As most economists will note, a real recovery is already taking place in the fluid power market, albeit a slow one. And although most agree that we won’t see numbers like those of 2007 for at least another three years, there will be some growth in 2010.
At this year’s NFPA Industry and Economic Outlook Conference (EOC), Jim Meil, vice president and chief economist at Eaton Corp., said the industry will experience slow growth for about six to 10 quarters. So while the past year saw a forecast of unit volumes in losses between 30 and 45%, 2010 will see modest gains from about seven to 15%, Meil said. But a return to 2006/2008 peaks will most likely be measured in years, not quarters, he concluded.
William Van Arsdale, president, Eaton Hydraulics Group, Eden Prairie, Minn., recently added, “The emerging economic reality is that we probably will not return to 2007 market levels for two, maybe three years. We can see signs on several fronts that suggest the recession is bottoming out, and there are even a few places where positive growth seems to be taking hold. But, and this is a major ‘but,’ markets have plunged significantly, and job growth will remain a major concern, particularly as it impacts consumer spending and personal consumption.”
Eric Lanke, executive director at the NFPA, concurs. “As we look toward the next year, the state of the economy is clearly at the forefront of everyone’s mind. We are heartened to see some upward movement in NFPA’s fluid power indexes over the past several months, and are hopeful for some additional momentum as we start into 2010. But while we seem to be entering a recovery phase, we’re a long way from recovered.”
At the EOC, Meil added that the short-term key to any growth will be getting inventories right-sized as well as the pace of capital spending pick-up.
Winfried Hegel, vice president, Industrial Sales & Customizing, Industrial Hydraulics, Bosch Rexroth Corp., reiterates this, saying the company expects a slow recovery due to several factors, including financial availability, consumer hesitation, still-existing inventory, and over capacities.
“Most companies simply don’t have funds to invest in large-scale expansion or technology development. Budgets everywhere are cut to the bone,” Hegel said. In addition, he added, “Economists are telling us that consumers have been shocked out of their free-spending habits, and it will take some time before spending levels return — if, in fact, they ever do. Industries can’t grow if consumers can’t (or won’t) buy.”
Finally, Hegel said, “Many companies have significant inventory and have not so depleted their stockrooms that they are forced to reorder. That trend should ease over the next few quarters,” but he concluded that many industries still have the production capacity they had rushed to build over the past few decades and this may not be necessary.
Efficiency at the forefront of growth
Van Arsdale says that despite the slow growth, there is room for cautious optimism for the industry. “For one thing, legislative-driven mandates for virtually everything to operate more efficiently and sustainably have not abated, and offer many opportunities for customers to benefit from fluid power’s traditional power density advantages.
“Obviously, higher fuel costs and ever more stringent emission regulations will continue to drive efforts to reduce the carbon footprint of the world’s heavy-duty transportation fleet. That opens new markets for both hydraulic and electric hybrid drivetrain technologies, but it also benefits traditional options like electrohydraulic fan drive systems, which can have a huge impact on power management and engine efficiency.”
Bosch Rexroth’s Hegel adds that energy-related markets, including alternative energy sources like solar and wind power, are already growing due to tax incentives, and should continue to grow.
“Bosch Rexroth is fortunate to have a proven track record in alternative energy technologies, so we are encouraged by the growth of interest and concurrent incentives to develop this area,” Hegel said.
Lanke stresses the need for the industry to look long-term in its recovery, focusing on those trends that are growing in importance, such as energy efficiency.
“The establishment of the Center for Compact and Efficient Fluid Power was a major first step in creating the research infrastructure needed to make a technological leap forward in efficiency,” Lanke said.
“A second step is now upon us and will unfold as we move through the next year,” Lanke continued. “The U.S. Department of Energy’s Industrial Technology Program has expressed interest in partnering with NFPA in a two-phase effort:
• to quantify the current level of energy consumption and efficiency among fluid power systems in use, and
• to fund efficiency research and projects that encourage more efficient practices among industrial users of fluid power.”
Lanke says it is critical for members of the industry to be in full support of such initiatives as it seeks to secure Department of Energy funding.
Moving forward elsewhere
Hegel adds that in addition to efficiency, the industry will be dominated by safety and connectivity issues.
“Not only must we provide customers with more efficient fluid power equipment, but we must also find ways to conserve energy in our operations,” Hegel said.
Regarding safety, he added that beyond human terms, businesses understand that accidents and injuries mean lost production time and lower productivity.
Finally, he said, it will no longer good enough to just have power mechanical systems. They must be smart. “The future will belong to systems that couple the strength of hydraulics with the control and intelligence of electronics,” Hegel said.
In last August’s EOC, Eaton’s Meil noted that another key to a slow recovery will be global capital spending, and more U.S. exports.
Hegel agrees, saying that the strength of foreign currencies may encourage U.S. exports and foreign investments in the U.S., thus spurring slower-paced recovery.
Van Arsdale remarks that most traditional sectors in the fluid power market will start to sees teady growth, including the auto industry, machine tools, and of course, renewable/sustainable power markets.
“In general, many of these fundamentally sound markets have been held back by access to credit and capital,” Van Arsdale said. “The various stimulus packages now coming online around the world should have a major positive impact on all of these markets, and they may well lead the way out of the recession.”
“Even the traditional energy sectors, like oil and gas production, will be focused on cost cutting and efficiency improvements,” he continued. “Renovation of old systems, new deep-water exploration and production technologies, and emerging producers like Brazil will all contribute to helping the fluid power industry grow.”
Two major markets — agricultural machinery and construction equipment — will have very different outlooks, Van Arsdale said. Agriculture machinery will most likely remain stable because fluid power technology is the backbone of that machinery’s power management capabilities.
Construction equipment, however, will have a much longer road to recovery. “But even here, the need for efficiency and sustainability will drive the industry to improve and upgrade,” Van Arsdale said. “OEMs are also using this period to re-examine their design approaches and technologies in order to be more competitive as the market strengthens.”
Hydraulics’ power density key
All agree that the high power density that fluid power components offer — used in conjunction with electronics — will also be a major driver of growth for years to come.
For example, says Van Arsdale, “Standards-based, open-architecture products like our F(x) line that combines the brains of electronics with the brawn of fluid power provide a preview of that competitive future. They will be at the heart of many of the sophisticated f luid power solut ions that wi l l help (OEMs) produce the efficient, sustainable systems and equipment needed to meet the needs of a once-again growing and prosperous global community.”
Hegel agrees, saying that as customers look for cost-savings, reductions in energy consumption, and higher performance, the power of hydraulic and pneumatic components will help them reengineer their products successfully.
Like Van Arsdale, Hegel points to more electrohydraulic components under development that the company believes will change the way design engineers think about mechanical systems. “This year will see more crossover between the Electric Drives & Controls group and the Industrial Hydraulics group, to develop products that will be more precise and easier to control for the industry.”