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Monitoring the trends – the outlook for 2012

October 11, 2011

Marie Dunkley, head of sales, Hitachi Capital Business Finance, says that some unpredictabilities during 2011 have led to a quietening in demand for capital equipment finance, but that the signs are looking promising for 2012.

It's been a turbulent year for companies so far. Reports show that the UK has experienced its most sluggish economic recovery for three-quarters of a century with the economy only returning 40% of the output lost from the recession (The Times, 27.07.11). Rumours of spending confidences to improve have been tarnished by events such as the Japanese Earthquake earlier in the year, which have directly affected the lead times of new equipment.

The manufacturing industry has suffered more than most as a result of incidents in Japan, with decisions to replace new equipment affected by slower productivity levels.

Orders and output growth have been slower than normal, with working hours and resources cut as a result. Currently, with confidence low and organisations only looking to boost efficiency with existing assets, there is simply less desire or need to bring fresh equipment in.

From a finance house standpoint, the market is feeling quieter at present, with businesses reviewing their repeat purchase and leasing plans as a result of these events. Combine this with seasonal changes in the market, with renewal of equipment always slower in the summer, and finance providers experiencing less demand for products.

However, in a seasonal market that is fairly predictable, we would expect demand to pick up again in September in the run up to Christmas. Every year, around the end of both the financial year and the calendar year, we see particular budgetary periods where demand for new equipment increases. It is in these periods where lenders aim to be as flexible as possible in their approach to provide customised schemes that cater for both existing and new customers.

When it comes to replacing equipment, there are a couple of key influencers. 2006-07 was the last major purchasing influx, with businesses trending with each other to replace aged equipment. Our findings suggest that organisations generally hold off until the cost of maintenance outweighs the cost of renewal, with new lines of equipment able to replace the old. Health and safety is also an important factor in the decision making process with renewal of materials handling machinery and equipment reviewed in line with the high risk areas of the warehouse. With a shelf life of around 5-6 years for most equipment, we predict 2012 to be another productive year for repeat purchases and the buying of new equipment.

The manufacturing industry has suffered more than most as a result of incidents in Japan, with decisions to replace new equipment affected by slower productivity levels.

There will always be influencers such as the Japan earthquake that come from left field, but it's up to finance houses to roll with the punches and react with flexible finance packages that cater for difficult times. Lenders must use their knowledge and experience of the market to understand the needs and requirements of each customer's perspectives. Furthermore, with predicted peak periods for replacing equipment in the offing, finance providers need to be ready with attractive short and long-term lending schemes, to help ease asset management worries.

This article originally appeared in Storage Handling Distribution magazine. Reproduced with permission from the Editor.