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The sputtering forklift market

The hum of America’s factories, warehouses and shipping centers remains a relative whimper more than two years into an economic recession unmatched since the Great Depression.

In 2009 the nation saw another steep drop in industrial and commercial inventories, one measurement for business activity. According to the U.S. Census Bureau, seasonally adjusted business inventories averaged for the year through November were down 8.9 percent from 2008 levels. Manufacturing (industrial) inventories were off 7.6 percent, and retail (commercial) was down 10.5 percent.

Meanwhile, the U.S. Labor Department reported nationwide unemployment closed the year at 10 percent with 15.3 million people out of work. At the start of the recession in December 2007, 7.7 million people (5.0 percent) were unemployed.

The limp economy has put a big hurt on the use of the forklift trucks that haul the nation’s cargo to consumers.

The Industrial Truck Association says U.S. factory shipments of internal combustion engine forklifts in 2009 plummeted 60 percent from 2008 levels. Just three years ago, that largest forklift category hit a peak of 85,038 shipments (see chart on page 20). The bulk of those heavy-duty lift trucks run on propane for its power, refueling convenience and clean emissions.

The forklift market has long provided steady off-season gallon sales and healthy margins for propane marketers. About 437 million gallons currently fuel some 465,000 propane lift trucks nationwide. Those fuel sales account for about 5 percent of the total U.S. retail market and more than 70 percent of all motor fuel gallons.

Forklift fuel demand typically expands and contracts with the economy. According to research by ICF International, a firm hired by the Propane Education & Research Council to analyze various market segments, the economic slowdown has cut fuel demand more than 37 million gallons since 2007. Calculating consumption based on new truck sales and those being retired from duty each year, the firm projects gallons will gradually fall to below 397 million through 2015.

“The economy obviously plays a big role [in forklift sales],” says Michael Sloan, senior project manager for ICF.

“Companies looking to save on expenditures have delayed new forklift purchases, and some of those will come back over time. They’ve also trimmed operations and moved their machines to more efficient locations and business operations. Some of that won’t come back. Those are likely permanent changes.”

Inventories are finally starting to build, so ICF expects forklift truck sales to rebound. But it likely will take several years to hit the peak volumes of 2005-06.

“It shouldn’t be nearly as bad as 2009,” Sloan says. “We see a significant rebound in [truck] sales in 2010, but not a huge rebound until 2011. We have discussed this with the ITA economists, and they are being very cautious about forecasting for 2010.”

Even if the economy sparks to life this year, Sloan predicts a lag before propane consumption climbs.

“[Forklift] utilization average has dropped as a result of the recession. So there is a certain amount of under-utilization that will get used up before new shipments come back,” he explains.

More than a bad economy
The economy isn’t the only threat in the forklift market. The national push to “go green” has given a foothold to other alternative fuels competing with propane to replace dirtier gasoline and diesel trucks.

“I think one of the big threats to our market is the trend towards electrification,” Sloan says.

Aided by improved battery technology and lower cost, electric riders are closing the gap in market share competition with internal combustion engine models. Just a few years ago, the IC market share was one-third higher. In 2009, shipments of the two were nearly equal.

Sloan says much of that change comes from environmental agendas being pushed at the state regulatory level – particularly in states that have adopted the more stringent California Air Resources Board (CARB) standards.

“We don’t believe the industry is at risk of losing its status as the dominant player in the forklift industry, but we do believe there is a risk that its status will be eroded over time. Our projections anticipate a decline in market share of propane IC shipments by 5 or 6 percent over the next five years,” he says.

Front-line falloff
The propane industry’s five multi-state marketers handle most of the domestic forklift fuel sales. Although the publicly held companies don’t disclose sales data exclusive to the lift truck market, officials at the majors acknowledge they have felt the economy’s pinch.

Jeff Kaminski, group director for new business development at AmeriGas, says the company’s numbers are in line with reports measuring the overall impact of the recession.

The nation’s largest propane retailer last year saw a 6.5 percent drop in retail gallon sales from the 993.2 million gallons sold in 2008. Motor fuel sales represent about 13 percent of the total, and Kaminski estimates that forklift fuel accounts for half of those gallons.

That means the recession has cost AmeriGas about 6 million gallons – including 5 million gallons in 2009 – in forklift fuel sales.

“This category of customer has probably been impacted more than the others, “ Kaminski says.

“The issue comes down to usage per customer. Businesses have been cutting shifts, so you are looking at volume losses that parallel those layoffs. There are many customers still out there, but they are all cutting back. They just don’t have the level of work because there is not as much demand. So I think the main driver for us is their reduction in the number of shifts and hours.”

AmeriGas has 270 rack trucks servicing forklift cylinder exchange accounts throughout the country. Its Strategic Accounts program allows large, multi-location customers – such as UPS and other corporate giants stretched across the country – to enter into a single supply agreement rather than negotiate with many small suppliers.

“Obviously we are staying close to our customers and servicing what business is still out there – and waiting for business to pick up again. It’s just a fact of life and there’s not much we can do about it. But we fully expect it to return,” Kaminski says.

Paul Grady, chief operating officer at Heritage Propane, tells a similar tale. The nation’s third-largest retailer says its forklift gallons fell 8-10 percent in 2009 despite a growth in customers. And the average account volume fell even more.

“The slowdown we saw was due to layoffs, reductions in shifts and business closings, all of which impacted our business. We had places where business went from three shifts to one, entire distribution centers were shut, and companies went into bankruptcies,” Grady says.

Heritage operates its forklift business in 25 major metro markets in 19 states under the Metro Lift brand. Grady says its strategy in the market has been to analyze expenses by location in order to stop or significantly slow purchases of assets. Instead, it is relocating spare cylinders, rack trucks and cylinder cabinets into regions experiencing growth.

“But we have not slowed down calling on our customers to maintain and build our client relationships. We have remained vigorous and active in our marketing,” he says.

“I don’t think we are out of the woods yet. Volume is still soft, although it has stabilized. But we haven’t seen much improvement yet heading into 2010. The forklift segment is indeed a very good proxy on the health of the economy overall.”

The nation’s second largest marketer, Ferrellgas, has seen forklift sales dip anywhere from 3 to 30 percent, depending on the region.

“We are working to address this impact by increasing the number of locations we service for national customers as well as grow our business in markets where we have a strong retail presence,” says Scott Brockelmeyer, vice president of corporate communications and marketing.

Ferrellgas services forklift accounts in most every state with about 100 forklift account managers, 188 rack truck drivers/delivery men and 224 workers at 101 cylinder exchange facilities.

Does the propane giant see any signs of an upturn in the economy in 2010?

“It’s not necessarily an upturn, but we have seen a decrease in the number of location shutdowns and consolidations. We believe the worst is behind us, but there will still be continued efforts by forklift customers to become more efficient and cut costs wherever possible,” Brockelmeyer says.

Suppliers pinched too
If warehouses and docks aren’t burning as much fuel, it follows that propane marketers don’t need to buy as many cylinders.

Mike Verne, director of LP products and sales manager for cylinders at Worthington Cylinders, says sales of both aluminum and steel forklift cylinders are off almost 50 percent due to the slowdown.

“The phrase we’ve heard from all of our industrial cylinder customers over the last year and a half is ‘asset utilitization.’ Propane suppliers are evaluating their assets across the U.S. and attempting to centralize distribution instead of buying new supply,” Verne says.

“Also, as their customers’ facilities are closing down and assets from those operations are being brought in-house, they stop buying new cylinders and use what they have.”

About two-thirds of Worthington’s forklift cylinder sales are aluminum. The majority go to propane marketers that run cylinder exchange businesses for industrial customers.

“When the majors and independents are not buying, you can’t make up that significant volume by getting it somewhere else. You have to wait for demand to pick back up,” he explains.

Most steel cylinders sold by the Columbus, Ohio-based manufacturer go to the forklift truck manufacturers. Those sales, too, took a beating when truck sales plummeted in 2009.

Just as heating tank sales got healthy this winter after several years of customers delaying new purchases, Verne expects forklift cylinder sales to eventually rebound once the used stock dries up.

“The same will happen on the forklift side,” he says. “Customers will use up their assets until there is nothing left, and then they will have to start buying new. It’s pretty cyclical.”

Economic recovery?
Nobody could have foretold the severity of the upcoming recession when Steve Moore started Expo Propane in Southern California four years ago. With ports in Long Beach and Los Angeles among the largest international shipyards in the world, a full two-thirds of his 350 customers buy forklift fuel for the docks and nearby warehouses.

But two-plus years of recession are driving down customer demand and forcing others to relocate or go out of business. Meanwhile, ever-toughening state regulations are handing electric truck competitors a growing piece of his forklift market.

With sights on promising new technology down the road, Moore fights discouragement for himself and his 11 employees.

“I try to be positive, but you can get discouraged easily if you let yourself,” he admits.

Expo’s remaining sales are in other motor-fuel segments. A longtime member of the Propane Education & Research Council’s Motor Fuel Advisory Committee, Moore is working closely with Roush dealers in Southern California to push its new line of propane Ford pickup trucks and vans. But that, too, has been hampered by problems getting final CARB approval.

So he anxiously waits for that critical government blessing, and searches for signals of an upturn in the economy sometime in the New Year.

“I don’t see any signals at this point,” he says candidly. “It’s just not a pretty picture."