 2020. The report states that because the end of 2019 saw modest improvement, the conventional wisdom is this trend will continue at least through the first two quarters of the new year.
Even so, prognosticators have not painted a rosy picture. The 10-year average growth for material handling products is 4.7% and this dipped to 4.3% in the past four quarters. Therefore, the maximum projected growth will only be two percent, and if the economy becomes less robust, the number will head into the negative growth range.
Granted, material handling encompasses a wide range of products that include pallet racks, meaning industries within the material handling industry may see uneven growth. Therefore, manufacturers of pallets may see strong growth while those making pallet trucks could see a decline in sales.
There is cause for optimism when it comes to rack systems. A report by Persistence Market Research predicts global rack system sales will experience growth of about seven percent. The reason for optimism is in a growing number of markets requiring storage, retrieval and product handling equipment, with internet-based businesses leading the way.
Construction Market Minefield
The construction market also offers a mixed bag for the material handling niche. Construction has been riding since the end of the Great Recession in 2008. However, the only construction segment predicted to grow in 2020 is in the infrastructure segment.
Commercial (warehouse/distribution centers) and manufacturing—the two major investors in material handling products—will see new construction starts to decline between 2% and 6%. Warehouses and distribution centers will experience the greatest retreat while manufacturing will only have a slight dip for the foreseeable future.
Construction is a major driver in growing the material handling market and while news about growth this year appears gloomy, there are several subplots that still offer hope. The first is available warehouse space.
Cushman and Wakefield commercial real estate services project that the amount of available warehouse space in 2020 will exceed supply for the first time since 2011. This means new opportunities exist for companies wanted to expand their warehouse footprint.
Another glimmer of hope is also related to construction. The warehouse industry continues to evolve and adjust to new market opportunities like that of e-commerce. E-commerce’s approach to warehouse/distribution centers is different from traditional warehousing in terms of location and use.
More than 60% of existing warehouses were built in the 1980s and before. Many do not fit the location requirements of internet-based business that emphasizes the last mile delivery. As a result, look for more new construction of warehouses/distribution centers in the coming years, but not in 2020.
The Wild, Wild Cards
Two wild cards weigh heavily on everything written previously. Those are the labor market and the political situation.
The labor market remains the biggest question mark. It affects every industry, causing each to spend more to find and keep qualified workers. However, many speculate that the primary reason 2020 will be a down year is due to not enough workers in the building trades.
Builders continue being selective in the projects they do. The average age of construction workers is 42 years and increasing. The number of workers entering those trades is not keeping up with those retiring. The number of available projects will not increase until those numbers change.
Politics remains the other wild card. New trade deals may improve the global tariff situation, but that and other political hot potatoes are still very volatile with even the slightest negative news being enough to cause problems in the business world. The presidential election in November likely will settle some issues but can easily create more.
The Bottom Line
So, what does this mean for the business outlook in general and pallet racking in particular?
Those who remain vigilant and stick to a fiscally sound plan should benefit, but it won’t be easy. Rack manufacturers will have to be open to creating opportunities for sales but will balance that against the cost of raw materials and labor.
Used racks could very well be the safest bet for companies wanting to expand with the least amount of exposure to any economic downturn. The best advice is to know your market, its potential and its risks.