Japan forklift exports crumble in December 2011

by SR on January 30, 2012

The Japan Industrial Vehicles Association (JIVA) reported December 2011 and calendar year 2011 shipments on 27 January 2012. (Related companies: Toyota Industries; Komatsu; Hitachi Construction Machinery; Mitsubishi Heavy; Nippon Yusoki; NACCO; Jungheinrich; unlisted KION.)

  • Export weakness. Terrible December 2011 exports, very poor compared to November, suggesting overseas demand heading south.
  • Domestic sales were good. Demand is likely being propped up by the resurgent auto sector.
  • Why you should care. Japanese players dominate the global forklift market, so slowing exports has broader implications, including demand for trucks.
  • Most affected: Toyota Industries is the world’s leading supplier of forklifts and this business line contributed about two-thirds of total profit in the first half of FY3/12. If exports remain weak that can’t be good for the company.

Exports were horrible

December 2011 exports were 4.3k units, falling 1.3% YoY, the second year-on-year decline after the 0.3% YoY fall posted in November 2011. I see this trend continuing, with a 6% YoY decline in January 2012 and a further fall of 13% YoY in February. Although March 2012 should pop up by 5% YoY or more, as March 2011 was truly poor, April and May 2012 exports will probably stay negative to the tune of 10-12% YoY. So the monthly figures are not going to look great.

Japan_monthly_forklift_exports_pct_change_year-on-year_to_December_2011

While it’s not good to see year-on-year performance rolling over, that is to some extent just a product of the base used for comparison i.e. last year’s data, which is history. I am more worried by the month-on-month change in December exports, which was far worse than typical seasonality. It was the second worst performance in our data, which begins in 1989. It looks to me as if overseas demand is starting to roll over.

The following chart shows how much exports have declined in previous months of December compared to November – the typical seasonal movement, if you will. As you can see, only in the middle of the financial crisis (2008) have we seen such a weak December as that of 2011.
Month-on-month_pct_change_in_Japan_forklift_exports_for_each_December_since_1988

Incidentally, for the whole of CY2011 exports posted solid growth of 10% YoY to 51k units, which was a decent show given the disruptions caused by the Tohoku earthquake and by flooding in Thailand. Still, that only takes us back to the level of 2005 and leaves us well below the golden years of 2006-2008. I would expect 2012 exports to show much lower growth, if they grow at all – a year-on-year contraction seems possible to me.

Japan_forklift_exports_(thousand_units)_1988_-_2011

Domestic sales were pretty good

Domestic demand remained strong, probably due to resurgent demand as output in a number of sectors related to autos gets back on its feet after earthquake/Thai flooding disruption. Units for the month came to 5.8k, up 11.6% YoY. As you can see, although the pace of expansion is lower than the peaks recorded during the summer, the year-on-year growth has been steady for most of 2011.

Japan_monthly_forklift_domestic_sales_pct_change_year-on-year_to_December_2011
In month-on-month terms – that is, seasonality – the domestic side put in an unusually good performance. Sure, sales fell by 2.3% MoM in December 2011, but December usually posts a much larger decline than that, so this is a good figure.
Month-on-month_pct_change_in_Japan_forklift_domestic_sales_for_each_December_since_1988

For 2011 as a whole, sales rose by 10.2% YoY to 62.3k units. That’s the same as the CY2011 growth in exports, which initially sounds odd given that we’ve just said that domestic sales performed well, but domestic demand was hit far harder by the earthquake than exports. March – the month of the quake – was worst-hit, posting only a small increase in what is usually the strongest month of the year for domestic sales.

Japan_forklift_domestic_sales_(thousand_units)_1988_-_2011

Why you should care; it’s more than “just” Japan

Forklifts are the invisible giants of the supply chain: everything on a road truck gets put there by a forklift or something similar, so fading forklift sales imply worsening business sentiment. Japanese forklift suppliers dominate the global market and they export aggressively.

Top_20_forklift_suppliers_by_2010_revenue_(billion_US_dollars)

As the chart shows, Japan is the home of the world’s largest forklift supplier (Toyota Industries 6201) and 6 out of the 11 largest global players were Japanese, making up 32.4% of the worldwide market, way ahead of next largest supplier Germany with 21.9%.

Moreover, exports of forklifts from Japan account for about 45% of the country’s total output, as shown in the graphic below.

Japan_forklift_exports_as_pct_total_sales_and_exports,_to_December_2011

In other words, half of the demand for Japanese forklifts comes from outside Japan. If Japan’s forklift exports are slowing, we should be wary on demand for other forklift suppliers around the globe and, by extension, other industrial equipment. Incidentally, in theory one could argue that disruption in Thailand and the knock-on affect in SE Asia has caused this, but I think that would have had a small impact and should have already been reflected in the figures.

Global_forklift_shipments_by_region_in_2010_(thousand_units)

With that in mind, it surprises me that medium and heavy trucks in the US continue to hold up so well. The logic here is simple: forklift trucks are part of the same transport chain as road going trucks, they just travel much shorter distances. Any merchandise of any significant weight that is loaded on a road truck is put there by a forklift truck. At either extreme there may be variations – very light items may be loaded by people, heavy items may need a crane – but these are exceptions to the rule. So if road trucks are selling well, I would expect forklifts to (eventually) catch up. Over the medium term, the two markets should move in a similar fashion.

Index_of_forklift_exports_vs_US_medium-heavy_trucks_(2000-01-01_=_100)

Actually as you can see from that indexed graphic, exports of Japanese forklifts went absolutely batshit (technical term) in 2007-2008, to the point where I had to go back and re-check the data for anomalies or errors. Nope, exports of really did grow that much, and they really did collapse like that.

This volatility is understandable when you consider that the US truck market is 5-7 times larger than the Japan forklift export market; it’s easier to get big moves. The other issue is that the exposure of Japan’s forklift suppliers are mostly in my experience biased towards manufacturing applications and less to (say) demand from sectors such as retail, medical or clothing.

Ideally we would have global monthly data to compare to Japan’s export figures, but the only organisation that collates such data keeps the statistics to itself. I inquired about access to the stats and was met with a flat refusal. Unfortunate. At least Japan shares.

One more aside on the global picture: unfortunately this fragmented market (Herfindahl index of about 700) is not, as far as I can see, really consolidating. OK, TCM and Nissan are merging, but both TCM and Nissan have been minor players outside Japan. An article earlier this month in Handelsblatt said that the combined Nissan-TCM entity plans to attack Europe. Yeah, good luck with that. Toyota Industries still struggles in Europe despite it being the world’s largest supplier, a status due in part to it having bought out one of the leading European companies (BT Industries) a decade ago. Why should we think Nissan-TCM will make a dent? Not going to happen.

The major concern is that China, as a market, is about as welcoming of foreign forklifts as it is welcoming of road trucks. In other words, foreign forklifts occupy a small niche right at the top end of the market. Most local Chinese companies buy local with only a few of the major multinationals buying non-Chinese brands. During my most recent trip to China I saw plenty of Lonking and other local brand forklifts, and only one non-Chinese forklift, which was at a Honda factory. That was a Linde (KION Group brand) which makes sense – Honda isn’t going to use Toyota forklifts in its auto production facilities now is it? At this point, Chinese companies seem unwilling to pay for the safety, fuel efficiency and reliability of overseas forklift brands.

Most affected by this: Toyota Industries

Toyota Industries is the largest forklift and materials handling player globally by some way (see chart above). For the first half of the financial year ended 30 September 2012 (Japanese companies generally have March year ends, as you know) the materials handling business accounted for 38.3% of total sales and 64.7% of operating profit, although the profit contribution abnormally high due to profits from the auto parts and assembly business being sharply depressed in the first quarter due to the earthquake.

I must admit that I have a soft spot for Toyota Industries. Management really worked hard during the financial crisis to cut costs and has managed to push margins back to peak levels. In 2Q FY3/12 it posted an OPM of 5.7%, which is I think a record for the company in quarterly terms and that would have been higher if not for the earthquake. Margins in the forklift business reached 8.1%, which is again I think a record level, but it is precisely this that worries me – if forklift demand were to slump, the impact on profits would be large. Europe and the Americas combined accounted for 71% of units shipped in the first half of FY3/12.

Although traders tend to regard Toyota Industries as nothing more than a stub trade, due to the company’s shareholding in Toyota Motor itself, the company has very strong positions in growing markets. We’ve talked about forklifts today, but the other big area for them is compressors for car air conditioners. Toyota Industries has a global market share of about 45% and another Japanese company (Sanden 6444) has a 20% share, leaving the smaller companies scrapping over the remainder of the global market. Mind you, those smaller companies do include some up-and-coming suppliers such as Korean star Halla, which has attracted a lot of attention from investors over the past two years. Compressors contributed 13% of Toyota Industries revenue in the first half of FY3/12 and profit margins are higher than average. In normal times, both sales and profits would contribute more than this.

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