Packaging is taking a major hit from the global financial crisis and the drop in business and consumer demand, but Asia is set to fare better than most, reports Stuart Hoggard
The international financial crisis and collapse in global trade has devastated the western world’s packaging sector with a Q4 2008 drop in North American and European shipment sales averaging 20 per cent. The decline is expected to continue throughout 2009, with some recovery seen in mid-2010.This will result in across-the-board job losses and significantly reduced capital investment, according to a world-wide survey report ‘Economic Crisis Impact on the Packaging Industry’ by packaging analysts at PackWebasia.com (ed: the author’s website).
The survey focuses on all sectors in the packaging supply chain: brand owner, designer, packaging manufacturer, retailer, and equipment/substrate suppliers, in North America, Europe and Asia.
Based on existing order books, most of Asia expects to avoid recession this year, although packaging growth will decline from its 2008 average of 11.3 per cent to 8.4 per cent, retrenchments will be minimal and an increase in capital investments is already budgeted. Malaysia and Japan will be the main Asian casualties posting an industry contraction of 4.6 per cent this year but recover some ground to post positive 1.5 per cent growth in mid-2010.
Sales plummet in 2008
More than 68 per cent of the companies surveyed reported a significant decline in packaging sales for the final quarter of 2008 compared to the same period in 2007. Performance was down by between 5 per cent and 40 per cent across all three regions, with most respondents recording an average 15 per cent fall in sales.
On the positive side, brand owners and retailers posted the strongest growth for the final quarter of last year, particularly in Asia.
Of the target markets surveyed, the lion’s share of respondents service an even mix of domestic and export markets, while 36 per cent cater for domestic markets only, the remainder being totally export oriented. The impact of market orientation on sales was relatively insignificant with declines evenly distributed across the market mix as companies worldwide fulfilled 2008 orders placed before the full extent of the economic crisis became evident in September.
Negative sentiment for 2009
Sales projections for the first half of this year show the downward trend continuing, although the rate of decline will slow somewhat. Most anticipate a 15 per cent contraction this year, an indication that while the recession in the packaging sector will not bottom out in 2009, the trajectory of the decline will ease. Just two per cent of respondents predict that sales will grow by more than 40 per cent. Again, Asia will be the main beneficiary.
With the majority of companies reporting flat headcounts throughout 2009-10, more than 30 per cent said that they would be reducing staff – mostly in the region of five per cent, although almost 10 per cent of companies reported they would be slashing their payroll by up to 15 per cent. A minority of the hardest-hit firms anticipate more than 40 per cent
of jobs will be lost.
On the up-side, more than 27 per cent say they plan to hire additional staff in 2009, but again this is confined mainly to Asia.
In light of the overall downward trend, more than half of all companies surveyed reported that budgets for capital expenditure have been frozen, with no investment plans going forward through 2010.
Of those that will be investing in capital equipment in 2009, a quarter plan on spending less than US$500,000, with converting equipment topping the shopping list followed by various printing presses (digital, offset, flexo and gravure).
Volatile times
With the global financial situation remaining volatile, the survey identifies two entirely different recessions occurring simultaneously, each with its own impact.
The Western Crisis - afflicting the developed economies – became evident in September 2008, with the near collapse of the banking system. This resulted in a business credit freeze, rising unemployment, massively-reduced consumer confidence and spending, and plummeting demand for both goods and services.
All of the developed OECD nations are projected to post negative GDP growth throughout 2009 with a measure of recovery not expected to be seen until late 2010, despite the various government stimulus packages.
The Asian Crisis - has an altogether different profile, a crisis of market collapse rather than a shutdown of financial systems. This did not begin to fully impact until December, as traditional export markets dried up.
With the exception of the developed economies of Singapore, Hong Kong, South Korea and Japan, Asia’s banks have been largely immune to the toxic contagion of the US sub-prime markets. This followed the Asian Financial Crisis of May 1997 and subsequent regulations that put direct investment in the exotic instruments of institutions like Lehman Bros and Morgan Stanley out of reach of Asia’s banks.
However the shocking collapse in demand from Asia’s export markets in the West caused a significant reduction in manufacturing output as factories from Bombay to Beijing saw their order books torn up and their overseas customers go into liquidation.
This is proving to be a temporary setback for Asia. Of Asia’s developing economies, according to the OECD and Asian Development Bank, onlyThailand and Malaysia will see declines, 2.06 per cent and 2.0 per cent respectively. The economies of Indonesia, Philippines, India and China are not expected to post a fall in GDP - although their economies will contract they will not dip into recession, largely because they are refocusing on domestic consumer markets.
According to the survey, supported by data from both the OECD and Asian Development bank, packaging sales in North America will continue to decline, at 2.4 per cent throughout 2009, with recovery to a barely positive growth average of 1.8 per cent for 2010. Europe will see packaging sales shrink by 2.1 per cent across 2009, before recovering to an annualised average of growth of 1.7 per cent for 2010.
Asia will post solid 8.4 per cent packaging sales growth throughout 2009, rising to 11 per cent in 2010.
Give your views on the economic crisis – Contribute to the global packaging survey
Take two minutes of your time to contribute to an international packaging industry survey on the current position/prospects, outlook and sentiment in these dark days being undertaken by PackWebasia.com, based in Singapore.
The survey has already gone out to brand owners, packaging producers, suppliers, in Europe, Nth America, Asia and Africa. With more than 550 responses the results have been interesting industry sentiment in developing countries has been generally positive, while overall response from the US and Europe has been pretty gloomy and negative.
In order to obtain as wide a range of responses as possible from around the world PackWebasia.com is inviting the industry to contribute.
This 10-question survey is completely anonymous and takes just a few minutes to complete. You may provide your e-mail address if you wish to receive a summary of the findings, but this is optional.
The survey can be accessed by inputting on this address: http://www.packwebasia.com/global-packaging-survey.html
