“Capital Spending Report” reveals significant spending increases
January 17, 2011
2011 capital equipment spending could rise significantly, according to a recent survey from FMA Communications, publisher of The FABRICATOR. When compared with 2010 projections, projected plasma arc cutting investment jumped 47 percent, turret punch press investment projections were up 90 percent, and expected welding power source investment increased 70 percent.
C.T. Martin, vice president of DeWys Manufacturing, has an unusual story to share. In December the contract fabricator, based in Marne, Mich., near Grand Rapids, reached the end of two great years. Like many companies riding the economic recovery, the company grew in 2010—but it also grew in 2009. For a job shop in Michigan, of all places, that’s a rare accomplishment.
How did shop managers do it? According to Martin, it boils down to following the money. When work dried up in certain areas, management actively pursued others. For instance, the furniture industry has been good to DeWys during the past year. As part of the stimulus package, the government upgraded office furniture in various facilities across the country. Furniture OEMs and suppliers like DeWys felt the benefits.
The strategy has altered the way DeWys does business, and this includes managers’ decisions on capital equipment purchases. “If we see a piece of equipment that could really make us competitive, we take a serious look,” Martin said. “You sometimes can’t totally justify it on paper, but sometimes it’s necessary if you want to go after that new business.”
Many fabricators are on the hunt for new customers. The recession punched some down for the count, leaving some customers without their long-time suppliers. Now is the time to grab market share, and many may be buying new machines to help them along the way. In fact, according to the “2011 Capital Spending Report” recently released by FMA Communications Inc., the publisher of The FABRICATOR®, the industry’s capital spending could rebound soon in a big way.
FMA Communications sent questionnaires to a random sampling of almost 26,000 subscribers, 403 of which sent in completed surveys during the summer of 2010. It then used an algorithm to turn the raw data into projections for readers working in thousands of facilities across the U.S.
The survey suggests that projected spending for metal fabrication and forming capital equipment this year is just shy of $2 billion—specifically, $1,965,094,119. That’s about 47 percent higher than last year’s projections. It’s also closer to the $2.2 billion fabricators expected to spend in 2008. Only 11 percent said they would decrease spending (see Figure 1). In 2009 more than a quarter of survey respondents said they would reduce their capital equipment spending.
Projections on specific technologies give a good snapshot of industry needs (see Figure 2). According to the figures, the primary cutting process remains as important as ever. If something goes awry with those principal cutting systems, an entire fabrication operation can be starved of parts—and such downtime can be even more detrimental as shops expand their customer bases. That’s why it’s no surprise that the survey shows significant increases in projected spending for all types of sheet metal and plate cutting machines.
According to the survey, projected laser cutting machine investment is expected to increase 18 percent, to $141.3 million. Plasma arc cutting systems could jump 48 percent this year, to $96.5 million. Most significant, turret punch press spending is projected to increase to $85 million, almost double the previous survey’s figure.
The demand for high quality is almost a given these days, but quick lead-time can make a shop stand out from hungry competition, which is why relieving bottlenecks is top of mind for many. In the current capital spending survey, significant spending gains can be found for areas that also may be principal choke points of an operation.
These include those downstream processes. It may take mere seconds to cut or punch out a flat part, but it probably takes much longer to bend and weld. According to the report, projected welding power source spending is more than $213.1 million, a 70 percent increase from the previous survey. In bending, hydraulic press brake spending may increase significantly this year. According to the survey, projected spending is almost $130 million, almost 40 percent more than 2010 projections. New brakes offer simplified setup, which can greatly increase throughput, particularly for job shops that process a great number of small jobs.
With consumer demand waning in 2009, companies shunned any significant inventory. The automotive business struggled, and the housing crisis decreased demand for appliances. This hit the stamping market hard.
But what goes down usually comes up, and according to the report, mechanical stamping press spending is rebounding. It’s projected to be $95 million in 2011, a 67 percent increase over 2010 projections. And though the mechanical press remains stamping’s workhorse, the servo-driven stamping press is gaining ground. Projected spending in the technology is expected to increase 69 percent, to $14.6 million. Granted, servo-press spending remains a small part of the overall stamping market, but the increase is significant all the same.
Breaking spending down by state gives a rough idea of how the manufacturing landscape is changing. The concentration of companies in the Rust Belt remains a dominant force, with 31.8 percent of spending occurring in the upper Midwest: Wisconsin, Michigan, Ohio, Indiana, and Illinois.
But if you rank spending by state, a new perspective emerges. Texas’ projected spending more than doubled from the previous survey, to 12.6 percent of all dollars reported. That’s equal to the projected spending of Illinois plants. Together, Texas and Illinois plants make up a quarter of all projected spending for 2011. That shift in spending may point to the changing manufacturing geography among the lower 48.
Still, manufacturing spending remains concentrated in only a few states. The top 10 states shown in Figure 3 represent most of the capital equipment spending expected this year.
To make it through the credit crunch, many businesses had to have a good handle on cash flow, and fabricators are increasingly using it to buy equipment. More than half of survey respondents plan to acquire new equipment with current cash flow, while just 11.5 percent said they would get a loan. This reflects the fiscal conservatism that abounds in metal manufacturing (see Figure 4). Those that focused on cash flow before and during the recession are now realizing the benefits.
Jeff Cupples knows this all too well. Vice president of engineering and estimating at Cupples’ J&J Co., a contract manufacturer in Jackson, Tenn., Cupples said that the company has purchased 18 machine tools since 2008. And this was at a company that, like most during the recession, experienced revenue challenges. J&J dropped from $30 million to about $22 million in annual revenue in 2009. Since then revenue has rebounded to about $26 million. “[This] year we’re expecting to grow revenues another 5 to 10 percent,” he said, adding that he’s expecting 2011 to be a good year for his agriculture equipment customers. “People have to eat, and [farm] equipment wears out.”
Despite fluctuations in revenue, he said the company has always remained very conservative when it comes to cash. “My father has owned the company since 1966,” Cupples said. “He’s of the old school. You wait, you save, and you buy. You pay your employees, you pay your bills, you pay your taxes, and then reinvest with what you have left over.”
And invest he has. “We’ve spent $2.5 million upgrading equipment and technologies since the beginning of 2008,” he said. “Doing that makes us more competitive in the marketplace.”
That’s really what any company investment is all about. Judging by the spending increases expected this year, competition for market share is sure to get fiercer. The pie is growing gradually; the only question now is: Who will get the bigger pieces?