North American Manufacturing on the Rebound, but Headwinds Are Gathering

Plastics processors and mold makers wrestle with higher prices and lead times that are stretching the supply chain tighter than ever.

Clare Goldsberry

May 4, 2021

4 Min Read
female worker in advanced manufacturing
Image: Metamorworks/Adobe Stock

When manufacturing gets hit across the board, you can bet that the plastics industry is taking it on the chin, as well. Many plastic components suppliers and mold manufacturers are wrestling with higher prices and lead times that are stretching the supply chain tighter than ever. According to one plastics/rubber purchasing manager, “In 35 years of purchasing, I’ve never seen anything like these extended lead times and rising prices — from colors, film, corrugate to resins, they’re all up,” he commented in the April 2021 Manufacturing Report on Business from the Institute for Supply Management (ISM). “The only thing plentiful at present, according to my spam filter, is personal protective equipment.”

Mold manufacturers are having a rough go, as well, with “steel prices crazy high” commented a purchasing manager in the fabricated metal products sector. As for yet another purchasing manager, this one in the primary metals: “The metals markets remain very challenging at best. Shortages of raw materials have increased, especially in aluminum and carbon steel. Prices continue to rapidly increase. Transportation and trucking are also a big challenge.”

Harbour Results Inc. (HRI), a manufacturing industry consulting and benchmarking company, just released the results of its Q1 Manufacturing Pulse Study. The analysis indicates that 2020 was a challenging year for small-to-medium-sized industrial manufacturers with 25% of respondents indicating they would have broken even or lost money without government funds, such as the Paycheck Protection Program (PPP) in the United States or Canada’s Emergency Wage Subsidy (CEWS).

Industry outlook reaches 2019 levels of optimism

Despite a gloomy 2020, HRI noted that the overall industry is optimistic for 2021, with sentiment reaching 2019 levels of optimism. Tool and die utilization rebounded to 80% in Q1 2021 from an all-time low of 63%, and production utilization grew from 39% in Q2 2020 to 60% in Q1 2021.

“The industry seems to be rebounding in 2021 after a difficult 2020. Sentiment is up, capital spending is planned, and utilization has increased, all pointing to a healthier industry,” said Laurie Harbour, HRI president and CEO. “Although this is positive news for manufacturers, there is a great deal of room for improvement as efficiency is declining, overall revenue fell, and profitability was achieved through PPP and CEWS.”

Manufacturers plan to increase capital investments through 2023

According to respondents to the HRI study, access to labor remains the top concern for manufacturers, followed by raw material pricing and employee health. Additionally, for the tooling industry, backlog has stabilized, work on hold is down, and payment terms and on-time payments of accounts receivables have returned to pre-COVID-19 levels. Most manufacturers across all processes are planning for capital investment of 3% or more from 2021 to 2023.

Demand continues to outpace supply in most areas including plastics, metals, and electronic components, which impacts a range of industries including automotive, computers, and electronics equipment and others. IHS Markit estimated that from January through March, the chip shortage reduced North American auto production by about 100,000 vehicles. That caused a reduction in production at a number of vehicle plants, which, in turn, had an impact on mold and plastic parts manufacturers.

The HRI study, focusing on manufacturer’s financial performance, noted that profitability dropped an average of 6.8% in tooling and 4.2% for production last year. However, because of PPP and CEWS funding, the industry did not appropriately adjust headcount to better manage workload and optimize profits. Furthermore, responses to the study indicate that while COVID-19 hit many industries hard, declining profitability has been trending since 2016.

“Thanks to the economic growth of the last decade, owners in this industry have used their proceeds to pay down debt and invest in the business,” added Harbour. “The average debt-equity for most of the respondents is 0.5 or less. There was a time in memorable history when the averages were over 1.”

HRI projects that 2021 will continue to be challenging for manufacturing. Numerous headwinds, including supply chain shortages; increases in the corporate tax rate, minimum wage, and raw material prices; uncertainty with tariffs; and talent shortages will create inconsistency for many shops.

“Now is the time to gather market intelligence, focus on efficiency, and improve sales processes to create a niche that customers will pay for to create a sustainable and profitable business,” Harbour advised.

About the Author(s)

Clare Goldsberry

Until she retired in September 2021, Clare Goldsberry reported on the plastics industry for more than 30 years. In addition to the 10,000+ articles she has written, by her own estimation, she is the author of several books, including The Business of Injection Molding: How to succeed as a custom molder and Purchasing Injection Molds: A buyers guide. Goldsberry is a member of the Plastics Pioneers Association. She reflected on her long career in "Time to Say Good-Bye."

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