One indicator that the corrugated container industry is in recovery mode is the news that plants are in equipment-buying mode again, according to Paperboard Packaging’s Exclusive Census Report research.
 
Overall, 48 percent of corrugated container converters will buy new equipment in 2011. And 43 percent of converters will be spending more money on equipment this year than they did last year. That’s up from 40 percent in last year’s report and 13 percent in 2009.
 
The main reason nearly half of corrugated box converters say they’ll do so is to increase capacity and capabilities. Forty-two percent of those increasing equipment spending say they’re doing so to upgrade, replace or modernize equipment. Other equipment-buying motivators converters named include a better economy, the need to stay competitive, and a desire to be efficient.
 
More good news: Two-thirds of converters that aren’t increasing equipment budgets say they won’t spend more because they’re just taking a break – they invested a lot last year.
 
One plant reports it spent $15 million last year. Another says it made “exceptionally large investments last year” including two flexo folder-gluers and a diecut stacker. “This year will still be significantly larger than 2009, just not at 2010 levels.”
 
A Midwest converter says it already completed an upgrade this year on a 13-year-old flexo folder-gluer. It added glue-detection units. Also, by the end of the year it’s going to replace two older flexo folder-gluers with a new Isowa.
 
The same plant is looking to automate as much as possible to reduce forklift traffic. “It’s really a cost-cutting move,” the plant manager says. “Right now we’re still somewhat antiquated. We’re going to be getting a prefeeder, load former and conveyor system all at the same time. Equipment is expensive, but it’s required to maintain competitiveness. It will cut down on a few employees and forklift trucks.”
 
Larger corrugated container converters, those with annual revenue over $50 million, will spend more than $1 million on equipment in 2011 – one in four will be spending more than $5 million. Plants with $10 million to $50 million in annual revenue will likely spend $500,000 to $5 million. Converters under $10 million in revenue have less than $500,000 to spend.
 
The data show that large plants are pretty unlikely to buy used equipment – 83 percent of those with annual revenue over $50 million purchased new equipment. Smaller plants bought new equipment 54 percent of the time.
 
What They’re Buying
Corrugated converters identify the equipment they intend to add this year as the following:

  Material handling   36.3%  
  Converting equipment   21.3%  
  Diecutter   20.0%  
  Flexo folder-gluer   20.0%  
  Folder-gluer   17.5%  
  Adhesive/gluing equipment   16.3%  
  Corrugator   12.5%  
  Control system   11.3%  
  Safety equipment   11.3%  
  Slitter/scorer/splicer   8.8%  
  Pre-feeder/feeder   7.5%  
  Inks   6.3%  
  Printing press   5.0%  
  Stacker   5.0%  
  Sheeter   3.8%  
  Labeler   2.5% 
 
Plants provided the last piece of equipment they purchased – these answers provide a snapshot of actual equipment purchasing activity (rather than intentions). The fact that the lists of recently-purchased and planning-to-buy equipment are similar demonstrates converters’ commitment and investment in the industry.

The most recent purchases are:

  Diecutter   16.4%  
  Material handling equipment   16.4%  
  Flexo folder-gluer   15.3%  
  Corrugator   8.5%  
  Folder-gluer   6.8%  
  Converting equipment   6.2%  
  Adhesive/gluing equipment   5.6%  
  Printing press   4.5%  
  Slitter/scorer/splicer   4.5%  
  Labeler   4.5% 
 
Adding and Replacing
Overall, 56 percent of plants bought equipment as an addition. However, additions are more popular with smaller converters where 67 percent purchased an additional piece. Larger converters bought replacement equipment 65 percent of the time.
 
Purchasing rather than leasing contiues to be the preference – 94.2 percent buy and 5.8 percent lease.
 
Converters’ interest in new markets continues to grow. Two years ago, only 13 percent of plants bought equipment for new markets. Last year, 21 percent did so. This year, a quarter of converters are specifically buying equipment for new markets. The most popular new markets include food/beverage and POP/high-end graphics. Three of four plants bought equipment for existing markets. High-volume brown box, especially where demand is local, is the most frequently mentioned existing market.
 
Catherine Penn of Penn & Associates, Cleveland, contributed to this report.