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Census Report 2001: Invest Wisely
July 1, 2001 By: Jackie Schultz, John Nocero Paperboard PackagingWith the economy slowing, converters are re-evaluating their 2001 equipment purchases and upgrades.
One thing the U.S. board converting industry did not need this year was an article in The Wall Street Journal about just how bad business is. But there it was in the Feb. 12 edition, "As Big Industry Suffers, So Do These Suppliers..."
 Corrugated Container |
The article focused on Triad Packaging, a Bristol, Tenn., sheet plant and its struggle with a stalled economy. Converters and suppliers alike did not react favorably to the story and neither did some of their customers.
"Since our inception two years ago, we constantly fight the rumors within our industry as to our existence in the marketplace as an independent. When The Wall Street Journal article first came out, I was inundated with telephone calls from our bankers wondering how we were going to sustain our growth," says Kent Lessman, executive vice president of United Container, LLC, Davenport, Fla. "The tone of the article was very negative in regards to the current future for the corrugated industry."
Unfortunately, for many board converting plants, the article hit very close to home. The business of making boxes got off to a slow start this year and hasn't shown much sign of improving.
According to Paperboard Packaging's 2001 Census Report, 66 percent of corrugated container manufacturers and 65 percent of folding carton converters report the current state of the industry as stagnant or depressed. Why? The slowdown in the economy.
This economic downturn has put a crimp in many plant's capital equipment budgets. With less money to spend this year, converters are forced to make painstaking choices in their quest to invest wisely.
Folding Carton |
About 25 percent of corrugated and carton converters are slashing their budgets, according to the Census Report. This is a dramatic shift from last year's survey, which indicated that only 6 to 8 percent of board converting companies planned spending decreases.
"Our company has a big cutback and a freeze on capital that is directly related to the economic slowdown," says Carl Williams, plant manager, Fleetwood Container and Display, Vernon, Calif.
"We earmark money at the beginning of the year to purchase new equipment and we also buy based on need, but we do adjust it as economic conditions dictate," says Bruce Janowsky, general manager, Jamestown Container Corp., Falconer, N.Y. "The economy doesn't prohibit us from buying new equipment now, but it changes where we are going to focus our effort."
In some cases, the economy does not factor into a plant's investment strategy. Equipment is replaced when there is a manufacturing need.
"Our decision not to purchase has nothing to do with the economic slowdown," says Robert Spencer, plant manager, Capitol Box, Ottawa, Ontario. "What we try to do is focus on the big picture and where we are going rather than focus on specific machines. It is not so much the machines that we look at, but rather the entire process such as where our sales are."
According to the annual report, 27 percent of corrugated container plants and 25 percent of carton converters are spending more on equipment this year.
In what areas of production are you spending more money?Equipment Purchasing |
The most frequently mentioned piece of equipment added to a corrugated container plant to date was a flexo folder-gluer. The second favorite choice was a rotary diecutter. Carton converters added a printing press first and then a folder-gluer. More than half of the plants purchased this equipment new. Sixty-eight percent of corrugated plant respondents and 66 percent of carton converters say this equipment was in addition to what was already in the plant rather than a replacement machine.
For 31 percent of corrugated plants and 27 percent of carton plants, the investment in equipment will continue this year. Both groups are looking at diecutters and folder-gluers as their top priorities.
One question added to this year's Census Report was, "What is the most valuable piece of equipment in your plant?" Thirty-six percent of corrugated container plant managers indicated folder-gluers while 43 percent of carton plant managers noted printing presses.
Regarding production budgets, 29 percent of corrugated plants and 23 percent of carton converters are increasing spending this year. For corrugated plants, the investment is in printing and corrugating, while carton plants are spending more on overall labor costs.
Most of the corrugated container plants and 50 percent of the carton plants surveyed for this report kept their box prices the same. Thirty-two percent of the carton converters increased their prices, with the average increase being 4 percent.
Several companies had to increase box prices because of skyrocketing energy costs. These costs have increased on average 32 percent for carton converters and 37 percent for corrugated plants.
Energy costs at Dayton Corrugated Packaging Corp., Dayton, Ohio, are up 40 percent so far this year. "It is going to hurt the bottom line no doubt," says Gary Reigelsperger, president. "I don't think we will be able to pass these costs onto customers. We have to figure a way to get around it, either with more utilization of people, equipment or manpower. Actually, we are getting hit at both ends. The bigger customers want discounts or rebates from paying. I know that they won't be able to handle any energy surcharges. For right now, we just have to find a way to absorb it and go on."
"Energy costs are going to continue to rise, and the one way that you can prepare is by adjusting your burden rate on your presses," says Don McConnell, production manager, Caraustar Custom Packaging Group, Birmingham, Ala. "It is not a surprise that costs are continuing to rise, especially with all the rolling blackouts going on in California. Even here in Alabama, we will get hit."
Corrugated Container |
"So far it hasn't hurt us. Down the road, due to the rising fuel costs it could affect the price of board, and in that case, then it would affect us," says Larry Allgood, quality control manager, Commonwealth Packaging Corp., Richmond, Va. "What we are trying to do is deal with it as it comes up. We try to operate on a system where our board mill would pass the price increase onto us if there was one, and then we would pass it onto our customers should it increase."
Some plants said the spike in energy costs earlier this year was a one-time occurrence and managers are not expecting any more increases.
"Our gas costs went up 40 percent since last year," says Wayne Smith, operations manager, Ivex Packaging Corp., Grove City, Pa. "We spent twice what we normally did in January, but that went down in February, and has since stabilized. We really saw this as an anomaly."
The Lucky Ones
Board converters who reported a healthy or thriving business environment attribute their good fortune to their geographic location and niche market.One healthy part of the country is the Midwest, particularly in the Great Lakes region.
"There are lots of opportunities for new business," says Stephen Landaal, executive vice president, Landaal Packaging Systems, Burton, Mich. "The automotive industry is relatively strong. Although sales throughout the auto industry have been down, a lot of our business relates to aftermarket, such as parts. So we really haven't gotten hit as hard."
"I feel it is a thriving market here in Lansing," says Chuck Rogers, general manager, Lansing Corrugated Products, Lansing, Mich. "We have General Motors and a few larger plants here. If GM is doing good, then we're doing good."
Offering specialty products also works well for converters. One example is mini-flute boxes.
Almost 40 percent of the folding carton plants surveyed are converting small flute corrugated. This is obviously a growth market for carton plants. Last year, the percentage was 33 percent.
Another trend is that independent manufacturers across the United States are forming alliances in order to serve national accounts. Nearly 40 percent of the corrugated plants indicated that they have these types of agreements in place.
Printing Trends
More and more folding carton plants are taking a closer look at incorporating flexography into their printing process. The mix, however, between flexo and lithography remains unchanged from last year. About 74 percent of the carton plants continue to favor litho over flexo.Just over 50 percent of carton plants and 5 percent of corrugated container plants make their own printing plates.
Regarding the mix of printing plates used by corrugated converters, 33 percent use only photopolymer and 51 percent use both photopolymer and rubber plates.
Fifty-three percent of the corrugated plants use ceramic/laser engraved anilox rolls, 32 percent use chrome/mechanically engraved and 22 percent use ceramic/mechanically engraved.
Computer-to-plate (CTP) technology is still winning favor in the folding carton industry. Twenty-six percent of folding carton plants surveyed have this technology and are using it, and 6 percent are planning to install it this year. Last year just 15 percent of the carton converters had this technology installed.
Most of the corrugated plant managers interviewed indicated that their operations do not use CTP. Twenty-five percent, however, say that they plan to purchase the technology in the future.
About 37 percent of folding carton plants and 9 percent of corrugated plants make their own cutting dies. These numbers remain in line with last year's Census.
The number of companies that have Internet sites has increased since last year. More than 60 percent of corrugated and carton converters contacted have web sites, with 10 percent of those companies actually conducting e-commerce. Last year, less than 50 percent of the plants had web sites.
Optimism Shaky
Much like the economy, converters' optimism about the future remains spotty. "Maybe we touched bottom, but I don't think we're heading for any major increases in the next six months. Maybe next year there will be an upturn," says Michael Maybank, general manager, Alma Container Corp., Alma, Mich."I say it is going to remain stagnant and it should remain this way at least for the short-term," says Thomas Kosater, plant manager, Sun Container Inc., Mt. Vernon, Ill. "However, over the time frame of one to two years, I think this definitely could change."
For some converters, however, a positive attitude is what will carry them through the tough times.
"There is not the gloom and doom in some areas that everyone projects," says Jack Flood, plant manager, Domtar Packaging, Concord, Ontario. "Our volume is down in comparison to last year, but I am still seeing healthy things.
" I am expecting good things and an improvement in the summer and as we get into September. I have a good feeling about it," he adds.
