When reviewing the US packaging industry it is important to understand not only the sheer size of the country, roughly equivalent to Europe, but also the size of the packaging companies themselves. They are big says Steve Thomas-Emberson
Another element of study is the markets themselves. A small percentage increase in any one can mean a vast upturn in potential profits for packaging companies as a whole.
Conversely, any negative factor – and there can be many – can take on an almost doomsday scenario. What is important is that, because of the vast size of the American packaging market, particularly the domestic sector, the industry has the capacity to weather the storm.
2001 was a true annus horribilis for the US market due to several factors. This affected the packaging machinery market place and the various sectors that the machinery operates in.
One of the most significant reasons for the 2001 decline was the weakened US economy that was compounded by the events of 9/11 and this led to excess capacity. These were definitely uncertain times that caused budgets to be tightened across most sectors.
Exports faired no better as a strong dollar and slow, if not zero world economic growth, meant that US packaging machinery exports declined by 12.1% in 2001.
To make matters worse, if a country has a strong currency then competition from lower priced imports is bound to follow, and that is precisely what happened to the US market place with imports increasing by 8.7%.
There was also a perception that industry-wide pressure on machinery pricing meant that the average selling prices of US made machines were also significantly lowered in 2001 due to increased market competition.
With all this negativity flying around, the US market also had to contend with plant closures. This diminished the potential customer base as well as encouraging the second-hand machinery market to develop.
Plant closures are the last thing any industry wants, especially the packaging industry, but to be fair this was only following a period of industry consolidation that had been on-going for some years and really was part of a slim and mean scenario that was long overdue.
Another factor and one which gives great concern for the future of the packaging industry in America is the increasing number of relocations going on particularly to cheaper labour force countries including Mexico.
2001 saw an upturn in this culture and one that I fear is not likely to cease, irrespective of economic prosperity. The year was a blip, as can be seen in the figures above and below but it was a wake-up call big time and lessons will have been undoubtedly learned.
Enough of downturns, consolidations, closures and diminishing profits – what of the future and how are the markets going to shape up in 2002? A recent report from the PMMI of America highlighted the prognosis from both 2002 and beyond.
The report, entitled ‘US Demand for Packaging Machinery Will Rise Slowly in 2002’ was a great bullish start. It also gave a positive crystal ball view of the years beyond. What the report also amplifies, if one needed any convincing, is that the size of the various packaging sectors are breathtaking and, unlike Europe, are all within the same currency language and country.
“US capital spending for packaging machinery is predicted to increase by 1.5% to 2.5% in 2002 to an estimated $4.992bn!”
This statement and figure is not derived from accountants and analysts but from the industry operatives themselves so perhaps caution and conservatism is included, especially after 2001. What this figure is firmly anchored to is their perception of the likelihood of an improvement in the US economy and a reactive increase in capital spending as a direct result. What it therefore does not take into account is any significant upturn in the economy so therefore it could be more.
A goodly proportion of this capital spend over 42% will be new for old packaging machinery which is one way of raising productivity – faster production lines. Another element is that some of the projected expenditure will be on equipment where there had been none. In short, it is a way of reducing labour costs and expanding automation.
Where and why is this upturn in capital expenditure likely to take place? From a European viewpoint it seems very much like our own markets with the possible exception of beverages – still a keen sector as product and packet innovation is still driving ahead. No prizes for guessing that pharmaceuticals lead the way where the potential of the European market is still unknown.
This overview is also based on some sharp economic assumptions with regard to capital expenditure. For example the US gross domestic product will show a real growth of between 2.5-3.5%, a growth figure rather like Europe in its background such as continuing strength of consumer spending, improved productivity and restocking.
Europe did not have an estimated growth figure as high as 3.5%. There is also a helping hand from the Bush government by way of federal tax incentives to encourage business investment in capital equipment.
This important plus factor is certainly universally available across Europe.
The key element of capital expenditure is about some form of productivity enhancement, a principle that will no doubt receive the backing, if not the potential, for more business from companies’ client bases.
This type of investment does have true potential in the market place the world over as there is a perceived comfort factor that new is better, new is faster, new is cheaper and new is more efficient. No problem with that, provided that it is practical reality.
Design is often a packaging company’s nightmare, whether machine producer or company operator, but it does have a tendency to require changes in the production machine at the very least or outright new purchase.
A switch from metal to PET might not be beneficial to metal but to producers of plastics packaging machinery it is most welcome. There are also different shapes, sizes and colour, not to mention the increasing trend of switching from rigid to flexible packaging but the humble packaging designer is doing his or her bit.
What then of exports? US forecasters have predicted that 2003 will be the year that the global economy revives. The US packaging industry expects that, as long as the US dollar remains at or near the current more favourable rate of exchange, the outlook for exports is good.
There are, however, some negatives to build into this assumption. Key foreign economies highly active in global packaging terms are Japan, Europe and Latin America which may not be as positive as the US expects.
America needs exports and historically has always done well. A pessimist might well doubt the bullish view being put forward, especially as the US – like Europe – is being attacked with cheaper packaging machinery imports.
What of the future, as these production and sales estimates for 2002 are not yet audited? PMMI communications director Matt Croson exudes confidence with some ‘latest’ figures in hand and a proactive view of a US-Europe packaging partnership.
“2002 figures will show that the US packages machinery market was back to $5bn in machines sold. Overall I can see a 5% growth in sales this year, which is attainable. It is true that companies have been slow to purchase but when those purchases have been made it is about productivity.
“From the export perspective we remain confident, especially as now the dollar is so competitive. There have also been trade issues in America, which have held business back. These have now been resolved which is very good news for the industry.
“We are still waiting for the harmonisation of some of the key packaging issues and it will occur but who knows when. Europe is about the size of America and, from an innovation standpoint, is driving things like stand up pouches that are becoming popular in the US.
“Customer convenience is now so dominant in the US that it is driving packaging technology, as in Europe. These are two similar market places and, because of this, there is a growing trend towards partnerships, together with some acquisitions, which is all part of providing global packaging solutions at local points.”
Mr Croson provides a comprehensive summing up of how an American sees the US and global packaging markets.
“While there are quite plainly optimistic figures and signs it is still a fragile recovery. The US market place really hit rock bottom in 2001 for many reasons.
“One could say the only way is up but when and how only time will tell. Let’s hope that it is not too long for the US and Europe, two packaging continents inextricably linked.