Packaging machinery sales continue to grow

or the fifth consecutive year, U.S. domestic demand for packaging machinery will grow at about 3 percent in 2006 to an estimated value of $5.854 billion. This continuing strength is attributable to sustained economic growth, strong cash positions held by U.S. corporations, improved rates of capacity utilization and ongoing efforts by manufacturing organizations to reduce costs and improve productivity.

This forecast comes from the U.S. Packaging Machinery Purchasing Plans Study, commissioned by the Packaging Machinery Manufacturers Institute. The personal care market segment will see the greatest demand, with machinery purchases increasing about 11 percent, followed by the beverage market and converting/printing market, both at 7 percent. In dollars, the food market understandably commands the largest share, with estimated spending of $2.33 billion in machinery purchases. The next largest segment is beverages, at $1.09 billion, followed by pharmaceutical/medical, at $736 million in projected sales.

The number one reason for investing in new equipment is to replace existing machinery in order to gain efficiency, speed, flexibility and productivity (30 percent of survey respondents). The second most important reason is to expand production capacity for an existing product line. Also a motivating factor is the expansion of automation to reduce labor costs or to reduce maintenance.

About 36 percent of surveyed companies said they will actually increase packaging machinery expenditures this year, while another 25 percent said expenditures will remain about the same as last year. But not everyone is expecting to increase their investments in machinery—34 percent said their spending will decrease. Of their reasons for this decrease: 28 percent say they spent heavily on new machinery last year, and 35 percent say their existing machinery is still adequate. Other reasons include budget cuts, plant closings, consolidations and mergers.

About one-third of the surveyed companies plan to buy at least some used machinery, which is slightly less than in 2005. About 40 percent said they will upgrade some existing equipment through retrofitting.

The purchasing survey also asks companies about their use of contract packaging services. This year, 37.7 percent of the sample reported that they are currently using contract packagers, at least partially, down from 40.7 percent last year—and considerably reduced from the 56.7-percent usage rate reported in 1999. While business cycles have always impacted contract-out decisions, this steady decline over the last seven years bears watching.

If the companies are not spending money for contract services, they are spending on outsourced line integration and engineering. This year, 37.7 percent of survey respondents report using systems integrators, up from 32.8 percent three years ago. Many OEMs have ramped up their engineering departments to handle much of this demand for integration services.