Strong growth predicted for flex-pack industry

With shipments planning to reach $15.5 billion by the end of the year, the fifth annual State of the Industry Report from the Flexible Packaging Association projects a strong future for the industry. A summary of the findings are given in this report.

The flexible packaging industry is expected to grow by a strong 5.2% in 1995, according to the fifth annual State of the Industry Report issued by the Flexible Packaging Association, Washington, DC.

This growth rate is faster than the estimated 4.5% for 1994. New end-use markets, increased end-user demand, and the ability of the industry to meet technological challenges will drive this growth, specifically fresh produce and the drugs and medical/surgical markets, aided by the continued conversion to flexible from rigid packaging.

The FPA projects the value of industry shipments will grow by $800 million and reach $15.5 billion by the end of 1995 [ILLUSTRATION FOR FIGURE 1 OMITTED]. The flexible packaging industry ended 1994 at $14.7 billion, up 4.5% over 1993.

Eighty-seven percent of flexible-packaging converters (manufacturers) and suppliers increased their value of shipments in 1994, up from 58% in 1993.

The rate of production also soared. Fifteen companies increased production for every company that decreased production in 1994. Industry executives attribute this upswing to new markets for flexible packaging and greater market share at the expense of rigid packaging forms.

"End users say they choose flexible for one of three reasons," Glen E. Braswell, FPA president, said. "First, its countless combinations of substrates and adaptations give it almost limitless versatility. Second, its efficiency in material consumption can save them money. And third, its graphic appeal and shelf presence are outstanding. All this is reflected in our growth trend."

Single-web and multi-web film structures accounted for nearly six out of 10 sales dollars in 1993. While multiweb film packaging has dominated sales since 1989, single-web films and single-web papers are making a steady comeback.

Between 1992 and 1993, sales of single-web films rose 3.6%, and sales of single-web papers jumped 3.4%, largely on the strength of environmental concerns about the recyclability of multi-web materials.

The growth trend isn't expected to slow down in 1995. Six of every 10 converters said they plan to expand their operations this year. The majority of these, 63%, are planning to expand an existing plant while four out of 10 respondents said they are planning a domestic merger or acquisition. Ten percent are planning an international one.

Acquisitions and consolidations continued unchecked in 1994. More than two billion dollars in sales changed hands in mergers or acquisitions of flexible-packaging converting plants in the US and abroad. This current wave of consolidations should have little effect on the number of flexible-packaging companies in the short term.

Currently, about 950 flexible-packaging manufacturing facilities exist in the US, representing 380 to 420 companies, and providing 84,000 employees with work.

The top growth market for flexible packaging has changed for the first time since FPA began tracking the growth markets.

Half of the converters and suppliers who responded expect fresh produce to surpass the drugs, surgical and medical market over the next five years [ILLUSTRATION FOR FIGURE 2 OMITTED]. The medical and surgical market was rated as second by 45% of respondents, followed by the drug market with 43%.

Technology is the driving force behind many of these growth markets, particularly the application of modified anti controlled atmosphere packaging.

On the issue of imports and exports, US flexible-packaging companies moved aggressively to capture business or market share overseas in 1994 as exports of their products continued a steady climb. Last year 83% of converters were exporting flexible packaging, up 16% from the prior year.

The North American Free Trade Agreement (NAFTA) appears to have had little immediate effect of the industry. Only 13% of converters who export to Canada and 9% who export to Mexico increased their shipments because of the agreement. Those who began exporting to these countries in 1994, for the most part, cited business reasons.

The industry has yet to see an impact form the General Agreement on Tariffs and Trade (GATT), although companies acknowledge that they might down the line. In 1995, the agreement registered an impact on only a few companies' strategic plans, but within the next three to five years, nearly 40% of companies expect it to affect their long-range planning process.

Financial preliminary findings for 1994 suggest profits will rise significantly, increasing to 6.5%. Single-web and multiweb-film structures accounted for nearly six out of 10 sales dollars in 1993. Multiweb structures have dominated flexible packaging since 1989; however, single-web films and single-web paper combinations are making steady strides.

Increased demand also propelled production of flexible packaging to exceed the gross domestic product for the second time in three years.

It's expected to increase at a faster rate than the gross domestic product in 1995 as well. In 1994, the GDP grew at 4% and flexible packaging grew at 4.5%; in 1995, the GDP is expected to grow at 2.7%, and flexible is expected to grow at 5.2%.

Increased demand along with substrate shortages caused problems with inventories in 1994. Many plastic-film inventories reached zero. Some bag suppliers rationed shipments as they tried to keep up with increasing demand. Just-in-time inventories fell by the wayside amid production increases.

As a result, converters' inventor, as a percent of shipments was quite low throughout the year, running at .49%, well below that of all manufacturing businesses, which maintained 1.2%

Highlights of the report included:

* Factory employment was stable in 1994. Companies took a wait-and-see attitude on the surge in production and scheduled more overtime for their factory employees. However, the scenario changes for 1995. Almost two thirds of converters plan to add hourly workers in 1995, and four out of 10 converters have plans to add salaried workers as well.

* US flexible-packaging companies are moving aggressively to capture business or market share overseas. In 1994, 83% of converters were exporting, up 16% from the year before. Seventy-seven percent of suppliers are also exporting their products.

* The two leading trade partners for US companies continue to be Canada and Mexico. Seventy-five percent of converters who export sell to Canada while 58% sell to Mexico. Despite an increase in exports, the industry is still confronting a substantial trade imbalance. US imports of flexible packaging jumped 16% to $632 million in 1993, while US exports rose up 7% to $436 million.

* Environmental issues continue to help and hinder the flexible-packaging industry. The industry spent an estimated $79 million in 1993 to comply with environmental regulations or .6% of its gross domestic product. That includes costs for regulatory-compliance personnel, waste disposal, depreciation on equipment for pollution-control, and incremental energy for pollution abatement. Sixty percent of converters stated that during 1994, some of their customers requested source-reduced packaging; however cost, not the environment, was the driving force for reducing material consumption.

According to the report, the overall outlook for the flexible packaging industry is bright. Companies see it growing faster than the GDP and other packaging sectors. They see opportunities in the continued replacement of rigid packages, in technological innovations to high-barrier films, and in end users seeking to lower their packaging costs. They also foresee increased use of recycled content in films, increased competition that will lead to more consolidation, and an industry split between niche companies and worldwide players.

Industry figures are based on member surveys. Most of the report is based on information from the 1995 Outlook Survey of 49 member converters and 27 member suppliers. Other information is collected primarily from the US Departments of Labor and Census.

The State of the Industry Report is based on responses from 54% of FPA member companies.

Copies of the report are available for $25 for FPA members and $295 for non-members.

The Flexible Packaging Association is a trade association that represents converters and suppliers to the packaging industry. Its members produce 85% of the flexible packaging manufactured in the US and a growing share of flexible packaging used overseas.

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