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Article
Census Report: Managing for Change
July 1, 2002 By: Jackie Schultz, John Nocero Paperboard PackagingWhile converters haven't completely turned off the spending switch, their budgets have tightened.
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The U.S. board converting industry was dealt a triple blow over the last two years with the combination of a recession, customer consolidation and a strong dollar. The economy outwitted stock market analysts who predicted a solid recovery by now. While we're officially out of a recession, the light that shines on the manufacturing sector could be brighter.
As expected, board converting plant managers are keeping a tight grip on spending. And now with paper prices on the rise, the economic state of the industry hangs in the balance.
The results of Paperboard Packaging's exclusive Census Report are a telling sign of a box making market turned upside down in this country.
This comprehensive telephone survey, which is conducted annually, gauges equipment spending and the overall health of the corrugated container, folding carton and rigid box industries.
 Corrugated Container |
Nearly 80 percent of corrugated converters and 70 percent of carton manufacturers say the industry is stagnant or depressed, according to our 2002 Census Report.
In fact, some converters say they have never seen the industry suffer like this before.
Martin Ward, purchasing manager of Lawrence Paper Co., a corrugated plant in Lawrence, Kan., says business in his region continues to be depressed. "I have been in the industry 12 years and this is the worst that I have seen it," he says.
"The south Texas market has not improved," says Bob Schroeder, general manager, Bates Container Inc., a corrugated sheet plant in San Antonio, Texas. "Additional plant shutdowns have been announced since the Census survey and business in Mexico continues to decline as more business moves to China and other Far East locations."
"The last time that I can remember the economy to be this bad was during the recession about 20 years ago," adds Mick Berney of Crown Paper Box, a folding carton plant in Indianapolis.
Folding Carton |
The good news is that many of the converters interviewed say that they are starting to see signs of a recovery.
"Things are starting to become a little stronger now," says Robert Jenny, plant manager, Michcor Container Inc., a corrugated sheet plant in Grand Rapids, Mich. "I anticipate business will pick up sometime in the summer."
Business also is starting to pick up for Boxboard Packaging, a folding carton plant in Norwalk, Ohio. "The industry is showing some signs of coming up in the form of increased sales and more people calling to place orders," says Ken Hillman, production manager.
Spending Flickers
Despite the barrage of marketing campaigns encouraging converters to "invest" in their operations in preparation for a recovery, most plants have either cut back or kept their capital equipment spending to a minimum.While converters haven't completely turned off the spending switch, the Census Report doesn't exactly shine bright for machinery suppliers. Twenty-six percent of corrugated container and 23 percent of folding carton converters increased their capital equipment budgets this year compared to last year. About 65 percent of these manufacturers plan to keep their budgets the same as last year.
Corrugated Container |
"Because we made a major purchase last year we sure won't be spending that much this year," says Marv Graves, plant manager, Utah Paper Box Co., Salt Lake City.
Boxboard Packaging made no changes in its capital equipment budget since last year. "We had just been bought out and we weren't sure which direction the company was going to go in," says Hillman. "As far as it looks right now, our company spending is appearing to stay the same."
Some plant managers view equipment as a way to open up new markets, add to their product mix and improve customer service and delivery times. This was the case for 27 percent of carton converters and 22 percent of corrugated manufacturers.
Methodology |
The majority of corrugated plant managers who purchased equipment this year say they did so to offer new products, such as lock bottom boxes, trays and tubes. Others are targeting the higher-end graphics and specialty box markets.
"Our CAD machine is the newest piece of equipment," Berney says. "Some of our customers requested that we have one for finished carton samples. The computer aided design machine has opened a whole new world for us. We can do the carton samples, layouts, print to cut vinyls, cutting spot sheets. We have the dies made by sending the file to our supplier. The resources are endless."
Almost half of the carton converters who purchased equipment this year say they did so to offer new services and products. This included diecutting, pharmaceutical boxes, higher graphics, blister packs, collector cards, window boxes, and even prepaid phone cards.
"Our new color printer allows us to print more colors in process and aqueous coatings," says Randy Ridenour of Indiana Carton Co., Breman, Ind.
Equipment Purchasing |
"It lets us give to our customers more finishes and brighter sheens and satins."
For production, other than equipment spending, 31 percent of corrugated managers anticipate increased spending and 7 percent are planning cutbacks.
Michcor Container is taking advantage of less hectic production schedules to focus on employee training.
"We are trying to reduce setups and eliminate mistakes," Jenny says. "When you get busy, you start to overlook simple things. When we did our original training we sped through (it). Now we are doing more thorough training on the machines."
For carton converters, 34 percent are increasing spending for production, particularly in the areas of printing, labor/training and building expansion.
Strategy for Slow Times
The question, "What strategies have you taken in this slow business climate?" was added to this year's Census Report. Half of the corrugated plant respondents say they were forced to implement across the board cost cuts, reduce the number of shifts, downsize production, negotiate better prices with suppliers, lay off personnel, and temporarily halt any building improvements.About 32 percent increased their marketing efforts. This included adding sales people, actively seeking new customers, making more frequent contacts with existing customers, widening the sales area, and revisiting former customers.
"We continually look at our operation to find better ways to run," Schroeder says. "We look at redesign to reduce cost for both our customers as well as our plant. We evaluate what accounts and items are warehoused. Are we running the correct quantity?
'Now is The Time to Buy' |
"Larger quantities may make the item look good on an estimate, but what about increased damage, obsolescence, floor space and carrying costs?," he continues.
For carton converters, 40 percent say they implemented cost cutting measures, such as lowering material costs, cutting supplies, reducing salaries, and eliminating overtime.
Nineteen percent turned to marketing as a way to ignite business. This included advertising, actively searching for new customers, updating sales material, and developing a Web site.
Utah Paper Box offers its employees flex time. "Our employees will come in earlier if we have a lot of work and then if we have no work, they will leave early," Graves says.
One strategy plants are initiating, especially independents, is to align themselves with other plants around the country in order to serve national accounts.
Forty-two percent of corrugated plants have these types of agreements.
For many plants, moving into new markets and offering a wider mix of products are ways to recession-proof their businesses. This holds true for folding carton converters that have branched into small flute corrugated. About 34 percent of the plants surveyed convert miniflute.
Utah Paper Box Co. laminates flutes and is now printing on F-, G- and N-flute. "We had to buy an Automat laminator and we do top sheet to singleface," Graves says. "We don't know what we are going to make yet. We have had a lot of inquiries. We will probably make something with folding cartons."
While flexographic printing is slowly making inroads into the folding carton market, the printing method of choice for 70 percent of the converters continues to be litho/offset. Twenty-nine percent of the Census survey respondents use flexographic presses, 11 percent use letterpresses and 3 percent have gravure printers.
One in four carton plants with revenues between $5 million and $20 million have in-house computer-to-plate (CTP) systems, and 11 percent of smaller manufacturers have this capability. About 65 percent of the plants outsource this service.
CTP in the corrugated container industry is still fairly new. Only 3 percent of corrugated plant managers indicated that they plan to install a CTP system this year.
With each passing year, there are an increasing number of converters that have Web sites. More than 70 percent of corrugated container and folding carton plants have their own Web sites. Almost all larger corrugated manufacturers have Web sites and half of the plants with revenues less than $5 million have a Web site.
Online selling of boxes is up significantly compared to last year. Converters say this is another way to market their products and increase business. Thirty percent of carton converters sell their products online. Twenty-one percent of corrugated plants interviewed for the Census are selling boxes online.
Anyone Have A Crystal Ball?
Box buyers have enjoyed stable box prices throughout the year. However, that is likely to change with linerboard, medium and paperboard producers announcing price increases.Only 4 percent of the corrugated plant respondents increased their box prices, and more than half say they decreased prices this year.
Fifteen percent of carton converters increased their box prices by about 5 percent this year, while 33 percent reduced them.
The pending change in raw material price is just one more factor to consider when trying to predict the economic fate of the industry. When exactly will converters see an upswing in their businesses? As one respondent replied, "I wish I knew."
When the Census survey was conducted, most of the respondents expected an upturn in the second or third quarter. Fewer than 10 percent say business will recover in the fourth quarter.
Fifteen percent of carton converters say business had already picked up and 15 percent are looking to the third quarter for improvement.
While the U.S. economy continues to be, as one Wall Street analyst put it, "a fallen souffl¦quot; there are some converters who believe the board converting industry needs to continue to consolidate and take a look at the picture beyond U.S. borders.
Consolidation is creating industry turmoil, Schroeder says.
"In approximately the last two years, every integrated plant in south Texas has experienced a change in the territory into which they traditionally ship. They are seeing business shift from one plant to another. This has created a survival atmosphere for some of the plants. Volume at any price seems to be their answer when it comes to replacing lost business."
On a larger scale, Martin Ward of Lawrence Paper Co. says he's concerned about global competition.
"The U.S. industry needs to find a way to compete with foreign manufacturing which our customers tell us is their main competition and the reason they are slow," he says.PBP
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