From Hazardous Cargo Bulletin, January 2004
The gap between customer and manufacturer is widening once again, as manufacturers are forced to lower prices to keep business in a time of unstable economies and raw material prices.
Huber Verpackungen report steady sales of its 'Top-Expand' system, an automatic sealing system for steel drums exclusive to the company. By introducing this system the company has earned new business in Germany, Austria and the Czech Republic. The systems' success can be attributed to its ability to rationalise drum filling and sealing processes through automation. Huber still has plans to expand its customer base as the company's Bernhard Kürschner explains, " Our customers are sourced from a range of industries, including the chemical industry," he says. "In line with our ongoing expansion programme, we aim to internationalise the company further in 2004, with service demand the key words for progress."
The winners and losers, imagines Kürschner, will be determined by individual business' dedication to providing the customer with a wide range of services at a competitive price. "High quality packagings, customer services and new technologies for automation at competitive prices will be of paramount interest to the customer, and will determine success of individual manufacturers in the coming year," he says. The company also believes steel drum manufacturing has reached its growth ceiling for the time being, with industrialised countries unlikely to experience growth in the near future.
Legislative changes likely to impact the industry include the new EU Registration, Evaluation, Authorisation of Chemicals (REACH) Directive. REACH legislation dictates manufacturers of more than one tonne of chemical substances in a single year are required to register its products in a central database. The legislation will place a duty on companies producing, importing and using chemicals. The duties are being imposed in order for the EU to monitor and assess the risks involved with the chemicals' use. Of the REACH legislation, Huber says "The REACH directives will influence many markets and change the structures of the filling industries as well as those of industrial end consumers." Despite believing steel manufacturers have reached a ceiling in terms of growth Huber are hopeful for an increase in profits for 2003, and reiterate its belief that pricing will determine success.
"High quality packagings and international competitive prices will decide the successes and gains of the near future," says Kürschner.
Quality assurance and long-term investment are the key principles, according to Japanese steel drum manufacturers Nippon Steel Drum Company. In 2004, the group was officially accredited with the ISO 14001 qualification. The ISO14001 standard is awarded to companies who adhere to international standards of environmental management. It provides a framework for development of company systems and the supporting audit programme. Overseas business counsellor, Michio Utsumi, believes product development and maintenace is the only way forward for the company. "We have established an in-house quality monitoring system that examines trends in the quality of our drums," he says. The system will look at issues such as dimension, as well as the ability of each drum to remain leakproof over a sustained period.
Soaring export figures encourage Nippon to be positive with regards to prospects for 2004. "Shipments to our domestic customers for exports has increased," says Utsumi. He adds burgeoning Chinese markets are providing Nippon with positive results. "We are finding increasingly that domestic customers are using our drums for export to China, which has helped push up our total shipment figures. We expect 2003 to show the highest ever figures for shipments of steel drums." Customer concerns remain focused upon driving down prices throughout the supply chain. Drums are no longer assessed as a stand-alone product, but seen as part of a larger cost process that incorporates logistics and reuse costs.
The Japanese logistics process is currently undergoing changes likely to affect transportation costs. The Regulation on Diesel Vehicles introduced this past October, is aimed at preventing public health disorders through excessive diesel emissions. Although currently only in place in Tokyo and its surrounding areas, the regulations are set to have a marked impact on transporting drums, given the fact many existing trucks in Japan are diesel powered. Utsumi says of the regulations' impact: "This regulation has tightened the demand and supply balance of the trucker's market, therefore an increase in cost of transportation by road is anticipated."
New business created with China has brought with it new tensions. Steel prices in Japan are on the increase as producers raise prices in light of the favourable situation of export. Nippon is attempting to ride the situation out, and hope that the cost implications for customers are minimal. It anticipates further exploration of reuse and reconditioning of drums to dominate debate in the coming months. The company is also targeting the possible development of a new container. A high volume of water-based paints are being requested — particularly by the automotive industry — as a result Nippon are seeking to create a new container more suited to the paint in terms of quality and cost.
As the world's largest producer of steel, lucrative opportunities in China have not escaped the notice of US steel manufacturers. Howard Skolnik, president of Skolnik drums says of the Chinese market, "Steel drum growth in Asia is bringing new interest to the establishment of more drum manufacturing facilities." With the focus in China being directed towards improvement of the home economy, a less attractive side of developments has emerged. "Environmental enforcement is generally overlooked or minimally respected," says Skolnik. This has wider reaching implications for industry, with the fear being quality will be compromised in favour of price. Skolnik adds, "As a result, drums manufactured in China tend to be of minimal metal thickness and provide inexpensive options for shipping end products."
Is the price right?
The short-term savings may seem attractive for many shippers, as 2003 saw the US endure what Skolnik calls "a pricing roller coaster". Uncertain times still lie ahead for the US, as confusion reigns over steel tariff duties and the ongoing implications for the drum industry. The World Trade Organisation ruled this past September, that duty tariffs imposed on steel were unlawful. As a result of this ruling, and the threat of a backlash from the EU member states, the tariffs have now been dropped. It is unlikely to signal the end of problems for the US however, says Skolnik. "While this is a good step to maintain global trade, I believe that in the US, the effects of this will be ongoing for another year."
As the debate enters its next stage, prices remain high in the US, and customer demands are stretching manufacturers to the limit. " Steel prices in the US continue to be high, and with domestic orders up the steel mills are considering putting customers on allocations," says Skolnik, who believes an aggressive approach for steel importers to re-enter the steel market will ensue. This will force the mills to operate on an allocation basis, and adds "Indeed, the tariff is gone, but the effects still linger," highlighting just how much impact the duties have.
Looking forward to 2004, the company predicts a period of stability for raw materials prices. The main pledge from Skolnik will be to highlight the importance of metal thickness for steel drums. The company has been vocal in its rejection of drums with a wall to wall thickness ratio of 0.8x 0.8x0.8. Contention surrounds the debate of thin drums versus thicker drums, with some drum manufacturers against using thinner drums, for fear they may compromise the safety of the contents. Consideration must also be given to the life cycle of drums with a thinner wall thickness ratio. Drum reconditioners say the recycling process is problematised, as a thinner wall is less likely to withstand the strenuous cleaning process drums undergo.
Skolnik says: "At Skolnik, we believe that the first priority of our containers is to yield safe and incident-free transport of dangerous goods. To this end, we believe that metal wall thickness must be generous, not marginal, to protect a shipment from in-transit damage." Despite mounting pressure from other corners of the industry to decrease costs through the manufacture of thinner drums, Skolnik refuse to submit to such tactics and will undertake to work directly against methods that compromise the integrity of a drum. Skolnik adds, " While drum manufacturers worldwide continue to reduce metal thickness to marginal levels, Skolnik will continue to make our products thicker, heavier and stronger than industry standards."
Greif Europe has concentrated on strengthening the group identity over the past year. In the past, the group has divided Europe into three separate focus areas of Western, Central and Eastern Europe, but now wish to look at Europe as a single business. Trevor Armstrong, Europe manager, says the reason behind the new approach is customer-orientated. "The shift will increase our focus on customer needs and allow us to concentrate more on spreading best practices in our factories," he says. Working closely with customers, the group has also undertaken a review of operations this year in order to save money through waste elimination and "reviewing the total cost of ownership for the goods and services" it supplies.
Demand has been somewhat erratic, says Armstrong, owing to the conflict of interest many drum manufacturers are facing. At present, attractive prices are leading many chemical companies to endorse the use of intermediate bulk containers (IBCs), presenting problems for some drum manufacturers. Armstrong says of the tensions, "Demand continues to grow at a low rate because of the ongoing growth rate of IBCs. These are being sold at very low prices at the moment, reflecting the intense competition between IBC manufacturers." Despite this, the company reports that higher returns occurred last year. However, it points out this was as a result of internal improvements, and not due to volume or margin growth.
The coming year will present yet more challenges for steel drum manufacturers, in Europe especially, as German road taxes loom and present costly implications in an area of Europe where prices are Armstrong says, "already very high". Price will continue to dominate improvement strategies for Greif, who believe reduction can be the only way forward in a climate of slow growth economies and ongoing customer consolidation.
Poised to celebrate its 90th birthday in 2004, Berenfield Containers is hopeful that the erratic US dollar will stabilise next year. Despite 2003 being a year of uncertainty for the US, Berenfield has persevered and raised its profile by becoming a shareholder in the International Packaging Network (IPN). The network is a collective of industrial packaging manufacturers whose members include Blagden and Visypak, dedicated to responding to global packaging procurement and supporting product standardisation. By becoming shareholders, Berenfield can now operate on a global basis in its purchasing and marketing functions.
The weak US dollar has provided a paradoxical climate for trading this year. While a weak home economy can never be helpful, Berenfield report unexpected plus sides to the situation, both on an international and domestic level. Says Len Berenfield, President, "Both the chemical and petroleum industries dominate our customer base, of late, the weaker US dollar has spurred some additional exports of our customers' products, which has helped us commercially." He also adds, "Furthermore, some increase in demand from 2002 levels has been witnessed in the midwest and southeast regions of the US."
Over a barrel
However, the flip side of the increased business comes in the struggle currently being faced to maintain prices. The weak economy has prompted customers to be increasingly aware of their outgoings, demanding cheaper prices. Berenfield says, "While volumes in 2003 were slightly better than 2002, depressed selling prices challenged financial results to keep pace." Berenfield also comments that "In today's harsh economic environment it is pricing that remains of paramount importance." In today's climate, customers hold the trump card, as they request increasingly cheaper prices. Manufacturers are being held to ransom owing to the fact they realise they must submit to the demands of the customer, or risk losing business altogether.
Cheaper prices means manufacturers are forced to look at ways to substitute any losses they make. This can sometimes mean compromising the integrity of the product, Berenfield however, are determined to produce a high-performance drum in difficult circumstances. "We are constantly in search of changes that can yield savings without sacrificing performance," says Berenfield. He adds, "This quest has resulted in some movement to lighter gauge containers as well as fitting specification changes."
Looking forward to the coming year, the company anticipates US Hours of Services legislation to effect costs. Similar to the new UK Working Time Directive, the legislation was introduced this past January 4th, and is aimed at protecting driver working hours. Key alterations to the existing legislation include increase in driver resting time, between shifts from eight hours to ten. However, the legislation increased permitted driving periods from ten to eleven hours, which Berenfield suggests is "likely to cause increased transportation costs for both inbound materials and outbound shipments of drums".