BOTTLING LINE MACHINERY (Excluding Associated Filling, Capping, and Sealing Machinery)

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U.S. BOTTLING LINE MACHINERY SHIPMENTS SURGE IN 2005

The aggregate value of U.S. bottling line machinery shipments, as defined, surged ahead by +25 percent in 2005 to an estimated $380 million. The sharp increase, which was produced entirely in the U.S. domestic market, signaled a resumption of the heady growth-spurt pattern witnessed over the past 10 years. And this occurred despite a -10 percent fall in exports, (which had previously swelled by more than +52 per-cent in 2004). Therefore, the export growth-deficit was offset by a +42 percent increase in shipments to the U.S. domestic market. The order backlog at year-end stood at $124 million, which was equivalent to 32.6 percent of total 2005 shipments, up from $114 million at the end of 2004.

11-YEAR GROWTH TREND

Figure 6, which traces the history of U.S. bottling-line machinery shipments over the past 11 years, reveals that much of the period was characterized by

substantial spikes in bottling line machinery growth, with 2005 a prime example. The extremes have been largely the result of major projects initiated by brew-eries, carbonated beverage bottlers, and especially bottled water start-ups and expansions in the U.S. Prior to 2000, year-to-year changes in the growth of bottling line machinery shipments closely tracked those of the total packaging machinery industry as a whole. But as Figure 6 also illustrates, the historical pattern was broken with a disconnect in 2000 as bot-tling line machinery shipment growth far outpaced the aggregate market rate through 2002, and con-versely, bottling line shipments declined in 2003 when the total market grew. Nevertheless, the rela-tionship between bottling line machinery growth and total industry growth remains somewhat correlative and coincidental, since bottling line operations have been fundamental to some of the more dynamic mar-keting, product development and packaging trends that have evolved over the past few years. By the same token, however, bottling line machinery demand has traditionally been dependent on essen-tially five sectors of the overall domestic market for the preponderance of annual demand – foremost bev-erages and foods – followed by pharmaceuticals, chemicals and personal care products. It has also been subject to the vagaries of the export market, which itself has been influenced by fluctuations in the U.S.$ exchange rate, world economic conditions and cycles of foreign demand within the traditionally key end-use market sectors.

BASIS FOR THE DATA – THE SURVEY'S RESULTS

Shipment data and estimates for 45 companies identi-fied as manufacturers of bottling line machinery (as defined) were tabulated in connection with this study.

BOTTLING

LINE MACHINERY

(Excluding Associated Filling, Capping, and Sealing Machinery)

Definition:Machinery designed to convey, place, feed, accumulate, orient, unscramble, wash, sterilize, rinse, collate, and clean bottles and cans used for liquid and dry products. The catego-ry excludes filling, capping, and sealing machinecatego-ry sold as part of the bottling line. Segmented by: Bottling Line Conveyors and Accumulators; and Bottle Placing, Feeding, Rinsing, Washing, Collating, Orienting, Unscrambling, and All Other Related Machinery.

6.6% Share of Total

Industry $ Volume

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A summary of the sample's composition appears in Table 6 at the end of this section. The value of ship-ments attributed to the 45 companies amounted to $318 million, of which 25 PMMI members represented

$166.3 million. The unambiguous nature of the 2005 growth is reflected in the bar chart of Figure 7 which indicates that nearly three quarters of the machinery category's manufacturers (72%) reported an increase in totalbottling line machinery shipments for the year. Moreover, the increase-decrease breadth for manufac-turers of bottling-line conveyors and accumulators – the larger of the two sub-categories – had 71 percent reporting an increase versus 29 percent with a

decrease. And the feeding, placing, unscrambling sub-category was also heavily weighted to the plus side as two-thirds showed higher billings versus 22 percent with lower billings and 11 percent no change. In the aggregate, the 2005-2004 percent-change data ranged from a low of -58.3 percent (decline) to a high of +116 percent (increase).

Table 4, which lists the manufacturers' average and median values of shipments for this category's machin-ery, provides another clear indication of the strength behind the 2005 numbers. For a comparison of the 2005 table with the corresponding table for 2004 (in which total shipments were up by a mere +2.4 percent) will show that both the averages and medians

FIGURE 6

ANNUAL GROWTH OF U.S. BOTTLING LINE MACHINERY SHIPMENTS COMPARED WITH TOTAL U.S. PACKAGING MACHINERY

SHIPMENT GROWTH 1995-2005 -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 % Change

U.S. Bottling Line Machinery Shipments

Total U.S. Packaging Machinery Shipments

Source: PMMI

TABLE 4

Average And Median Dollar Values Of 2005 Bottling Line Machinery Shipments (Shipments Per Manufacturer Based On Survey Data)

2005 Shipments

Machinery Average Median

Total Bottling Line

Machinery 6.651 3.094

Bottling Line Conveyors

and Accumulators 7.849 4.520

Bottle Placing, Feeding, Rinsing, Washing, Collating, Unscrambling, and All Other

Related Machinery 3.132 2.547

US$ Millions Source: PMMI

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increased sharply across the board in 2005. For exam-ple, average total shipment value (per manufacturer) of $6.651 million in 2005 was higher than the $4.775 number in 2004. Similarly, the 2005 bottling-line con-veyor sub-category average of $7.849 million com-pared favorably to the 2004 average of $4.495, as did the placing, feeding, rinsing, etc. sub-category with an average of $3.132 million in 2005 versus $2.214 in 2004. The year-to-year comparisons of median ship-ments also revealed sharp increases for 2005.

SHIPMENTS BY TYPE OF BOTTLING LINE MACHINERY

The projected estimates of bottling line machinery shipments – in total and by the two principal machin-ery sub-categories – are presented in Table 5 according to five sets of criteria. As traditionally reported, ship-ments of conveyors and accumulators ($283 million in 2005) accounted by far for the larger share of the total dollar volume. The other sub-category consisting of

bottle placing, feeding, rinsing, washing, collating, unscrambling, and all other function-related machinery was responsible for $97 million of the total. It is sig-nificant to note that shipments for both sub-categories were up by nearly the same double-digit rates and both also benefited entirely from a pick-up in demand from the U.S. domestic market, which offset respective declines in exports.

With regard to the unit-shipments totals, it is important to point out – as in prior years – that the data represent the approximatenumber of systems reported billed in 2005. Moreover, the unit numbers can fluctuate inde-pendently of the dollar values from one year to the next, often without any reason behind the divergence. The conveyor and feeding, placing, orienting, et al machinery categories are the most difficult to define in terms of individual units owing to the broad diversity and sizes of systems that are sold; therefore, they are meaningful more as indicatorsof the annual volume rather than as precise measures of output. Nevertheless, assuming that the unit quantity projections are reason-11% 22% 67% 0% 29% 71% 8% 20% 72% 0% 10% 20% 30% 40% 50% 60% 70% 80% Source: PMMI Feeding, Placing, Unscrambling, etc. Conveyors and Accumulators TOTAL Bottling Line

Machinery

FIGURE 7

PERCENT OF COMPANIES REPORTING AN INCREASE, DECREASE, AND NO CHANGE IN BOTTLING LINE MACHINERY SHIPMENTS

2005 VERSUS 2004

% Reporting Increase

% Reporting Decrease

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able for 2005, the data point to two important develop-ments. Foremost, with the quantity of conveyors and accumulators nearly unchanged from that of 2004 (1,741 versus 1,745), it appears that considerably more expensive systems were billed in 2005 than in 2004. The average bottling line conveyor/ accumulator sys-tem in 2005 was billed at $162,550, up sharply from $129,513 in 2004. Conversely, the average feeding, placing, orienting, system declined from $76,471 in 2004 to $66,529 in 2005, nearly matching the $66,231 average recorded in 2003, and was far less than the $90,700 level recorded in 2002. As noted in prior reports, there had been a concern that the true value of bottling line machinery shipments may have been understated because of the possibility that some respondents may have been lumping all conveying, feeding, placing, machinery, etc. (including some bot-tling lines) into the conveying machinery category rather than into bottling line machinery. In that regard, efforts to limit misreporting are being conducted on an ongoing basis through comprehensive reviews of the data and by follow-up contacts with respondents.

TRENDS, FACTORS, AND DEVELOPMENTS AFFECTING THE MARKET

Several trends, factors and developments in 2005 worked collectively to produce the year's results. Appearing in order of relative importance, the follow-ing are believed to have exerted the most impact.

Positive Trends, Factors and Developments A. Surge in U.S. domestic demand With an increase of +42 percent, bottling-line machinery ship-ments to U.S. domestic market customers represented the bulwark of the year's growth. While a significant portion of the surge was attributed to the release and completion of several large projects, demand derived from small-to-medium size lines also was well repre-sented in the 2005 volume as well.

B. Sales of more expensive conveyor and accumula-tor systems As witnessed in 2004, larger, more

expen-sive conveyor and accumulator systems were sold and shipped in 2005, which translated into a higher average billing per unit sold. The increase resulted from the trend among customers to seek single-source suppliers for their bottling operations as well as to require cus-tom options on their equipment. The average system in 2005 was billed at $162,550, up sharply from $129,513 in 2004.

C. Continued stimulus from installation of faster filling, capping and labeling machines End-users continued to replace existing bottling line conveyors and related machinery with a new generation of sys-tems needed to accommodate the higher speeds of new fillers, cappers and labelers. The new units, which replaced older standalone fillers and monoblocs, are rated over 50 percent faster than those of just a few years ago. Please note that U.S. shipments of liquid-filling machinery grew +15.1 percent in 2005 follow-ing a +22.8 percent gain in 2004.

D. Another increase attributed to beverage prod-uct applications According to the data, shipments linked with beverage products applications accounted for 76 percent of the market for U.S.-made bottling-line machinery in 2005, up from 73 percent in 2004. Recent active applications of particular note include: varieties of pure and flavored bottled water; energy drinks, vitamin drinks, liquor, juices, meal replacement drinks, and low alcohol drinks.

E. Positive effect of the single-serve product trend As in recent years, end-users have had to either add or transform existing bottling lines to accommodate the increased quantity of single-serve containers to be filled for both food and beverage producers.

F. Ongoing high frequency of changes in contain-er configurations, sizes and matcontain-erials Furthcontain-er atten-tion to container appeal and funcatten-tionality in 2005 resulted in the further introduction of many varieties of container sizes (e.g., single-serve and large economy "More favorable economic factors influenced purchases of

machinery causing a release of pent-up demand." "Stronger economy in 2005 was the main reason we grew."

"More high-speed lines require higher speed equipment, such as the rinser we offer."

"The beverage market was very favorable; we sold a large number of bottle washers."

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size) and shapes/configuration (e.g., designer tubes for skin care products, contoured grip for beverage con-tainers, beer in aluminum bottles, etc.) during the year. This resulted in orders for either additional machinery to handle new SKUs or for replacement machinery with greater changeover flexibility.

G. Further emphasis on improving efficiency and productivity In addition to their focus on increasing bottling speed, end-users sought to replace older bottle conveying, feeding and related equipment for the pur-pose of improving efficiency and productivity. This factor continues to be prominent in domestic demand – especially when linked with replacement of other kinds of bottling line equipment.

H. New bottling-line machinery introductions Manufacturers with good growth in 2005 attributed some of their increased billings to the introduction of new machinery models and systems during the year – especially at Pack Expo. In addition to improvements and innovations featuring the advantages of faster speed capabilities as well as better control capabilities (expanded plc, servo and variable frequency device control), better wash down capabilities, gentler product handling, among many others, the new introductions also included lower cost "economy" models, and smaller footprint configurations.

Negative Trends, Factors, and Developments A. Lull in exports As the data clearly indicate, export shipments of bottling line machinery were lower in 2005 after a period of growth.

B. Vacuum in demand left by completion of sev-eral very large projects

C. Intensifying competition from lower-priced equipment

D. Continued negative impact of used and rebuilt system sales at the expense of new machinery shipments.

BOTTLING LINE MACHINERY SHIPMENTS BY TYPE OF CUSTOMER

Approximately 85 percent of the bottling line machin-ery shipments in 2005 were made directly to end-users, either via company-based sales representatives or man-ufacturers' representatives, down from 89 percent in 2004 and still well below the 90 percent level recorded in 2002. The amount attributed to others (including other manufacturers, engineering contractors, and sys-tems integrators) amounted to 10 percent of the total (up from eight percent in 2004). The volume channeled through distributors represented approximately five percent.

TABLE 5

U.S. 2005 Bottling Line 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)

Bottling Line Conveyors and Accumulators 283 +25.2 1,741 71 85

Bottle Placing, Feeding, Rinsing, Washing, Collating, Unscrambling, and All Other

Related Machinery 97 +24.2 1,458 18 39

Total Category 380 +25.0 3,199 89 124

Source: PMMI

"We expanded our line of machinery, replaced some with better technology, and stepped up our marketing efforts." "Pack Expo 2004 helped us in 2005."

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FIGURE 8

U.S. 2005 BOTTLING LINE MACHINERY SHIPMENTS BY MARKET SEGMENT

(Percent of Total Dollar Value)

Beverages 76% Pharmaceuticals 10% Foods 8% Household Chemicals 1% Toiletries & Cosmetics 5% Source: PMMI FIGURE 9

HISTORICAL TREND OF MARKET SEGMENT BREAKDOWN FOR U.S. BOTTLING LINE MACHINERY 1999 -2005

(As a Percentage of Total Dollar Shipments)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 1999 2000 2001 2002 2003 2004 2005 P e rc ent of T o ta l S h ip m e nt s Foods Household Chemicals

Toiletries & Cosmetics

Pharmaceuticals

Beverages

Other Chemi cals

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BOTTLING LINE MACHINERY SHIPMENTS BY MARKET SEGMENT

The pie chart of Figure 8 presents a breakdown of the industry's 2005 bottling line machinery shipments by market segment based on the study's data, and the line chart of Figure 9 traces the most recent seven-year his-tory of the industry's market segment breakdown. While very little changed short term in the market seg-ment composition from 2004 to 2005, the beverage products segment continues to maintain a position of overwhelming dominance as the leading customer for bottling line machinery.

BOTTLING LINE MACHINERY FORECASTS U.S. shipments of bottling line machinery are forecast to grow at an average annual rate of 2.7 percent over the next three years - from an estimated $380 million in 2005, to approximately $412 million by 2008 in constant 2005 dollars. As the bar chart of Figure 10 illustrates, the bulk of the gain will be recorded in 2008. The outlook is based largely on the following key expectations and assumptions. (Please refer back

to discussion of trends and developments for elabora-tion on certain forecast points.)

The Case for Growth

A. Additional switching to alternative container materials, sizes and shapes, prompting replace-ments and additions of bottling lines

B. Continued strong cash positions of major customers

C. Expectation of several major projects materi-alizing during the period

D. Sustained high level of equipment replacement activity linked with technological advances and innovations

E. Improvement in exports tied to expected weak-er U.S. dollar and healthiweak-er global demand

F. Further derived demand from installation of new, faster filling, capping and labeling machines

FIGURE 10

FORECAST OF U.S. BOTTLING LINE MACHINERY SHIP MENTS 2006 - 2008 (Constant 2005 Dollars) 380 388 384 412 340 350 360 370 380 390 400 410 420 2005 2006 2007 2008 $ Millions Source: PMMI

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G. Predicted growth of the U.S. economy - albeit strongest at end of period Please see "Macroeconomic Assumptions" in Executive Summary

H. Continued trend favoring larger conveying/ accumulating systems and more expensive machines I. Unabated flow of new food, pharmaceutical, personal care and beverage products and SKU introductions into the pipeline

J. Further improvement in pharmaceutical market segment demand and a pick-up in neutraceuticals K. Relatively large order backlog carried into 2006

L. Sustained strength of the dynamic beverage growth sectors

Potential Growth-Limiting Factors

In addition to the ever-present potential for exogenous or unforeseen developments that could derail economic growth and destabilize confidence, demand for bottling line machinery could also be limited by the following other potential detriments to growth:

A. Impact of low-cost imports and used machines on new machinery sales

B. Weaker than expected economic growth C. Accelerated consolidation of the food and beverage industries

D. Slower than predicted growth of foreign economies

SURVEY PARTICIPATION AND COMPANY SECONDARY RESEARCH

Table 6 summarizes the participation and methodology of data collection for the survey phase of the study.

TABLE 6

Survey Participation And Company Secondary Research (Bottling Line Machinery Manufacturers)

Status Number of Companies

PMMI Members Completed The Questionnaire 25

Company Shipment Estimates Developed Through Secondary Research 20

Total Companies 45

Figure

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