Examining Recession Resistance

In PFFC's December 8 edition of E-Clips e-newsletter, I asked readers this question: With consumers opting to eat at home more and spending down, is the packaging manufacturing industry more recession-resistant than most industries? Certainly we're not recession-proof! How do you think our industry will weather the recession?

The question was appropriate because many with whom I've recently engaged in industry chatter are concerned how converters will fare in the present recession. One label converter and I agreed (although we both might have been in denial) on the following: People still must eat foods that are packaged, consume over-the-counter or prescription drugs, use packaged pharmaceutical products, and use packaged and labeled cosmetics, not to mention a host of other converted products that fall into a nonfood category. While the economy certainly will impact our industry, it might fare better than others.

Recent news on several large converting-related companies might indicate we're in for a harsher time than I previously thought. Smurfit-Stone, despite its bankruptcy declaration, found at least some consolation upon learning from bankruptcy court that it can continue to operate even as it reorganizes under Chapter 11. And it can continue to pay employee salaries, healthcare coverage, and honor customer obligations. So this is good news, right?

Further recent news finds MeadWestvaco closing three packaging converting operations involving sites in Uden, Netherlands, with 60 employees; Grover, N.C., with 120 employees; and Drunen, Netherlands, with 50 employees.

Still more news reveals that DuPont-Teijin Films US Ltd. Partnership in Hopewell, VA, will shut down its polyester film line in Circleville, OH, because of a steep decline in US industrial production that's been intensified by inventory reductions across most supply chains. This translates into a matching downturn in polyester film demand; hence the plant closure.

Lest I be accused of contributing to the depressing news, here's how a supplier of both commodity and specialty resins into the global packaging industry responded to my E-Clips question on recession resistance:

Look back at the economic cycles of the past 30 years. What you should see is that the food packaging industry swings up and down in a smaller sine wave than does the industrial goods industry.

So when there is a boom, packaging is outstripped in growth and sales and is ignored by the investors who want the big rise.

But when there is a bust, packaging does drop along with everything, but not as much. Why? Because people still eat, and they still buy packaged goods. [They're] eating out less and cooking at home more, but they also buy lower-cost goods. So specialty packaged items suffer, and these are the higher profit margin areas for packaging. What you have left is more of a steady stream of consumption on the simpler commodity packaged items. They just bring in less margins.

Recession resistance? No. Food packaging is subject to recession as well. [There are] just smaller swings versus the more durable goods segments. So working in packaging can be a pro in a recession, but in a boom phase, some see it as a con, since it never ramps up into high profits like the durable goods segments. I have enjoyed working in the packaging industry for 24 years through several of these swings. I have never seen it as a con in a growth phase, though I know people that have. — SM

This issue's Coating & Laminating Special Report (starting on p24) delves into the challenging arena in which converters operate with exclusive content from AWA Alexander Watson Assoc. Corey Reardon, AWA president, sees a positive outlook for the metallizing market, particularly for films, with flexible packaging opening more opportunities for metallized barrier coatings. Prices for forest-stewardship-certified papers and boards will continue to rise at the expense of lighter-weight film, which will outpace paper's growth.

We may be challenged, but with extreme judicious planning, we can weather this perfect storm.

My friends call me…

What efforts will your company make to weather this storm? Write to me at yolanda.simonsis@penton.com.


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