“But that backlog has now pretty much evaporated. Orders have dried up, falling pretty much to a trickle,” he declares.
But while the economic downturn and credit crunch has definitely taken its toll on the West Coast, business is not down as much as it is in some other regions of the United States, observes Jeff McNeil, marketing manager for Gorbel Inc. On a positive note, he says there continues to be a lot of inquiries for future business, “but orders are slower to come due to budget uncertainty and uncertainty in general. People are trying to hold onto their money.”
“We started to see a real dramatic change in our business starting in October or November,” says Jeff Thompson, president of Advanced Industrial Solutions, Irvine, California, who observes that in the past six to nine months business fell off an average of 20-30%. “But it is very industry specific. Companies that support the automotive industry are seeing an 80-90% decline, while there is virtually no decrease – and possibly even some increase – in infrastructure business.” He says that he is also seeing increased inquiries for certain municipal projects such as wastewater treatment facilities, “but some of that is probably tied to federal money,” including the recently enacted American Recover and Reinvestment Act economic stimulus programme.
“Actually quoting activity in general has improved a little bit recently, which is a good sign, but a lot of projects that we have quoted on are being put on hold because our customers are slow now. But they will place an order once things pick up,” Thompson says. “We are starting to see the light at the end of the tunnel forming, but I’m not sure when things will actually start to get better. It could be in two months or in two years. We don’t know.”
“I think that we are at least nine months to a year away from anything significant happening,” says John Brown, Southern California sales agent for Konecranes. “I’m hoping that the economic stimulus starts getting people buying goods again, but it will take a while to get into the pipeline. It will be at least the first of next year before anything happens,” he predicts. Gary Cox, cranes operations manager for CraneVeyor Corp., South El Monte, California, agrees, noting: “A lot of people are just coasting now.” He says that this could be expected. “Usually cranes and other material handling equipment tend to lag the rest of the economy, so it could be well into 2010 before things really start to pick up again.”
“We are, however, helped by the fact that the West Coast is a diversified market,” says Thompson. “We have a little bit of everything.” And several end user markets are actually doing okay. “The food handling industry is still fairly busy and buying cranes – largely small cranes up to 5 tons,” observes Paul Otto, president of Otto Systems LP, Los Angeles. Some other industries that are at least holding their own right now, according to McNeil, are defence industries, wind and other alternative energy industries and aerospace, although each of these sectors are showing some signs of potential weakness this year.
According to Michael Goggin, electric industry analyst for the American Wind Energy Association (AWEA), throughout the United States there was 8,500 megawatts worth of wind power generation capacity added last year – up a whopping 60.4% from 2007, but given a number of factors – including declining natural gas prices, the credit crunch and the fact that certain incentives such as production tax credits lose some of their appeal in a down economy where companies aren’t posting profits – the amount of new installations are expected to fall to 5,000-6,000 megawatts this year. He is, however, optimistic for long-term growth for the industry.
It is pretty much the same story for the solar energy industry, another alternative energy industry that is quite strong in the western United States. According to Monique Harris, a spokeswoman for the Solar Energy Industries Association, the total installed capacity for solar energy was up 16% in 2008, but that growth rate will likely be down this year due to the dampening effect of the economy and the credit crunch. “Long term, however, the industry will continue to see growth,” she says.
“While aerospace is holding its own right now, we anticipate that it will eventually drop,” says Otto. That is already starting to occur, says Cox, who observes that Seattle-based Boeing Commercial Airplanes has been cutting back its production. Jim McNerney, Boeing Co.’s chairman, president and chief executive officer, said while announcing the company’s first quarter financial results: “The expanded global economic downturn is presenting unprecedented challenges in our commercial airplane markets.” Still, he says, “we believe we are better positioned than most companies to withstand ongoing pressures in this economy and we are not hesitating to take necessary actions to preserve our financial strength and maintain our ability to invest and grow for the long term.”
The airframe manufacturer says that margins on all of Boeing Commercial Airplanes’ programmes were reduced in the first quarter by the lower price escalation forecasts, the decision to reduce 777 production rates for deliveries beginning June 2010 and postponing planned increases in 747-8 and 767 production. Progress on the several times delayed new 787 Dreamliner continues on the revised schedule that the company announced in December which would result in the first flight to occur in the second quarter of 2009 and deliveries are to begin in the first quarter of 2010.
Government spending – both municipal and defence orders – is still “pretty good,” McNeil says. However, some say the future of such spending, especially by the Defense Department, is somewhat hazy. “We are concerned with plans by the Obama administration to wind down the Iraq War and, because of that, there will be less defence demand.”
There are certain indications of some pending weakness in the defence sector. For example, Otto says that an order for jib cranes by the Air Force has recently been put on hold.
Konecranes’ Gasper, however, sees the defence sector as an area of strength. “We are still getting a lot of government work, including military projects and municipal projects, and that is continuing to be strong,” he says.
Gasper says that most crane builders don’t pursue military and defense work “because of the layers of red tape and paperwork involved with them. But we’ve been doing those kinds of jobs for a long time and it isn’t all that bad once you get used to everything you have to do. It is steady business – even in an economic downturn as we are in – and you always get paid.”
The real weakness – both on the West Coast and elsewhere – is more on the private sector end, he says. “It isn’t that we are losing jobs. People are just not placing new orders. Everything is on hold until companies can get a feeling where the economy is going.”
“The majority of end users are really down,” says Cox. “That is definitely true of recreational vehicle manufacturers. Several customers have gone out of business or filed Chapter 11 recently because demand is so weak.” Just in March, Fleetwood Enterprises Inc., Riverside, California, filed a voluntary Chapter 11 reorganisation petition with the US Bankruptcy Court in which they announced the intention to seek a buyer for its motor home and manufactured housing businesses (which are still continuing to operate) and that it is closing its travel trailer division. Another manufacturer – Monaco Coach Corp., which also filed for Chapter 11 protection in March, has since sold its RV assets to Navistar International Corp.
In addition, Cox says that fabrication, especially for anything that has to do with the housing market, is weak, and that the weakness in residential construction has now branched out to industrial and commercial construction as well, which doesn’t bode well for manufacturers that support the construction industry, such as heavy equipment and appliance manufacturers. “Steel warehousing is also down because demand is so low now,” he says.
The Metals Service Center Institute reports that steel shipments by US service centers were down 41.8% during the first quarter compared with the first three months of 2008. Likewise US service center aluminium shipments in the first quarter were off 43.6% versus a year earlier. With business conditions as they are, “everyone in manufacturing is taking a wait and see approach as far as crane and other equipment purchases,” says Otto, noting that there is a lot of scepticism about the economy and about cash flow. Most people aren’t willing to take a risk. If you buy something, you have to be able to justify spending the money.”
For that reason, he says, crane service and repair business is doing quite well – sometimes even better than new crane sales. “People are trying to limp along with their old equipment.” In fact, he says, Otto Systems’ maintenance work now accounts for 60-70% of sales versus 70% coming from new sales in 2007, when sales were at record highs.
But given that inquiries never really died down and are now getting even stronger, “I think that we might see things pop at the first sign that things are truly getting better,” says Thompson. “I think that will happen once the banks start to stabilise and there is better availability of credit. The stock market has already started to stabilise. I think we will start to see some companies let some orders go as early as July, especially from people who can’t wait any longer to change processes. A more dramatic pickup should start at the end of 2009 or the beginning of 2010.”
Some other industry observers, however, say they think the recovery will take a little more time. “While a lot of companies have slowed down, there is still a need for material handling. Orders for cranes will gradually return,” says Cox, adding that he thinks it will be well into next year before a significant upturn occurs.
Gasper has a similar take. “I think this year is a year that you just need to ride out. Once we do that I think things will be all right again.”
