Machinery shipments declined in 2001 to $4.8 billion

While machinery shipments are expected to increase by 3.7 percent over the next three years [see PD, October, '02, p. 76], last year's recorded sales were not so positive. Shipments decreased last year to an estimated $4.804 billion, according to the Eighth Annual Shipments and Outlook Study from the Packaging Machinery Manufacturers Institute.

Although the negative growth represented a decrease of about $204 million over the prior year, $103 million of that amount is attributed to lower exports. The sharp decline of 12.1 percent in export shipments is due largely to the strength of the U.S. dollar, which placed U.S. machinery manufacturers at a competitive disadvantage in foreign markets. Exports, as a percent of total U.S. shipments, have been steadily declining, from 22.4 percent in '96 to 15.5 percent in '01.

Imports, on the other hand, registered a sharp increase, up 8.7 percent to $1.566 billion. This is the corollary to the export decline, since lower prices of foreign-built machinery gave those companies a significant cost advantage.

U.S. domestic demand–total U.S. shipments plus imports–rose fractionally to an estimated $5.624 billion in '01, an increase of about 0.5 percent.

The downturn in '01 was the first one recorded since the study began. The accompanying bar chart illustrates the consecutively alternating high and low growth pattern that existed until the decline in '01. The forecast reveals that the interruption in that pattern is likely a temporary phenomenon, since the positive fundamentals underlying the industry's historical growth remain in place. These fundamentals are: (1) the U.S. economy's long-running prosperity; (2) the continued high level of investment in machinery to improve productivity; and (3) the low volatility of growth or decline by the industry's principal end-use markets.

Declines by category
As the table on the facing page shows, 12 categories of packaging machinery showed shipment declines–seven of those in double digits–and only four increases. The fact that the largest-volume machinery category, conveying and related equipment, showed an increase helped to offset the negative growth. Without that positive growth, the year's net loss could have been much greater.

The principal factors that affected the '01 shipments include seven negatives and seven positives, according to the study's analysis. The negative factors are:

The economic recession and 9/11. The most significant factor in the decline was the weakened U.S. economy in '01, which was compounded by the events of 9/11. The progressive deterioration of economic fundamentals, which led to excess capacity, lower corporate profits and considerable market uncertainty, caused a tightening of budgets, which, in turn, restrained capital spending growth.

A strong dollar, combined with a stagnant world economy. As mentioned earlier, the strong U.S. dollar put U.S. manufacturers at a price disadvantage in exports. Shipments to foreign countries–at 15.5 percent of total shipments–is the lowest export rate since PMMI began collecting such statistics.

Intensified competition from lower-priced imports. The 8.7-percent increase in machinery imports is a result of the favorable exchange rate for most foreign currencies.

Industry-wide pressure on machinery pricing. The average selling prices of U.S.-made machinery were lower in '01 because of increased market competition, pressure from customers and the introduction of "economy-priced" models catering to cash-strapped customers.

Continued industry consolidation. Although the rate of consolidations decreased somewhat in '01, it was still significant. Consolidations typically lead to plant closings, project delays and cancellations. Plant closings, in turn, lead to an increase in the amount of used machinery available to the market, suppressing the growth of new machinery. Further, the relocation of plants to other countries (such as Mexico), diminishes the number of potential customers.

Increased sales of used/rebuilt machinery and retrofit kits. As the economy slipped, sales of rebuilt and used machinery increased in inverse proportion. Several new machinery companies, in fact, have begun selling rebuilds with their manufacturer's warranties. Retrofit kits are designed to bring older machinery up to current technological standards.

Market saturation. Owing to the heavy capital spending for packaging machinery over the prior three years, plus the excess capacity that emerged in '01 due to reduced output, sectors of the market reached saturation.

Positive factors that helped to offset even further declines, include:

Strength within key market sectors. Certain segments and niche markets actually enjoyed growth during '01, despite the economic downturn, and witnessed a fairly high rate of product introductions, such as dietary supplements, isotonic and sports beverages, and case-ready meals.

Continued attention to productivity improvements. A sizable portion of the dollar volume generated was attributed to the replacement of older machinery to gain speed, efficiency and flexibility. The older units had become too maintenance-intensive or were viewed as a competitive disadvantage because they lacked the features of new machines.

Expansion of packaging line automation. In addition to replacing older machines, customers also invested in automated equipment where none had existed before.

Favorable influence of clubstores and superstores. Special packaging requirements placed on packagers by the large retailers (multipacks, display shippers, etc.) have traditionally driven the need for new machinery.

Receptiveness to new machinery introductions. Manufacturers who witnessed growth in '01 credit the introduction of models with advanced technology or new features.

The boost from the single-serve trend. The explosive growth of single-serve packaging had a positive effect on machinery sales in '01, as it had in the prior year.

Proliferation of new and alternative packaging materials, sizes, configuration and concepts. Whether it be to achieve a new "look" or to save on costs, changes in packages and/or materials also drive machinery upgrades.

As in most years, food, beverage and pharmaceutical/ medical product applications were responsible for two-thirds of packaging machinery shipments, up from 65.4 percent in '00. The remaining one-third of shipments were generated by the aggregate of six additional market segments, as shown in the accompanying pie chart. Consistent with the forecasts of the 2001 PMMI Purchasing Plans Study (see PD, May, '01, page 12), which predicted modest growth in spending by the food segment and a decline by the beverage segment, the food segment's share of the shipment dollar volume increased to 40.9 percent from 38.9 percent in '00. Likewise, the beverage segments representation decreased to 17.1 percent from 18 percent.

More information is available:

Shipments & Outlook Study: Packaging Machinery Manufacturers Institute, 703/243-8555. Circle No. 202.