EXECUTIVE FORECAST 2013 Steady & Optimistic
A Q&A with Mark Breen, marketing manager at Dover Flexo Electronics, Inc., Bob Chiricosta, Exhibition Director at ICE USA, Mack Brooks Exhibitions Inc., and Greg Jozwiak, North American Commercial VP at Dow Performance Packaging .
February 1, 2013
Breen: We experienced a continuation of the positive sales trend from 2011 for the first part of 2012, but a flattening of sales in the latter half of the year due to a drop off in activity from our Original Equipment Manufacturer (OEM) and press-building customers.
The decline wasn’t unexpected as it is something we have observed in previous presidential election years, and in years when there are major changes to the federal tax code being debated in Washington, D.C. From experience, we’ve learned that political uncertainty breeds investment uncertainty in the capital markets. This year’s election uncertainty combined with economic anxiety in general has definitely stifled the recovery for 2012 that we began to witness in 2011.
For 2013, we would not be surprised to experience longer purchasing cycles, flatter sales and slower growth from our OEM customers, at least in the first half of the year, as the implications of potential tax code changes are assimilated by manufacturers. There will typically be a period of recalibration as businesses figure out how to adapt and compensate for new laws that affect their financing and capital investment decisions.
While there may be an adjustment lag for our OEM markets, we expect the steady sales of our sensing and control components to our retrofit customers in North America to continue. So, sales of tension control equipment to flexible packaging converters and web printers in North America should continue to trend up with overall growth in this industrial sector. This translates to smaller order sizes for a time, but steady sales volume.
We are also at the mercy of currency value fluctuations, especially with the US dollar relative to the European and Asian currencies; and our export sales are highly sensitive to exchange rate discrepancies. A stronger dollar versus any foreign currency has a negative impact on sales of our products to that region.
Jozwiak: Despite the economic challenges that continue to restrain North America’s growth, I don’t expect low domestic growth rates for 2013. In fact, I anticipate growth for the plastic packaging market, especially flexible packaging. In 2012, flexible packaging’s meat and cheese, liquid, and semi-solid packaging performed well. As the stand-up pouch continues to replace conventional materials such as glass and metal packaging, and as retailers take advantage of packaging fresh produce to reduce food spoilage, The Dow Chemical Company expects continued growth into 2013.
In 2012, Dow Performance Packaging reached a new milestone – developing 42 new products and applications that are expected to deliver more than 100 million pounds of new business in North America in 2013.
Chiricosta: I tend to agree with the Smithers Pira forecast of 5 percent average annual growth for the global flexible packaging market over the next few years. There will be much better growth in some market segments, such as barrier flexible packaging, as the major retail chains demand greater product protection and longer shelf life. Some regions of the world, such as Asia, will also grow faster than more established markets.
However, I think the tradeshow segment of the industry will see much greater growth as the pent-up demand for new, more energy-efficient equipment continues to climb. Due to the recession and post-recession recovery, many flexible packaging converters worldwide are in dire need of replacing old, out-dated equipment.
Breen: The short answer to that question is demand inelasticity.
The biggest economic asset for the converting industry, and for the flexible packaging sector specifically, is that most consumer goods are still packaged for retail-in printed paperboard and flexible packaging. Since American consumers across the economic spectrum purchase consumer goods continuously, the flexible packaging sector enjoys a fair level of economic stability in periods when the general economy is experiencing a downturn.
Demand for packaged food and other relatively low-cost retail packaged goods is rather inelastic; even though increasing demands for environmental sustainability are forcing a shift in the way consumer packaged goods are packaged. The stuff we all consume still has to be shipped and shelved in some kind of container.
Jozwiak: The combination of new flexible packaging usages, competitive material cost base and clarity surrounding the industry’s financial policies will provide an opportunity for growth in 2013. Based on consumer preferences, flexible food packaging continues to evolve. The industry has experienced a transition from traditional, multi-serving containers to sustainable flexible packaging options. The change has been a tremendous adjustment in the way the industry packages consumers’ food. Many Americans are now living “on-the-go” lifestyles and the need for healthy, single serve, and pre-portioned or re-sealable packaged foods, has increased tremendously. Many are requesting single serve packages of granola or pre-sliced produce that can be easily integrated into their busy lives – making it simpler to pack a child’s lunch or to have breakfast during a morning commute.
Foods that were traditionally packaged in glass or multiple serving containers are now being transitioned into flexible packaging. One recent example is salsa. In the past, shoppers could only find their favorite salsa packaged in glass jars. Now, many are found in stand-up pouches. This type of packaging is light weight, requires less energy to produce and transport, eliminates any potential safety hazards for consumers, and if in a single serving portion, allows consumers the ability to take their meals to go.
Moving forward into 2013, the industry will need to continue addressing this trend in order to stay ahead of the competition as well as provide Americans with the ability to live a healthy, happy and balanced life – no matter how busy they may be.
Also, the newly developed natural gas supplies have improved the economic competitiveness for United States’ ethylene, polyethylene and olefin-based performance materials. Assuming there is more clarity in federal financial policy and the expected confidence in direction, we expect consumers to increase consumption and processors to become more comfortable with expansion plans. The combination of new flexible packaging applications and solid material cost base will support accelerated growth in 2013 and the years to follow.
Breen: The three big challenges for industrial businesses in 2013 will be managing rising costs, navigating new laws that affect business, and the continued drive towards a ‘greener’ economy.
The biggest challenge for some manufacturers will be in containing costs as raw materials prices and energy costs rise. With the unemployment level still high nationally, it should be somewhat easier for manufacturers to keep labor costs in check for 2013. If the economy idles at a slow enough growth rate, inflation should be less of threat than in high growth years.
Another concern for many manufacturers and business owners is the uncertain impact of inconvenient government regulations and healthcare costs. This is already causing anxiety for small businesses trying to navigate the complexities of the Affordable Healthcare Act that have to be implemented in 2013.
Also, in line with the drive towards manufacturing leaving a smaller carbon footprint in society, we see the trend toward thinner flexible substrates continuing and less production waste.
As a manufacturer of electronic controls we are deploying rapidly advancing digital processing technology. Because of smaller IC’s (integrated circuits) with larger processing density, we also see more computing power coming in smaller packages just like in the consumer electronics world.
This computing-power compression will translate into more features, smarter devices, and easier-to-use interfaces in upcoming generations of the sensing, display, measurement and control equipment that machine designers build into their web presses and converting machinery. So, newer, faster, waste-cutting production toys for the flexible packaging industry will be a continuing trend.
Jozwiak: For the United States, uncertainty around fiscal policy is potentially the industry’s greatest challenge. Although the North and South American economies are steadily improving, the economic conditions in other parts of the world have an indirect impact on United States’ growth.
Worldwide, nearly 30 percent of all food grown is lost due to spoilage. As the world’s population continues to increase, food safety and preservation will become more important. Essentially, one of the world’s greatest challenges has become a great opportunity for industry growth.
One of the smartest things about food is its packaging and I firmly believe plastic packaging can be part of the solution to this global problem. By developing products that provide strength, protection, higher output and require fewer resources, the plastic packaging industry can help resolve this issue. These advancements can help protect food and reduce spoilage and The Dow Chemical Company has seen a higher percentage of food moved through the supply chain to the grocery store with these types of adjustments. Packaging innovations can help prevent food waste, supply people with the food they need to live a happy and balanced life, and make it possible to feed the world’s growing population.
With collaboration, innovation and engagement throughout the entire value chain, the industry can serve as a key factor to increasing food security in 2013. It is incredibly exciting to be part of an industry that is constantly seeking new and innovative packaging solutions.
Chiricosta: In addition to the slowly recovering economy, converters and package printers are under pressure to increase their productivity, reduce costs and be more environmentally responsible. One of the most effective ways to accomplish these goals is with technologically advanced equipment. In many cases, outdated equipment simply can’t meet the needs of today’s flexible packaging customers.
But in addition to investing in new products, flexible packaging professionals must also be aware of industry trends and technologies.
I think there are several, including environmental issues, more stringent labeling requirements and the slow pace of the economic recovery. However, the increase in global competition has to rank near the top. Mack Brooks produces ICE events in Europe, Asia, and Latin America, as well as the US, so we see first-hand how flexible packaging has truly become a global business. Flexible packaging converters and printers need to be aware of all the latest trends, technologies and products that are brought to market worldwide.
Breen: There were no major surprises for our business in 2012 because we had already factored in a spending slowdown from the election-year economic uncertainty. However, the initial rebound of OEM equipment sales in 2011 versus their sluggish activity in the several preceding years had been a pleasant surprise when it occurred.
But, sure enough, by mid-2012 the slow-down we expected occurred. The 2011 sales activity bounce did not maintain its pronounced upward trajectory in 2012 because of election-year uncertainty and also due to market instability in industrialized economies abroad.
We expect the current flattening sales curve for our components to continue through at least part of 2013 as businesses adjust to whatever new tax law changes are introduced. When a clearer economic picture is forecast for the manufacturing sector as a whole, we expect to see capital investment in machinery for the flexible packaging industry ramp up again.
The Machinery Supplier
Dover Flexo Electronics, Inc.
years with the company/in the industry: 17 years
The Tradeshow Director
ICE USA, Mack Brooks Exhibitions Inc.
years with the company/in the industry: 3 years
The Raw Materials Supplier
North America Commercial VP, Hygiene & Medical and Polyethylene
Dow Performance Packaging
years with the company/in the industry: 25/1