This is a part of the 2015 Distribution Trends Special Issue. The annual feature was researched and written by MDM editors based on interviews with dozens of wholesaler-distributors, as well as industry experts and manufacturers. MDM also conducted a survey of its readers to uncover the trends outlined in this issue.
2015 Distribution Trends Special Issue
The need for product innovation is more important than ever. End-customers of fluid power products want more from those products, but they want it in as small a package as possible. For example, customers are looking for power units with controls "as a complete package," noted one respondent to the 2015 Market Trends survey. Beyond that, the Internet has sped up the cycle to product commoditization. "You go into a commodity phase when the customer knows as much about the product and how to acquire it as you do," says David Parks, president of Hydradyne LLC, Fort Worth, TX.
Channel convergence continues as products become more hybridized. Electronics are making their way into every sector, and fluid power is no exception. Demand has increased for the inclusion of sensors on fluid power products, for example position and load sensors on actuators. Distributors are trying to expand their capabilities in this area – through acquisition and by hiring engineers who understand the new dynamics.
Last year's oil & gas opportunities now a drag on the industry. Demand for fluid power products saw regional boosts from the boom in hydraulic fracturing, or fracking. But with the steep drop in oil price experienced earlier this year, companies that invested heavily in expanding into those boom areas, such as North Dakota and Texas, are seeing sales stagnate. Expectations are for prices to increase, but to remain well below the "norm" of above $100 a barrel seen in the last four years.
Automotive sector continues to strengthen. According to Consensus Forecast, auto sales in the U.S. are expected to be 16.8 million units in 2015 and 17 million in 2016, a return to prerecession levels. Low gas prices help boost consumer interest in new vehicle purchases, and it appears that pent-up demand is being released. According to the 2015 Economic Benchmarks for Wholesale Distribution, original equipment manufacturers are the largest end market for fluid power machinery, equipment and parts at 64 percent, so the upward trajectory is good news for the sector.
Mergers & Acquisitions in 2014:
Kaman Industrial Technologies' M&A activity in 2014 was focused on targeting growth opportunities. Kaman acquired fluid power distributor B.W. Rogers and is using the company as the platform for its fluid power business, an example of the convergence mentioned above. The distributor also sold its Mexican business unit.
Applied Industrial Technologies had an acquisitive 2014, with a particular focus on expanding services to oil and gas markets in the U.S. and Canada – including the acquisitions of Knox Oil Field Supply, San Angelo, TX; Reliance Industrial Products, Nisku, Alberta; Texas Oilpatch Services, Houston, TX; and Ira Pump & Supply Co. Inc., Ira, TX. Applied also completed acquisitions in Mexico and Australia in 2014.
Motion Industries acquired Commercial Solutions Inc., Edmonton, Alberta.
Average growth for companies on the Fluid Power Market Leaders list: 23% (boosted by acquisitions)