94 2006 Packaging Machinery Shipments & Outlook Study FORM/FILL/SEAL MACHINERY (BAG/POUCH) Definition: Machinery used to form pouches or bags from a web of flat roll stock film moving vertically or horizontally, fill the pouches/bags with pre-measured amounts of product, and seal them sequentially. Integral weigh fillers, combination scales, volumetric and all other fillers sold as part of the system are included, while fillers and scales sold and shipped separately by others are excluded. 11-YEAR GROWTH TREND 3.5% Share of Total Industry $ Volume FORM/FILL/SEAL MACHINERY SHIPMENTS SLIDE BACKWARD IN 2005 U.S. shipments of form/fill/seal machinery declined by -9.1 percent in 2005 to an estimated $200 million 1 (Table 32), ending a three-year stretch of annual increases that began with moderate gains in both 2002 and 2003 and culminated with a sharp +11.1 percent jump in 2004. The decline in 2005 is traced in large part to a drop in domestic volume, as shipments to U.S. customers fell by nearly -11 percent. Exports, on the other hand, remained flat for the year at $34 million. Consequently, as a percentage of total annual shipments, exports moved higher from 15 percent in 2004 to 17 percent in 2005. The order backlog as of 12/31/05 stood at $54 million, down marginally from $55 million at the close of 2004. Beginning in 1998, the form/fill/seal machinery data have since been presented in the current format, which logically combines vertical and horizontal bag/pouch functions into a common category. In prior years, vertical F/F/S machinery shipments were reported singly, while the horizontal pouching machinery data were grouped with horizontal F/F/S wrapping machinery essentially involving non-shrink film. The change was made to isolate horizontal pouching from flow wrapping with the objective of making the data for both the pouching and wrapping machinery categories more meaningful. Although efforts were made under the old format to break out the pouching share of the horizontal F/F/S wrapping machinery numbers, the estimates lacked foundation, since some manufacturers reported both wrappers and pouchers together. The revised format provides a better tracking of machinery shipments by application. However, since the prior data for HFFS pouchers are not precisely identifiable, the historical presentations for years 1995-1997 are limited to only VFFS data only, for which the past data are reliable. For consistency, the growth trend of VFFS machines (now based on 11 years of data) is presented separately again in Figure 50. However, an additional chart (Figure 50A) provides a tracking of the combined vertical and horizontal form/fill/seal machinery category for the past eight years. Since 1998, the form/fill/seal machinery category has undergone two distinct periods of solid growth both as a result of market trends favoring flexible packaging and significant advances in f/f/s technology. On the 1 For the purpose of defining the category s shipments in more relevant terms, the data since 2000 exclude the value of associated fillers, such as scales, which are included in the appropriate filling machinery categories. The shipment values presented for F/F/S machinery, therefore, represent principally the pouch forming and sealing machinery.
Form/Fill/Seal Machinery 95 FIGURE 50 ANNUAL GROWTH OF U.S. VERTICAL FORM/FILL/SEAL MACHINERY SHIPMENTS COMPARED WITH TOTAL U.S. PACKAGING MACHINERY SHIPMENT GROWTH 1995-2005 37% 32% U.S. Vertical Form/Fill/Seal Machinery 27% Total U.S. Packaging Machinery Shipments 22% 17% 12% 7% % Change 2% -3% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005-8% -13% -18% heels of sharp increases in 1998 and particularly in 1999 and coupled with the onset of an economic recession, f/f/s shipment volume eased in 2000 and 2001 as customers pulled back on spending. Then again from 2002 through 2004, form/fill/seal machinery shipments grew by nearly +23 percent or roughly double that of the packaging machinery industry as a whole. Another cooling off appears to have emerged in 2005, partly reflecting a cyclical effect of recent heavy spending. But as will be discussed later in this section, competitive factors have also exerted downward pressure on the category s results. BASIS FOR THE DATA THE SURVEY'S RESULTS AND SUPPORTING RESEARCH The dollar-value projections for 2005 were based on data provided by 35 PMMI members and on estimates derived from secondary research for five additional f/f/s manufacturers. A summary of the survey's composition appears in Table 33 at the end of this section. The value of shipments for the identified manufacturers amounted to an estimated $200 million, of which the 35 participating PMMI members represented $179.3 million. As Figure 51 indicates, the reported declines in shipments significantly offset the increases for the year, as 63 percent of participating companies fell into the negative column, while just 29 percent posted higher results and eight percent came in with roughly the same total as 2004. As the chart also reveals, growth was hardest to come by in the horizontal f/f/s sub-category where it was achieved by only 13 percent of respondents. And while there were more positive results in the vertical f/f/s sub-category, that overall increase-decrease ratio leaned to the negative as well. Overall, the data ranged from a low of -86 percent
96 2006 Packaging Machinery Shipments & Outlook Study FIGURE 50A ANNUAL GROWTH OF U.S. FORM/FILL/SEAL MACHINERY SHIPMENTS COMPARED WITH TOTAL U.S. PACKAGING MACHINERY SHIPMENT GROWTH 1998-2005 30% 25% 20% 15% U.S. Form/Fill/Seal Machinery Total U.S. Packaging Machinery Shipments 10% 5% % Change 0% -5% 1998 1999 2000 2001 2002 2003 2004 2005-10% -15% (decline) to a high of +125 percent (increase). The arithmetic mean of the sample's growth was +7.4 percent and the median was centered at -4.5 percent. As indicated in Table 31, the average shipment dollar volume of F/F/S machinery per company was $4.356 million and the median $1.550 million. The average figure for vertical pouch machinery manufacturers was $4.863 million, while manufacturers of horizontal machines averaged $2.235 million. SHIPMENTS BY TYPE OF FORM/FILL/SEAL MACHINERY Although vertical f/f/s machinery shipments have accounted for the majority of the entire category s shipment volume since this study began tracking the data in 1998, the spread over horizontal f/f/s has widened in each of the past two years. The share of the total represented by vertical f/f/s machinery has climbed from 65 percent in 2003 to 68 percent in 2004 and now to 71 percent in 2005. The shift has occurred in part due to inherently strong market demand for the vertically-oriented machines, but is also a reflection of slower demand for horizontal f/f/s units during the same period. It also is a function of the higher cost of horizontal f/f/s machines as well as their narrow range of suitability. As in previous years findings, the price per unit data varied widely from manufacturer to manufacturer owing to a generally wide range of specifications and/or customization among f/f/s machines for different applications. Therefore, the average price per unit of f/f/s machinery is often susceptible to greater fluctuations in a year-to-year comparison than are machinery categories comprised of more standardized equipment. With that caveat, the average price of a vertical machine sold in 2005 jumped to $156,044 from $126,689 in 2004, while the average price of a horizontal f/f/s machine, typically more expensive than verticals, was $411,348, up from $384,615 in 2004. TRENDS, FACTORS AND DEVELOPMENTS AFFECTING THE MARKET Negative Trends, Factors, and Developments A. Saturation from three consecutive years of gains From 2002 through 2004, shipments of f/f/s machinery climbed nearly 23 percent. According to respondents comments those high volumes became too difficult to match in 2005.
Form/Fill/Seal Machinery 97 TABLE 31 Average And Median Dollar Values Of 2005 Form/Fill/Seal Machinery Shipments (Shipments Per Manufacturer Based On Survey Data) 2005 Shipments Machinery Average Median Total Form/Fill/Seal Machinery 4.356 1.550 Horizontal Form/Fill/Seal Machinery 2.235 1.313 Vertical Form/Fill/Seal Machinery 4.863 1.494 US$ Millions 2004 was a record year for us 2005 was normal B. Popularity of pre-made pouch machinery Several respondents remarked about losing potential business to manufacturers of pre-made bagging machinery as more customers turned to that option. Generally viewed as less expensive, and often more time efficient, the pre-made bagging/pouching option has gained popularity amid an increasing variety of packaging requirements from major retailers in terms of package sizes, shapes, and configurations. We re seeing more competition from lower-cost options. There s a trend toward pre-made pouches instead of form/fill/seal. C. Competition from imports In addition to competition from alternative machinery options, foreign f/f/s machinery manufacturers continued to develop more effective sales and marketing strategies in the U.S. While the U.S. dollar exchange rate favored domestic manufacturers against European competition, some respondents noted an increase in competition from FIGURE 51 PERCENT OF COMPANIES REPORTING AN INCREASE, DECREASE, AND NO CHANGE IN FORM/FILL/SEAL MACHINERY SHIPMENTS 2005 VERSUS 2004 TOTAL Form/Fill/Seal Machinery 8% 29% 63% % Reporting Increase % Reporting Decrease % Reporting No Change 13% Horizontal F/F/S 81% 6% 38% Vertical F/F/S 8% 54% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
98 2006 Packaging Machinery Shipments & Outlook Study TABLE 32 U.S. 2005 Form/Fill/Seal Pouch Machinery Shipments, Exports, And Order Backlog By Type Of Machinery PERCENT CHANGE TOTAL Industry In $ Shipments Unit U.S. Order BACKLOG 2005 Shipments 2005 Vs. 2004 Shipments EXPORTS 12/31/05 Machinery ($ Millions) (%) (#) ($ Millions) ($ Millions) Horizontal Form/Fill/Seal Machinery 58-17.1 141 17 24 Vertical Form/Fill/Seal Machinery 142-5.3 910 17 30 Total Category 200-9.1 1,051 34 54 Chinese imports in particular. D. Less focus on horizontal f/f/s machinery lines Certain respondents specifically reported that they had either discontinued or stopped promoting their horizontal f/f/s product lines in 2005. E. Only modest growth of SKUs in food segment Owing to f/f/s machinery manufacturers heavy reliance on the food segment for business (consistently representing over three-quarters of annual shipment volume), it is important to note that according to data from Productscan Online, food product SKUs in 2005 were up just +3.7 percent from 2004. Moreover, in 2004, the number of food product SKUs remained flat compared with the number in 2003. Positive Trends, Factors, and Developments A. Exports remained steady Following sharp growth of +36 percent in 2004, exports remained steady at that high level in 2005. A favorable dollar exchange rate, particularly against the Euro, helped U.S. manufacturers to sustain that volume during the year. Over the past two years (2004-2005), exports as a percentage of total shipments climbed from 12.6 percent to 17 percent. B. More placement opportunities in the beverage segment Some beverage producers have turned to flexible pouching as an alternative to traditional bottles and cans. As evidenced, f/f/s manufacturers derived roughly 10 percent of their shipment volume from the beverage segment in 2005 (Figure 52), up from just three percent in 2004 and even less in previous years. C. Undiminished popularity of flexible pouches in consumer product markets D. Demand from introduction of 100-calorie packs In a strategy to market existing food products to an increasingly weight conscious public, many major food companies are turning to portion control with the introduction of 100 calorie packs. FORM/FILL/SEAL MACHINERY SHIPMENTS BY TYPE OF CUSTOMER The breakdown of f/f/s shipment dollar volume by type of customer remained steady for the fifth consecutive year in 2005 as shipments resulting from orders placed by end-users either to manufacturers own sales organizations directly or through manufacturers' representatives accounted for 98 percent of the total. The remaining two percent of the business was generated by sales through distributors. FORM/FILL/SEAL MACHINERY SHIPMENTS BY MARKET SEGMENT The pie chart of Figure 52 provides a breakdown of 2005 form/fill/seal machinery shipments by market segment and the line chart of Figure 53 tracks the market segment breakdowns over the past seven years. In 2005, the food segment continued to be the source of
Form/Fill/Seal Machinery 99 FIGURE 52 U.S. 2005 SHIPMENTS OF FORM/FILL/SEAL POUCH MACHINERY BY MARKET SEGMENT (Percent of Total Dollar Value) Chemicals 4% Hardware/Auto/ Industrial and All Other 1% Personal Care Products 2% Beverages 10% Foods and Food Preparations 77% Pharmaceuticals, Medical Devices 6% FIGURE 53 HISTORICAL TREND OF MARKET SEGMENT BREAKDOWN FOR U.S. FORM/FILL/SEAL MACHINERY 1999-2005 (As a Percentage of Total Shipments) 90% Percentage of Total Shipments 80% 70% 60% 50% 40% 30% 20% 10% 0% 1999 2000 2001 2002 2003 2004 2005 Foods and Food Preparations Pharmaceuticals/Medical Devices Hardware/Auto/Industrial and All Other Chemicals Personal Care Products Beverages
100 2006 Packaging Machinery Shipments & Outlook Study the vast majority of the category s shipment volume at 77 percent. The biggest mover in 2005, however, was the beverage segment which accounted for 10 percent of the volume up from just three percent in 2004. On the other hand, the pharmaceutical/medical device segment stepped back slightly to six percent in 2005 from nine percent the year before. FORM/FILL/SEAL MACHINERY FORECASTS Shipments of form/fill/seal (pouch) machinery are forecast to grow at a cumulative annual rate of +2.1 percent over the next three years, from an estimated $200 million in 2005 to $213 million (constant 2005 dollars) by 2008. As Figure 54 indicates, a modest decline is expected for 2007 followed by moderate growth in 2008. The overall forecast is based essentially on the following key assumptions. (Please refer back to discussion of trends and developments for elaboration on certain forecast points.) B. Progressively strong competition from imports C. Potential for lost orders due to increasingly aggressive delivery requirements from end-users SURVEY PARTICIPATION AND COMPANY SECONDARY RESEARCH Table 33 summarizes the participation and methodology of data collection for the survey phase of the study. The Case for Growth A. Sustained, albeit uneven, growth of the U.S. economy (Please see "Macroeconomic Assumptions" in the Executive Summary.) B. Improvement in export demand C. Ongoing penetration of the pouch as a packaging medium, particularly in food, beverage, and pharmaceutical markets D. Expected further innovation in pouch materials, configuration options, and resealing capabilities E. Continued advances in f/f/s machinery technology associated with speed, future upgradability, customization options, and flexibility to accommodate multiple package requirements F. Continued efforts by machinery manufacturers to target niche markets and unique customer requirements Expected Growth-Limiting Factors A. Intensified competition from machines equipped to fill and seal pre-made pouches
Form/Fill/Seal Machinery 101 FIGURE 54 FORECAST OF U.S. FORM/FILL/SEAL POUCH MACHINERY SHIPMENTS 2006-2008 240 (Constant 2005 Dollars) 230 220 213 $ Millions 210 200 200 205 203 190 180 2005 2006 2007 2008 TABLE 33 Survey Participation And Company Secondary Research (Form/Fill/Seal Pouch Machinery Manufacturers) Status Number of Companies PMMI Members Completed The Questionnaire 35 Company Shipment Estimates Developed Through Secondary Research 5 Total Companies 40