Material Handling Trends: Insight from Honda Supplier of the Year, Pacific Rim Capital
by Rita E. Garwood November/December 2018
Dave Mirsky, co-founder of Pacific Rim Capital, winner of the Honda of America Manufacturing Supplier of the Year Honor, discusses challenges and opportunities in the material handling industry, including long lead times, a shift toward clean energy alternatives, autonomous technology, telematics and fuel cell batteries.
To recognize suppliers committed to exceeding expectations, Honda of America Manufacturing hosts the Annual Indirect Procurement Supplier Awards, an event ceremony that shines a light on the important role of these strategic partners. This year, Pacific Rim Capital (PRC) of Irvine, CA earned the Supplier of the Year honor.
“Honda describes the value that they receive from PRC in glowing terms. As owners and founders, seeing a write up like this is immensely gratifying, and it’s very important for motivating and rewarding our employees,” says Dave Mirsky, CEO and co-founder of Pacific Rim. All of us here at PRC look forward to a long and mutually beneficial business relationship with Honda of America Manufacturing.”
Customer service is a team sport at PRC, but Mirsky says Account Executive David Davis, PRC’s Customer Resource Manager and CRM teams, including Crystal Velazquez, Alyssa Muñoz, Edwin Olivares and Vendor Manager Jazmine Morello were instrumental in helping the team achieve this honor. “So many other people were involved behind the scenes, including billing, documentation and accounting departments,” Mirsky says. “I usually tell our company that the account executive closes the deal, but the rest of the team provides the customer experience. It is the customer experience that will keep the customer coming back. We’ve had many clients for more than 10 or even 20 years, so this is very important to our model.”
Although Pacific Rim is a Minority Business Enterprise (MBE) supplier, Mirsky’s team takes particular satisfaction in this achievement because they were pitted against all of Honda’s 2,200 indirect suppliers, not just MBEs. “Our goal at Pacific Rim Capital is to be the best material handling equipment (MHE) leasing company in the business irrespective of our MBE certification,” Mirsky says. “Our main differentiator is not our MBE certification. Rather it’s the product and work that we do. So, Honda’s award, along with the patronage and loyalty of our Fortune 500 customers, are evidence that we are accomplishing that goal.”
Pacific Rim did not start out in the MHE space. Initially, Mirsky and Marc Mills launched the company in 1990 with a focus on technology. But over time as computers became commoditized, and manufacturers like HP, Compaq, Dell and IBM began to use leasing as a weapon in their battle for desktop space, this asset class became more difficult for an independent to lease competitively. Around 1997, when searching for the next best capital equipment to lease, Mirsky found that MHE had a very good profile for leasing.
“At the time, the market was underdeveloped, it wasn’t occupied by a lot of players,” Mirsky says. “We also realized, while looking at MHE that we could add value to the process. Pricing is very tricky with material handling equipment, you really have to know what you’re doing, what the uses are, what attachment specifications and so on, but over time we learned how to become very detail- oriented so we could do it correctly. Then right about the mid-2000’s we switched to almost 100% MHE and added a lot of great clients. The problem now is that a lot of competitors are fighting for the same pie. The market itself hasn’t grown as much as the number of competitors have, so the environment isn’t as tempting as it was in the early 2000’s. In any case, that’s how we ended up here.”
Recent Trends in Material Handling
As Mirsky points out, the material handling industry looks a lot different these days.
“The most noticeable trend that I’ve seen this year is a huge extension of lead times for delivery,” Mirsky says, which has led to a very large backlog of orders that PRC is waiting to deliver so it can fund them. “I believe that most manufacturers are not investing in production because they are concerned about the length of the business cycle. Political upheavals are worrying people about the future. We’re seeing that large companies are acting the same way they do in a recession. By that I mean our clients are not returning equipment because they have to wait so long to get their replacements. This is great for our portfolio but not as good for new business volume.”
Mirsky says another trend that he has noted is a shift toward clean energy alternatives. Many users are changing to electric engines instead of internal combustion, which causes more pollution. “Typically, the internal combustion engines are used outside, and electricity is used inside,” Mirsky says. “But that’s changing as suppliers are developing more robust electric forklifts that can lift heavier loads and tolerate more challenging conditions. We think that you will see a lot of growth there.”
The expansion of autonomous technology is the third trend to affect the material handling industry this year. “Just like what’s going on with cars, you see more AGVs (automated guided vehicles) being ordered that are self-driven, and that technology is becoming a lot more flexible,” Mirsky says. “Originally you would have to put tracks on the floor, and the equipment would follow these tracks or magnetic leads. Now they’re much more able to navigate in a warehouse, and that makes them far more transferrable from one user to the next. This improves their residual values and makes leasing more favorable. I am sure that we’re going to see quite a bit of expansion of that technology.”
“There also have been real advances in telematics, which involves using the information that is gathered by a forklift. These systems record data such as how fast and how often a unit is running; it can tell when a driver has hit something or violated certain rules. Most forklifts have a computer inside that can track that data and broadcast it to a central node. We’re seeing greater use of that technology and the information that it can provide.”
An opportunity that Mirsky hopes will continue to expand is the use of fuel cell batteries and the infrastructure to support them. “PRC has really led the way with financing various types of renewable energy equipment,” he says. “We’ve been focused on doing a lot of green energy like fuel cell infrastructure. This is an area that PRC particularly emphasizes because we believe that it brings a real benefit to society. Typically, with a fuel cell one has to have equipment on site that will compress hydrogen to put into the batteries. We’re seeing a lot of users switch, but in order to do so they often have to invest millions in the ancillary technology. We are making it easier for users by financing that equipment and giving a price benefit for the tax credits when they are available.”
PRC’s clients are saying that accident prevention and finding qualified drivers is also a real problem. The industry currently needs as many as 10,000 drivers. “There’s just enormous demand for trained drivers, and that’s a big problem for the industry,” Mirsky says. “For this reason, PRC invested in a company that has developed state-of-the art virtual reality training for forklifts. We’re leasing their equipment to our corporate users. We’d like to see some more growth from that sort of asset.”
Outlook for 2019
Like many these days, Mirsky has a guarded view of the year ahead. “The economists that I follow are predicting a mild business cycle recession next year, not a severe dislocation, just a normal business cycle downturn, and we think that’s going to affect the MHE industry,” he says. “The manufacturing sector is pretty much at capacity, so we don’t expect to see a lot of growth in the industry in 2019. Maybe there will be an increase in orders but not in the number of units delivered. We do expect growth to pick up internationally in 2020, and we think it will continue for a pretty long run after that. So, we’re being careful now but we’re quite optimistic in the long run.”
Business leaders have largely embraced the rapid introduction of home working and digital processes as an inevitable necessity. Though the global lockdown has rapidly accelerated trends in digitalisation, seeing many asset finance businesses moving their operations entirely online in a contracted timescale, the direction of these developments is not a new concept for the industry.