Key Industry Drivers Increased corporate sales and profits Sustained growth of the US economy Improvement in rates of capacity use throughout much of the market. Need to replace older machinery Need to reduce labour costs Evolution of new types of packaging Influence of superstores and retail chains More packaging runs per line End-users addressing worker ergonomics, product security and safety issues While the continued health of the US economy and expanding manufacturers’ production capacity are the key drivers behind the forecast growth, executives also cited the need to replace older machines as another important factor, the Packaging Machinery Manufacturers Institute (PMMI) said yesterday. The largest increase in spending is predicted to come from the pharmaceutical and medical segment (11 to 13 per cent) followed by beverages (9 to 11 per cent), personal care products (seven to nine per cent), food (six to eight per cent) and converters, printers all other (three to five per cent). Capacity use, a measure of how much a plant’s production is being employed, remains a key determinant in the demand for packaging equipment and has been rising throughout much of the market, the PMMI said. As of February 2005, the capacity use for non-durable products manufacturing was 80.3 per cent, up from 77.3 per cent in January of 2004. Non-durables are responsible for the bulk of the packaging machinery market. “While conventional wisdom suggests that meaningful capital expenditure expansion generally begins when the rate reaches 82 per cent, the rising trend towards breaking through the 80 per cent level is a positive indicator, nonetheless,” the PMMI said. “But of greater significance, the rates of capacity utilisation for the food and beverage industries, which together account for roughly 60 per cent of packaging machinery demand, stood at 83.5 per cent and 82.1 per cent, respectively, the PMMI said. The forecast is based on PMMI’s survey of 453 executives responsible for 7,005 packaging lines in 1,213 plants throughout all key segments of the US market, the association said. “While much of the confidence and optimism fuelling this remarkably higher rate of spending is tied directly to increased corporate sales and profits as well as to the sustained growth of the US economy, this year’s rise is also being propelled by a catalyst whose presence has just recently begun to emerge – a distinct improvement in rates of capacity utilisation throughout much of the market,” the PMMI said. About 67% of those surveyed plan to either increase their spending or keep expenditures at the same level as 2004, PMMI said. The predicted increase follows three consecutive years of growth following the economic downturn experienced in 2001. “End users are telling PMMI that they are confident and optimistic about their business,” said PMMI president Charles Yuska. “This optimism is expressed through their capital expenditure budgets where we have seen increases in planned expenditures across all eight defined market segments that we study.” The survey assumes that US gross domestic product (GDP) will grow at between 3.2 per cent to 3.9 per cent in real terms this year. The spread within the range reflects uncertainty of how much negative effect higher interest rates and the rising price of oil will exert on the economy toward the latter portion of the year. Based on data so far this year the study also assumes that US manufacturers capacity will improve further in 2005. As of February 2005, the capacity use rate for non-durable manufacturing stood at 80.3 per cent and total manufacturing capacity use at 77.9 per cent, both up from 2004. US capital spending for industrial equipment in general is also expected to grow this year. Capital expenditure budgets are being heavily influenced by improved capacity use, increased consumer sales, higher corporate profits and favourable GDP numbers. “In fact, a March survey of the Business Roundtable, a group comprised of 160 US companies with total revenues of $4 trillion and employing 10 million workers, revealed that 60 per cent will increase capital spending over the next six months,” PMMI said. Other key factors identified as driving the forecast growth in packing machinery sales include the need to replace aging machines or expand capacity to meet the expected demand in the economy. “About 27 per cent of those surveyed cited the replacement of existing packaging machinery with new models to increase either efficiency, productivity, speed or flexibility, or some combination thereof as a primary driver of sales,” the PMMI said. About 20 per cent of those surveyed also cited the need to expand the capacity of their existing products as their primary reason for adding machinery this year. Another 9.8 per cent linked their higher spending to new plant construction or plant additions. About 12 per cent of the sample’s companies currently plan to acquire packaging machinery in 2005 specifically to accommodate the expected addition of new products and units produced for the market. Companies also plan to install more automated packaging machines to reduce labour costs, the survey found “Aside from the recent wave of price hikes on raw materials, the biggest burden on corporate profits today is the accelerating costs of wages and worker benefits,” the PMMI said. ”Consequently, packagers are increasingly turning to automation as a means of reducing the number of operators on a line.” The evolution of new packaging is also an ongoing catalyst for machinery demand, the PMMI found. Manufacturers are making a major effort to reduce package costs, improve product shelf appeal, improve ease of product handling and conform to major customers’ packaging requirements. “Packagers are continually experimenting with and developing alternative package designs, sizes, and materials,” the PMMI said. “While not all changes directly result in the need for new machinery, many invariably have that effect. The trend toward multiple sizes and quantities of products, conforming to consumer buying trends, in all segments is a particularly important factor driving demand, as it has in recent years.” The direct and indirect influence of the growth of super stores and retail chains is also another continuing market driver. “Perhaps the most prominent, albeit underlying issue, driving machinery demand in 2005 is the continuing influence of super stores and major retail chains on end-users’ machinery buying decisions,” the PMMI said. “Packagers are being faced with a growing number and variety of requirements dealing with package size, configuration, bundling, coding, labelling, display packaging and tamper-evidence, which commonly result in the need for new machinery.” In some cases, the customer actually specifies the type of machine to be used, according to those surveyed. About 53.5 per cent of the sample’s respondents indicated that their major customers exert an influence on their packaging machinery buying decisions, and 40.4 per cent reported that their influence is increasing. Due to the proliferation of product varieties, sizes and configurations that packagers must handle on the same packaging lines, mostly as a result of the superstore influence, buyers are being forced to operate an increasing number of packaging runs per line, the survey found. The need for greater flexibility in handling multiple packaging formats through quicker changeovers is clearly producing an increase in machinery demand again this year, the PMMI said. Buyers of packaging machinery are also addressing worker ergonomics, product security and safety issues in designing new equipment, the survey found. “Though still a statistically small factor of major influence in packaging machinery demand, ergonomics, safety, sanitation and security issues nonetheless continue to be considered as at least a secondary group of issues in project planning overall,” the PMMI said.