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PLASTIC PERSPECTIVES
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PLASTIC PERSPECTIVES

At this point in 4Q 2001, we are hearing reports of a drop off in resin sales, the early barometer of shape sales. The consensus is that we are now in the middle of a recession (the "r" word is now being openly spoken), primarily due to the final blow to a weakening global economy dealt by the tragic events of September 11, 2001. Demand for our industry’s products should start to pick up in 1Q 2002, but may not reach 2000 levels until 3Q 2002.

This brings to mind October 1974 – yes 26 years ago! For those of you who were not in our business then or have forgotten, let me recap that scenario. In 1973 OPEC dramatically raised the price of crude oil. This caused a wave of economic disruptions, which resulted in rising prices and inflation in the early 1974. As resin producers tried to cope with rising feed stock costs, price increases began cascading on the market place. With rapidly rising prices, buyers built inventory in order to hedge against the next increase – but demand grew slightly each month. Then in October 1974, demand slowed as the U.S. economy fell into recession. Buyers switched tactics and decided to work off inventories that had been stockpiled. Orders for resin stopped and it took almost a year for orders to normalize. Is history repeating due to the dramatic events of 9/11 coming on top of a slowing economy?

Buyers appear to have stopped during the last two weeks of September, while watching world events on TV. Will they resume buying again as history repeats? The key to the recovery of the world’s economies is still based on crude oil – and natural gas. The part of the equation that is still uncertain is the possible disruption of oil supplies by a terrorist attack on Saudi Arabia – producing 10% of the world’s crude. If that occurs we could have a repeat of 1973-74, which coming on top of the current economic climate, could postpone the recovery into 2002-2003 – a long wait. The prudent action now is to prepare for that eventuality by taking some steps (Do’s and Don’ts) to stimulate sales by instituting effective sales compensation actions such as these:

  • Don’t – Arbitrarily cut costs – it is better to reduce headcount by 10% than it is to maintain the current headcount and reduce each incumbent’s income 10%.
  • Do – Rationalize compensation expense – Make sure you take into consideration who you are paying, instead of just looking at what you’re paying – for sales performance.
  • Don’t – Create inappropriate performance measures - "why should I pay bonus/incentives when the company isn’t making any money?" – because salespeople are motivated by their pay, not by account profitability.
  • Don’t – Shrink in fear – leaving sales alone and focusing on expense reductions leads to reduced customer service.
  • Do – Be creative – recessing economies call for executing some of the good ideas that have been around for awhile and can be the catalyst for long term growth.

Another look at export-import for our industry (according to an SPI reports just released) exports rose in all plastic industry sectors during 2000, and all registered double-digit increases over 1999. Total plastics exports rose 18.5% in 2000, reaching $30.16 billion. Imports (excluding machinery) rose 10.9% to reach $22.87 billion.

Mexico and Canada were the most important trading partners with China, Japan and Germany following.

  • 25.4% of U.S. exports go to Canada; 17.8% to Mexico
  • 44.8% of resin imports came from Canada
  • China and Hong Kong export far more than import
  • Mexico accounted for 33.1% of plastic exports in 2000 and these grew over 100% in 5 years

Opportunities abound in exporting and importing plastic shapes!

For more information, click on the Author Biography link at the top of this page.

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