By the end of 2023, the world economy is projected to reach a record gross domestic product (GDP) of $105 trillion, $5 trillion higher than in 2022, according to the International Monetary Fund’s 2023 World Economic Outlook report. In nominal terms, that’s a 5.3% increase in global GDP. In inflation-adjusted terms, it’s a 2.8% increase. The 2023 GDP of the five largest economies – the US, China, India, EU, and Japan – is estimated at $3.7 trillion.
On the national front, the IMF forecasts the US will retain the title of largest economy in 2023, with a projected annual GDP of $26.9 trillion. In the global context, the US is larger than the sum of the GDP of 174 countries, from 17-ranked Indonesia to 191-ranked Tuvalu. China is the second largest economy, with a projected GDP of $19.4 trillion in 2023.
A significant contributor to the strong 2023 economic growth forecast came on May 5, when the World Health Organization (WHO) declared an end to the COVID-19 global public health emergency. However, a new wave of COVID-19 cases occurred in the summer in the US and Europe.
Among all of this, the industrial equipment sector is facing new challenges surrounding rising demand across all of manufacturing. Join us as we explore what lies ahead for five sectors of industrial machinery:
Industrial Equipment Market Overview
The industrial machinery market is a significant part of the global economy. It includes a diversity of industry sectors, including agriculture, construction, heavy equipment, surface mining machinery, food and beverage, paper and printing, and machinery that produces plastics and rubber. According to one research report, the industrial market is forecast to reach $708.3 billion in 2027, for a CAGR of 6.7%.
To maintain strong growth, industrial equipment companies constantly seek innovative ways to improve their production processes and tools. One opportunity to improve operations that is gaining traction with industrial manufacturers is to shift left. The shift refers to moving product testing, quality control, and performance evaluation upstream from the manufacturing stage and into the product design phase before manufacturing begins.
The shift is significant because engineering teams don’t have to test and redesign physical parts. Instead, they update digital versions of parts and systems. Digital adjustments are much less expensive than making changes during physical production. The shift also speeds up product validation, reducing operational failure risk.
Another vital tool applied in the design phase is the digital twin. A twin is a digital replica of a physical part or system that enables engineering teams to gather data, test the system, and adjust processes before any code is written and the physical product is built.
What follows is a summary of design and production processes in five major industrial market segments: Mining, Semiconductors, Agricultural, Construction, and Packaging.
Mining is a foundational industry for many of the goods we rely on for modern life. It provides and processes the raw materials for industrial and construction equipment, vehicles, telecommunications, and many other manufacturing sectors. The mining sector requires a diversity of machinery to extract rock, minerals, and metals from the earth, including core drills, coal cutters, mining cars, conveyor belts, hoists, hydraulic supports, crushers, ventilation systems, pumps, cutters and many more specialized tools. All this equipment also requires advanced electronic components and systems.
Today, the mining industry is starting to pivot to reduce the negative impact of the extraction process on the environment, promote social responsibility, and support economic growth. One opportunity the mining sector is exploring is to extend the useful life of existing mining equipment from reputable suppliers, reducing the mining industry’s carbon footprint and postponing the need and cost of purchasing new equipment. By reusing and repurposing existing equipment, mining companies can reduce the volume of their waste disposal.
Another environmental sustainability opportunity for mining companies is to shift to renewable energy to power mining operations and implement more efficient water management practices. These changes will contribute to reducing mining’s environmental impact.
The agricultural machinery and equipment sector produces large, diverse types of equipment, from tractors and harvesters to seed drills and irrigation systems. The current generation of equipment relies on the latest state-of-the-art technology, including intelligent sensors, artificial intelligence, and embedded systems, to stay on the leading edge.
Digital agriculture and the automation of farming tasks is a growing area for agricultural companies. Digitization includes digital twin technology, the Internet of Things (IoT), various sensors, location systems, robotics, and artificial intelligence on the farm. The ultimate goal is to increase the quality and quantity of the crops and livestock while, at the same time, optimizing human labor.
Adopting these tools and technologies is essential to addressing the challenges of rising agricultural production costs, labor shortages, and climate change. Today, these high-tech tools address these challenges and achieve higher productivity using advanced real-time monitoring, simulation, and automation technologies.
While these high-tech agricultural tools are gaining market share, they have yet to be adopted broadly. Still, it’s early days, and demand is expected to accelerate as stakeholders embrace the new devices and technology. For example, agricultural digital twins are an essential differentiator for the sector because they enable stakeholders to improve and accelerate the decision-making process.
Figure 1. Examples of leading-edge agricultural equipment
- Precision irrigation and precise plant nutrition
- Machine-controlled climate management for greenhouses
- Sensors for temperature management of soil, water, and air
- Software platforms
- Location systems such as GPS and satellites
During the three-year COVID-19 lockdown from 2020 to 2022, many construction companies turned to digital twins to replicate real-world equipment. 3D digital models enable the construction team to interact virtually with the physical property through the planning, budget, design, and construction stages. In addition, digital twins improve productivity and can be applied during all construction project phases. Specific benefits include faster collaboration with project stakeholders and more efficient workflows.
Construction is a complex sector with diverse types of equipment. There are a variety of stakeholders as well, including architects, engineers, contractors, building owners, municipalities and other government organizations. Digital twins enable multiple stakeholders to manage, share data, and improve decision-making across physical and departmental divides. Specific benefits include:
- Improved stakeholder communications
- Allowing customers to provide important feedback before onsite construction begins
- Advanced design risk assessment
- Allowing collaborators to shift from PDF reports and photos to an immersive digital view that understands site conditions and issues more effectively
By incorporating digital twins into the Building Information Management (BIM) process, contractors and architectural and engineering firms can address the most pressing challenges, such as low productivity and profitability and high error and accident rates. Digital twins in construction can also help firms reduce virtual design and construction costs.
The packaging industry is changing significantly due to new technology, shifting customer preferences and environmental concerns. Sustainability, innovative packaging, e-commerce, and personalization are the key trends driving innovation in the industry today. They can potentially increase resource efficiency, eliminate waste, and reduce the environmental impact.
By embracing these trends and exploring new technologies and materials, packaging companies can meet the evolving demands of consumers. The use of biodegradable and compostable materials will become more common. Also, packaging companies will continue exploring ways to reduce the volume of packaging waste generated. Examples include using less material while still providing adequate protection for products.
The rise of e-commerce is expected to drive packaging innovation as companies seek to meet the unique packaging requirements for cu. The growth of e-commerce includes using more durable, tamper-evident packaging that can withstand the rigors of shipping and handling.
Also, e-commerce retailers will continue to explore ways to reduce packaging waste generated by online shopping. Options include a critical factor in the packaging industry. Consumers are looking for products tailored to their preferences, and packaging is crucial in delivering a personalized experience. This shift could include using customized packaging designs that incorporate personalized messages or graphics and using packaging materials that are biodegradable and tailored to the consumer’s specific products or industries.
Semiconductors are the cornerstone of modern digital technology. The five industrial market segments described above are all reliant on advanced semiconductor devices. They power our computers and smartphones, and enable artificial intelligence (AI) applications. They are as important for agricultural equipment as they are for AI, IoT, and advanced 5G telecommunications networks.
The COVID-19 pandemic negatively impacted semiconductor market. For instance, in 2021, farm equipment manufacturers, including New Holland, John Deere, and Kubota, halted production because shipments because semiconductor supplies were delayed. The shortage caused a massive domino effect at every level of the agricultural industry’s supply chain. In the US, it started with the electronic systems makers and trickled down to US farmers and ranchers. Challenging supply chain issues forced farmers to plan much further ahead, making purchasing new equipment more expensive.
In 2022, the semiconductor market totaled $599.6 billion, which posted marginal growth of 0.2% from 2021, according to Gartner. On the bright side, technological advancements drove positive growth for semiconductors in 2022. Increased demand for high-performance ICs, driven by the need for miniaturized electronic devices with improved functionality, led to the development of advanced semiconductor manufacturing processes. Sales rebounded to $618 billion, a rise of more than 30% in just two years, in part, as a consequence of the drop in COVID-19 infections.
Gartner predicts the global semiconductor revenue will decline in 2023 to $532.2 billion, a year-to-year drop of 11.2%. The decline is caused in part by a contracting global economy and lower demand for consumer-driven products. Gartner predicts the semiconductor market will return to growth of 18.5% in 2024, reaching an annual value of $630.9 billion.
Supply Chain Challenges Ahead
A recent survey of 179 equipment manufacturing companies conducted by the Association of Equipment Manufacturers (AEM) warned that 98% of US equipment manufacturers face supply chain issues three years after the onset of the COVID-19 pandemic and 58% experience deteriorating supply chain conditions. The two primary supply chain disruptions are workforce shortages and access to intermediate components for production. As for market growth, equipment manufacturers are seeing an average of 8.6% profit margin loss and are forecasting a 6.4% profit margin loss in 2023, according to AEM.
According to a 2022 McKinsey and Co. report, factory shutdowns, transportation delays, and other supply chain disruptions are still prevelant. The study found that, on average, OEMs experience a disruption of one to two months every 3.7 years. Building supply chain resilience requires involvement by all stakeholders, starting with the OEM and including subcontractors and component suppliers. Improving stability involves the representation of partners across the supply chain. In some cases, it will require an investment in local sourcing and the stockpiling of essential components.
There will be challenges even if supply chain partners are proactive due to changes in consumer behavior, according to McKinsey. For example, consumers are becoming more unpredictable, leading to increased volatility and unpredictability in demand.
Post-pandemic, businesses are grappling with higher supply chain costs across the board, from raw materials to freight charges. Labor shortages are prevalent aross the supply chain in the future. From factory workers to truck drivers, labor shortages have the potential to disrupt supply chains worldwide, causing delays, higher costs, and placing more pressure on existing staff.
In addition, industrial OEMs and their supply chain partners are grappling with geopolitical risks caused by Russia’s invasion of Ukraine in February, 2022. Challenges include logistics disruptions such as air cargo, ports, road and rail, and shipping delays, which have reduced production and shuttered manufacturing plants. Another challenge has been the inability to purchase goods sourced from Russia because of economic or self-imposed sanctions by individual companies.
In the auto sector, German automotive companies were forced to reduce production in 2022 because of a critical subcontractor in Ukraine could not manufacture wire harnesses because of a lack of part. Similar transport delays and rising input costs have become prevalent in other industrial sectors. The immediate effects have been spread across many industrial sectors, but the impact appears to be highest for the automotive, chemicals, energy, agriculture, travel, and logistics sectors.
Intelligence for What’s Next
Supplyframe’s Design-to-Source Intelligence can prepare your teams for what’s on the horizon, be it challenges or opportunities. To learn more, discover our solutions for industrial equipment.