Buoyant Business

There’s a lot of the action in the package-printing industry coming from the flexible packaging sector. You can’t go into a supermarket these days and not see some new packaging configuration for products that previously had been packaged in a different form—tuna fish in a flat pouch, drinks in stand-up pouches, frozen foods in plastic bags—just to mention a few.

From a printing and converting standpoint, even some of the more trendy labeling applications require press and converting capabilities geared toward the processing of flexible, unsupported materials. These include shrink sleeve labeling, in-mold labeling, and even pressure-sensitive film labels.

It is not surprising that flexible materials and flexible packaging are in the spotlight. So much so that virtually any new press coming out on the market is being specifically designed to handle these materials.

As always, however, there’s no “gravy” markets in today’s competitive landscape. Although flexible packaging offers a fair share of opportunity, package printers are having to scratch and claw for everything they get.

2006/2007

One of the major concerns over the past year—and most likely to continue for some time—is the high costs of raw materials. Higher material costs were driven by fluctuating, but generally higher, energy prices, says Marla Donahue, president of the Flexible Packaging Association (FPA). “With these volatile resin prices, some converters indicated periods of material shortages caused by tight global supply. This resulted in difficulty for converters passing along rising costs in flexible packaging product (sales) prices. The overall impact on converters was pressure on margins and profitability in 2006,” she reports.

Corey Reardon, president and CEO of AWA Alexander Watson Associates, agrees with the assessment concerning the pressure on margins from rising petrochemical costs. These conditions not only impacted the flexible packaging sector, but all package-printing segments, along with their respective value chains. However, Reardon sees enough positive factors to say “the flexible packaging industry is buoyant in North America, with continuing room for growth.”

Despite the increases in material costs, Steve Mogensen, president of packaging consultant Allied Development Corp., saw positive growth for flexible packaging in 2006 and sees more of the same. “We expect the global economy to continue to do well in 2007,” he says. “The potential for a recession was building during the latter part of 2006, but has resolved into a healthy slowdown without recession. From here, we expect economic growth to pick up and remain positive at least through 2008.”

Reardon pins his outlook on some of the underlying economic factors. “The economic future of the broad packaging converting industy depends very much on consumer confidence and industrial growth. In the U.S., 2006 ended with signs of a cooling economy with a decline in the housing market and increase in inflation and interest rates.”

Although flexible-packaging converters understand the impact from general economic conditions, the increases in material costs are much more tangible and strike closer to home. For Lou Iovoli, director of sales and marketing at Hammer Packaging, this factor has had the most significant impact on his view into the crystal ball.

“Hammer Packaging believes the industry will continue for the next five years to feel pressure from upward movement of pricing from raw material vendors,” he states. “This pressure will squeeze the supply chain and converters, forcing investment in technology that can offer unique product offerings or more cost-effective production methods.”

Hammer Packaging has embarked on one approach that Iovoli believes will give the company a distinct capability. It has invested in a new state-of-the-art variable sleeve offset press. “We feel strongly that offset lithography with electron beam capability will carve a position in the flexible packaging market. Offset printing offers superior print capability versus CI flexo and lower set-up cost versus gravure.”

Opportunities

Flexible packaging presents printers with any number of market and geographical opportunities for new business and growth. Reardon believes that advances in barrier coatings for flexible and aseptic gable-top packaging “will drive the trend in favor of newer packaging formats as against traditional bottles and cans.”

In addition, he predicts strong development activity in packaging flims, label facestocks, shrink films, and patch label films. “Environmental considerations are also driving developments in PLA-based films and other bio-film products,” he notes. The FPA agrees with the assessment of environmental impacts, as Donahue believes sustainability and sustainable packaging are growing industry trends.

As far as market opportunities, flexible packaging is having an impact across the board. However, Donahue points out several areas that FPA’s members believe to be especially intriguing. These include pharmaceuticals, medical devices, beverages, health and beauty, produce, pet foods, snacks, and dinner products.

In many of these markets, the packaging format making a significant impact is pouches—flat, stand up, retort, and all of the above. In its study, “Pouches to 2010,” The Freedonia Group forecasts that demand for pouches in the U.S. will rise 6.3 percent annually through 2010 to $6.5 billion. According to the study, the fastest growing markets for stand-up pouches are cheese, processed foods, and consumer and industrial products, while flat pouches will do well in fresh produce, medical and pharmaceutical products, and consumer items.

Stand-up pouches deserve special mention as the study predicts this segment to grow at a hefty pace of 11.6 percent through 2010 to $1.6 billion. Stand-up pouches are providing an avenue for consumer products companies (CPCs) to reinvigorate mature product lines to stimulate sales. One impact for printers/converters to consider is that CPCs will increasingly look to their suppliers to provide preformed stand-up pouches.

Geographical market opportunities exist in several emerging markets around the globe. Many of the larger flexible-packaging companies are hard at work positioning themselves to take advantage of these growth sectors.

• Sealed Air Corp. announced it is looking at new manufacturing locations in Eastern Europe and Latin America to go along with its expansion last year in China. Says William V. Hickey, president and CEO, “Our global manufacturing strategy will position our business for enhanced profitability and growth by investing in new global capacity in high-growth market such as China, Eastern Europe, and Latin America.”

• Alcan Packaging is making an initial investment of $10 million on a new flexible-packaging facility in India to support the Indian flexible-packaging market. “This investment, the first for Alcan Packaging in India, demonstrates the company’s continuous commitment to investing and growing in emerging markets by anticipating its customers’ expanding needs in the region,” said Ilene Gordon, president and CEO.

The challenges

One thing is certain: there’s never a lack of barriers to be circumvented. Donahue notes that at the forefront are cost and availability concerns with raw materials. With petrochemical-based films being such a significant factor in flexible-packaging products, these conditions won’t change any time in the near future. She also mentions two additional challenges: finding and retaining skilled people and the impact that imported materials will have on flexible packaging product prices.

Mogensen also sees this threat from overseas saying, “U.S. flexible-packaging printers will be increasingly challenged from non-U.S. sources.” Closer to home, traditional flexible packaging converters will also face competition from narrow-web printers that are leveraging the capabilities of new state-of-the-art presses.

Iovoli believes that Hammer Packaging has a strategy for success. “We understand the overseas threats will hold a niche in the North American market for certain applications, but our focus is to make our customers’ lives easier by giving them what they want, when they want it,” he says. “If we focus on being a just-in-time vendor, everyone benefits and overseas competitors are essentially irrelevant.”

Hammer Packaging stakes its survival on re-investment in technology, says Iovoli. “We see this as a competitive advantage over competitors, in particular those owned by private equity firms. … When price pressures increase, we need the ability to demonstrate we are a low-cost producer. New technology is our answer.” pP

Resources

Allied Development Corp. www.allied-dev.com
AWA www.awa-bv.com
Flexible Packaging Association www.flexpack.org
Freedonia Group www.freedoniagroup.com
Hammer Packaging www.hammerpackaging.com