Manufacturing Outlook January 2021

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MANUFACTURING OUTLOOK PAGE 6

CASS TRANSPORTATION INDEX PAGE 8

MANUFACTURING TIDBITS PAGE 14

MANUFACTURERS’ BEST TOOL FOR 2021: KNOW THE COMPETITION PAGE 18

NORTH AMERICA OUTLOOK PAGES 24

THE CREDIT MANAGER’S INDEX PAGE 30

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AUTOMOTIVE OUTLOOK PAGE 38

DECEMBER ISM PMI: 60.7%

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Publisher LEWIS A WEISS Editor in Chief TIM GRADY Creative Director CRAIG ROVERE Contributing Writers ROYCE LOWE NORBERT ORE CHRIS KUEHL THOMAS R. CUTLER AMELIA ROY JEANNE-MARIE LOWRIE JOCELYN BRIGHT CHRIS ANDERSON MIKE FRANZ LAWRENCE MAKAGON Production Manager LINDA HOPLER Current Circulation 45,200 Advertising ADVERTISE@MFGTALKRADIO.COM Editorial Office JACKET MEDIA CO. 75 LANE ROAD FAIRFIELD, NJ 07004 (973) 808-8300

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TABLE OF CONTENTS

5 PUBLISHER’S STATEMENT A word from our publisher

6 MANUFACTURING OUTLOOK A look at manufacturing around the globe

8 CASS TRANSPORTATION INDEX REPORT

by Cass Transportation Systems

26 SOUTH AMERICA OUTLOOK Brazil in the spotlight

27 ASIA OUTLOOK China, Japan and India

28 EUROZONE OUTLOOK A look at Europe

10 COVER STORY: MANUFACTURING OUTLOOK 2021 ANNUAL MARKET INTELLIGENCE SURVEY

by Thomas R. Cutler

MANUFACTURING TIDBITS

29 GLOBAL PMI OUTLOOK

by Norbert Ore

30

Insights from inside manufacturing in action

THE CREDIT MANAGER’S OUTLOOK

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by Dr. Chris Kuehl

AFFORDABLE PRICE OPTIMIZATION TECHNOLOGY ALLOWS SMALL AND MID-SIZED MANUFACTURERS TO SURVIVE PRICE-CUTTING MANDATES AND SQUEEZED MARGINS

by Mike Franz

18 MANUFACTURERS’ BEST TOOL FOR 2021: KNOW THE COMPETITION

by Thomas R. Cutler

34 METALS OUTLOOK The cost, making and treating of metals

36 AEROSPACE OUTLOOK The aerospace industry

38 ENERGY OUTLOOK

20 ISM MANUFACTURING REPORT ON BUSINESS

24 NORTH AMERICA OUTLOOK Manufacturing in the US, Canada & Mexico

Energy and the environment

40 AUTOMOTIVE OUTLOOK Auto industry news

42 ISSUES OUTLOOK Issues around the globe

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PUBLISHERS STATEMENT Publisher’s Statement

Seemingly, Finally Settled So, it appears that the 2020 Presidential election is over and a Biden administration will begin on January 20, 2021. So, putting the past behind us, what does that new administration mean for manufacturing?

The good news is that the raging political debate of 2020 can fade into the sunset. The uncertainty of Covid still looms large and is clearly sending shockwaves through employment and revenues, but at least there are two vaccines being delivered and several more in the pipeline. Whether or not they will be effective against all variants of the virus is unknown, but manufacturing cannot simply stop making things.

To be clear, manufacturing processes all our food. It produces machines that make everything we sit on, walk on, go into and work with, in every building and home across the world. Things break or become obsolete – manufacturing provides the replacement parts or new models. The water flowing to our homes and businesses flows through pipes and processing equipment that was manufactured. Our heat and air conditioning is from machines designed and made in manufacturing. I could talk about this topic for hours.

While retail is listed in the services sector, everything sold in stores and on the Internet was manufactured. The Internet itself runs via electricity produced by machines, through cables, wires and fiber optics, sending data to computers and wireless devices – and even the ‘wireless’ world transmits and receives signals from components design and manufactured. All our health care is based on devices from needles and tubes to scalpels and diagnostic machines. Every facet of our life, from the invention of the wheel to modern manufacturing is driven by things that were made to make our lives easier, better, more comfortable, or longer.

Anything that adversely impacts manufacturing adversely impacts you. Tariffs on steel and aluminum to prop up the American steel industry raised the price of goods in America. It went largely unnoticed by the consumer because the price of gasoline at the pump dropped to less than half of its 2015 levels, so the pain actually felt or even noticed by the American consumer was negligible. All that may change.

Keep your eyes on the content in Manufacturing Outlook as we present the impact of the next administration’s policies, laws, and regulations. We will be watching all the behind-the-scenes politics to convey to manufacturing what the probable and possible impacts on manufacturing will be coming out of D.C. And as those bills are passed in Washington, there will be effects that have a direct bearing on every American, especially in a time when employment is in flux due to Covid, and automation is forcing manufacturers to rethink the number of people they need or are even allowed to have on site. But Manufacturing Outlook is more than politics.

Even if you don’t work in manufacturing, it touches your life in countless ways. Manufacturing is the engine that drives the economy of the U.S. and other developed nations in this “Industrial Age”. If manufacturing falters or things are foisted upon it, the economy will falter, employment will falter, and everyone’s lives and livelihoods will falter. And despite the encouraging numbers from the measuring sticks of the industry, manufacturing can falter in 2021. Do you want to know about these events before they happen or after?

Forward Looking – Forward Thinking – Manufacturing Outlook! Subscribe and stay with us as we report on the impacts and effects of this bellwether industry, from great stories on tech across manufacturing sectors to ripples or waves that hit the foundation of our economy.

Lewis A. Weiss, Publisher Contact laweiss@mfgtalkradio.com or text “RADIO” to 66866 for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast.

Manufacturing Outlook / January 2021

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MANUFACTURING OUTLOOK

JANUARY 2021

MANUFACTURING OUTLOOK

GLOBAL MANUFACTURING PMI STILL ON THE UP IN DECEMBER. SUPPLY-CHAIN CONCERNS EVERYWHERE. U.S. HOT-ROLLED STEEL COIL BREAKS $1,000 A TON BARRIER. THERE’S A BREXIT DEAL.

by ROYCE LOWE The Bureau of Labor Statistics jobs report for December showed a loss of 140,000 non-farm payroll jobs, versus the 50,000 gain forecast by economists, with the unemployment rate being unchanged from November at 6.7 percent. The major losses were effectively in the hospitality industry, where 498,000 jobs were lost.

There were gains in Transportation and Warehousing (47,000), and Professional and Business Services (161,000). Construction added 51,000 jobs.

Manufacturing gained 38,000 jobs in November, with 7,000 in motor vehicles and parts, and 7,000 in plastic and rubber products. Non-farm employment was below its February level by 9.8 million.

The Bureau of Economic Analysis recently released its ‘third’ estimate for the annual rate of Real GDP growth in the third quarter of 2020, putting it at 33.4 percent.

The figure for the second quarter of 2020 was minus 31.4 percent.

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The ISM PMI figure for U.S. manufacturing rose from 57.5 in November to 60.7 in December. The overall economy returned to an eighth month of expansion. IHS Markit’s remarks on U.S. manufacturing for December show operating conditions improving at the fastest pace since September 2014, with marked expansions in production and new orders. Employment was up at a faster pace in December. All this was accompanied by the most severe supply-chain disruptions recorded, and the sharpest increase in cost burdens since April 2018.

December’s IHS PMI, at 57.1, was up from November’s 56.7.

The substantial deterioration in vendor performance involved supplier shortages and transportation delays in some cases stemming from a lack of available drivers - and COVID-19 travel restrictions. Selling prices were up at the sharpest rate since May 2011.

MANUFACTURING OUTLOOK

GLOBAL STEEL PRODUCTION WAS UP BY 6.6 PERCENT YEAR-OVER-YEAR IN THE MONTH OF NOVEMBER for the 64 reporting countries – which represent 99 percent of world crude steel production – to 158,261 MT. U.S. crude steel production for November was 6.120 MT, down 13.7 percent year-over-year.

Primary Global Aluminum Production in November was reported at 5.471 million tons, with production in China, at 3.174 million tons, representing 58 percent of world total. Production was 478,000 tons in GCC; 344,000 tons in the rest of Asia; 272,000 tons in Western Europe; 327,000 tons in North America and 340,000 tons in Eastern and Central Europe.

Canada produced 0.885 MT of crude steel in November, down 7.2 percent year-over-year. Mexico produced 1.450 MT of crude steel in November, up 1.7 percent yearover-year. Brazil’s crude steel production for the month of November was 2.954 MT, an increase year-over-year of 11.2 percent.

In Asia, CHINA produced 87.660 MT of crude steel in November, up 8.0 percent year-over-year; Japan 7.264 MT, down 5.9 percent year-over-year; India 9.245 MT, up 3.5 percent year-over-year and South Korea 5.760 MT, down 2.4 percent year-over-year. Taiwan produced 1.565 MT in November, down 5.2 percent.

The UK produced 0.702 MT of crude steel in November, up 29.6 percent year-over-year. Crude steel production in Germany in November was at 3.376 MT, up 14.8 percent year-over-year; in Italy 2.049 MT, up 3.2 percent year-over-year; in France 1.149 MT, up 3.7 percent yearover-year, and in Spain 1.133 MT, up 11.2 percent yearover-year.

Russia’s crude steel production for November was at 5.855 MT, up 1.9 percent year-over-year; Ukraine’s was 1.733 MT, up 30.8 percent year-over-year.

The JP MORGAN GLOBAL MANUFACTURING PMI – a composite index produced by JPMorgan and IHS Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – was unchanged from November’s 53.8, a 33-month high. Global manufacturing continued its growth, but there were pressures from supply chains. New orders were up for a sixth successive month and there was a fourth successive monthly increase in new export orders. There was no change in employment from last month.

THE ECONOMIST magazine, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Consumer Prices, and Unemployment Rates for what it considers the world’s major economies.

These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy.

The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The consumer price increases represent year-over-year changes. The unemployment figures, %, are for the month as noted.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook.

Manufacturing Outlook / January 2021

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CASS INDEX OUTLOOK

CASS TRANSPORTATION INDEX REPORT

by CASS INFORMATION SYSTEMS, INC.

The Cass Shipments Index accelerated to 6.7% y/y growth in December 2020, nicely ahead of the 5.5% y/y increase predicted in this month’s ACT Freight Forecast report and accelerating from 2.7% y/y growth in November. The acceleration was partially explained by an easier prior year comparison, as the Cass Shipments Index rose 1.1% m/m from November on a seasonally adjusted (SA) basis. After a small sequential pullback in November, this acceleration brings us closer to the strong growth environment which we expect to continue in 2021. On a two-year stacked basis, the Cass Shipments Index was still 1.8% lower than December 2018, and even as y/y comps are set to accelerate considerably in the coming months, it will likely take some time for volumes to increase on this basis.

Cass Freight Index - Expenditures The Cass Expenditures Index reached a record high in December, accelerating to 13.0% y/y growth from 5.7% y/y growth in November. The acceleration

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was primarily due to higher rates, with the Cass Expenditures Index up 6.8% m/m on a seasonally adjusted basis, relative to the 1.1% increase in the Cass Shipments Index (SA). Freight rate increases continued to accelerate in December, and though spot freight rates had started to decelerate in late 2020, the market gapped higher following the latest round of federal stimulus signed 12/27/20. Though deceleration in spot rates has begun again as of mid-January, it is still safe to say that freight rates will broadly continue to accelerate in the near term.

Freight Rates A simple calculation of the Cass Freight Index® data (expenditures divided by shipments) can give us an “implied freight rates” data set that explains the overall movement in rates. A positive implied freight rate indicates that expenditures grew more than shipments and rates have increased.

Likewise, the opposite is true.

CASS INDEX OUTLOOK

The freight rates embedded in the Cass Freight Indexes accelerated to a 6.0% y/y increase in December from a 3.0% y/y increase in November.

This data series is diversified among all modes, with truckload representing more than half of the dollars, followed by rail, LTL, parcel, and so on. Based in part on spot trends, the acceleration in freight rates is likely to persist in the coming months.

Truckload Linehaul Index The Cass Truckload Linehaul Index® measures market fluctuations in per-mile truckload linehaul rates, independent of additional cost components such as fuel and accessorials. In December, the index accelerated modestly to a 1.1% y/y increase, after the first increase in fifteen months in November with a 0.6% y/y increase. On a m/m basis, the index rose 0.4% in December, following a 1.4% m/m increase in November. Freight rates are gaining steam, as also shown in the implied 6.0% y/y growth rate embedded in the Cass Freight Indexes noted above, and we expect the Cass Truckload Linehaul Index to continue to improve in the coming months.

Freight Expectations The improvement in the Cass Shipments Index is consistent with the generally improving trends in the railroad sector, where intermodal volumes had

a very strong finish to 2020. With low inventory levels at U.S. retailers and a sharp reduction in blank sailings by global containership lines ahead of the 2/12-26 Chinese New Year holiday, the nearterm pipeline of freight still looks quite strong from our perspective.

While near-term risks from the pandemic remain elevated, recently begun vaccinations will reduce these risks in the coming months.

Following the latest stimulus and the Senate outcome which makes more stimulus likely, ACT Research economists have raised our 2021 U.S. GDP growth forecast to 5.1%, following a 3.7% contraction in 2020. And though we expect the recovery to become more service-oriented over time (who else can’t wait to travel?), the slowerthan-expected vaccine rollout and additional stimulus have increased our goods consumption expectations.

The current freight cycle, having started in May/ June 2020, still has several powerful growth tailwinds following a nearly two-year freight downturn. As shown below, rail volumes reached a 10-year low in 2020, though they turned positive in Q4’20 with 2.5% y/y growth. With the Cass Expenditures Index reaching new record highs, the transition from an early-cycle environment to midcycle is underway.

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COVER STORY

MANUFACTURING OUTLOOK 2021 ANNUAL MARKET INTELLIGENCE SURVEY

by TR CUTLER Manufacturing Outlook commissioned an extensive marketing research survey of six hundred (600) manufacturing organizations’ CEOs, CFOs, and CTOs. The survey was conducted from December 16 – 23, 2020 to capture the sentiments, attitudes, and predictions for 2021. The volatility of 2020 required this market intelligence because with COVID, vaccines, political chasms, expectations, and planning for 2021 required statistical validation. Respondents were across a wide section of industry sectors and annual revenues ranged from $2M - $1B. Here is what was learned.

Supply Chain disruptions trigger innovation and localized sourcing for faster time to market While 60% of manufacturers reported experiencing frequent disruptions to operations due to COVID-19, the unprecedented supply chain disruptions triggered innovation and unexpected resiliency. All respondents shared this shift in operational processes will continue throughout 2021. The shift to local production, where possible, was noted by 74% of the C-level executives.

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While few expected the deleterious consequences of threats of ongoing trade wars and tariffs, most noted that manufacturing must move production closer to the customer to achieve faster time to market with less working capital.

COVER STORY Digital transformation the strongest 2021 manufacturing trend Accelerated digital transformation was in the queue before 2020, however the pandemic reinforced that manufacturers relied on access to labor, physical space, and centralized factories. Digital transformation is the logical extension of B2C eCommerce consumers have grown accustomed to while sequestered at home. The ability to drive B2B eCommerce in the same fashion and modality was named a non-negotiable imperative by 100% of the respondents.

100% of C-Level Manufacturing Respondents Named Digital Transformation as the Top 2021 Prediction A recent episode of Manufacturing Talk Radio featured Yoav Kutner, CEO of Oro, Inc. (developers of OroCommerce) who detailed why manufacturers must immediately execute a digital transformation program as part of a lean best-practices methodology.

Increased profits drive this modality as companies can get the full manufacturer’s suggested retail price (MSRP) rather than wholesale prices. Faster time to market eliminates the lengthy traditional retail sales cycle which requires locking in product development far ahead of order and delivery. Manufacturers can rapidly prototype, test, and push products to market, giving them a distinct competitive advantage.

Technology 2021 Technology including sensors, machine learning, computer vision, robotics, cloud computing, edge computing, and 5G network infrastructure will increase supply chain resiliency for manufacturers throughout 2021. Industrial respondents acknowledged the need to expand factory operations and embrace Industry 4.0 technology; they also acknowledged the critical nature of Industrial Internet of Things (IIoT) to ensure supply chain and production resiliency.

To achieve growth targets, manufacturers are investing in areas that will improve productivity and speed responsiveness. Company leaders are prioritizing investments that will make it easier to collaborate with customers and suppliers, gather market intelligence, and streamline customer communication. Topping the list of specific technology investments are quality management and lean manufacturing systems. To better align labor and production capability with daily demand, budgets for demand planning and forecasting systems are equipped with performance dashboards.

Sustainability Sustainability is a fundamental selling feature for manufacturers in 2021. It is not an afterthought or merely a press announcement. There will be new political pressure to demonstrate that sustainability is a manufacturing priority through more efficient factories, creating green jobs, and reducing industrial pollutants.

Acquisitions: the 2021 growth strategy With tradeshows cancelled and most virtual tradeshows poorly received to date, C-level respondents reported a strong likelihood of acquiring competitors as the #1 growth strategy for 2021.

Old selling models and methods are not possible in 2021 and there are plenty of smaller founder/owner manufacturers ready to sell. Those that survived the recession from a dozen years ago are simply unwilling to stomach the turbulent COVID realities.

They want out and have a great asset‌a strong and reliable customer base. While this has been somewhat anecdotal until now, the data from this market intelligence portends well for those manufacturing leaders wishing to both buy competitors to acquire customers and those wishing to sell their operations.

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COVER STORY Two-thirds of manufacturers reported their intention to make acquisitions in 2021. None had completed an acquisition in 2020.

The unpredictability of COVID resulted in a defensive posture by many manufacturers. There was a perceived need to conserve capital while keeping the doors and operation open. This was especially true of small family-owned businesses. Now there is an aggressive approach to 2021 which is as much about customer acquisition as asset and EBITA considerations. A smaller manufacturer with a strong sales book of long-standing customers may prove more valuable than all the equipment and plant floor assets.

Will safety spending increase by more than 50% in 2021 to ensure workers’ safety? Â

2021: Employee safety the top priority Employee safety is the leading trend for manufacturers heading in 2021. Workplace safety has always been a priority for manufacturers, but now takes on new significance due to the pandemic. Beyond the basic safety precautions, manufacturers must enforce social distancing measures on the production floor and ensure workers sanitize workspaces. Manufacturers must closely and carefully monitor who enters and exits facilities and interactions. Survey respondents indicated a significant increase in personnel and spending in facilities maintenance and management.

Most have placed increased emphasis on traceability, which requires manufacturers to reclaim internal equipment data from OEMs.

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Manufacturing Outlook / January 2021

2021: 3D printing arrives Manufacturers depend on 3D printing to support prototyping; it is a highly cost-effective way for product designers to test and troubleshoot new products. It allows manufacturers to produce items on-demand.

3D printing has transformed the expensive and timeconsuming process of tooling. No longer does it take months for manufacturers to create the molds, jigs, and

COVER STORY C-level managers realize that 2021 will require operations to be both lean (cost competitive and efficient) and agile (responsive to market demands).

Survey executives report they surpass competitors in terms of cost structure, delivery times, and decisionmaking.

fixtures necessary for the mass production of heavy equipment. Previously manufacturers depended on the support of tooling companies headquartered overseas.

3D printing enables manufacturers to complete tooling onsite in a few days.

There is great hope and optimism for manufacturing 2021. This enthusiasm is not merely turning the page on the pandemic, but rather a disciplined, rigorous, and determined approach for creating and pursuing dynamic business opportunities.

Innovation: Strategic priority in 2021 Respondents all said that innovation is a 2021 strategic priority. Most indicated that these innovations included shortened product development cycles, better understanding customers’ and market needs, and improving professional labor productivity including creating prototypes more quickly.

Author Profile: Thomas R. Cutler is the President and CEO of Fort Lauderdale, Floridabased, TR Cutler, Inc., celebrating its 21st year. Cutler is the founder of the Manufacturing Media Consortium including more than 8000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement.

Cutler authors more than 1000 feature articles annually regarding the manufacturing sector. More than 4600 industry leaders follow Cutler on Twitter daily at @ThomasRCutler. Contact Cutler at trcutler@ trcutlerinc.com.

Manufacturing Outlook / January 2021

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MANUFACTURING TIDBITS

AFFORDABLE PRICE OPTIMIZATION TECHNOLOGY ALLOWS SMALL AND MID-SIZED MANUFACTURERS TO SURVIVE PRICECUTTING MANDATES AND SQUEEZED MARGINS

by Mike Franz

The manufacturing industry drives innovation in America. It is the birthplace of products and processes that make the world a better place.

ManufacturingPower uses lean manufacturing principles by eliminating waste around industrial supply spend with market comparison and analysis.

Based in lean principles there is an on-demand implementation process driving an immediate ROI and elimination of waste.

Unsurprisingly, there has been a shift in manufacturing business processes in practically every American industrial setting. The lean thinking paradigm now includes purchasing and supply chain functions.

Price optimization technology for large manufacturing operations costs from $120K - $1.5M per year.

For multi-location, global, and publicly traded companies this is an expense easily cost-justified. A

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small 1% in margin preservation is worth thousands of times the expense of price optimization technology.

That said, this price tag is too expensive for most of the 89% of small to mid-sized U.S. manufacturers with fewer than 50 employees. 2021 introduces a new affordable solution which provides access to pricing optimization with the ability to evaluate systematically. This new technology solution is priced at less than $5,000 per year.

With access to unlimited “Part Number Matches� per year, even the smallest manufacturers realize significant savings, capture lost margin, and view costs versus peer market pricing. Insight to suppliers with the lowest costs, viewing potential savings, and tracking year-to-date savings that prove the efficacy of these new technologies.

MANUFACTURING TIDBITS PowerPotential Report: Step One ManufacturingPower suggests that small manufacturers start with a free PowerPotential Report which includes easy data uploads, CSV and XLS file formatting, and insight into top six savings opportunities. Within 24 hours, this powerful data demonstrates where even the smallest manufacturers can start realizing significant savings with access and transparency to data.

Currently, manufacturers are spending far more than needed on tooling, fasteners, clean room supplies, packaging, and any line item in the supply chain. Originally, this cloud-based low-cost solution started as a software tool allowing manufacturers to anonymously share data and compare pricing.

Through a network of data, this proprietary method saves manufacturing enterprises across their total industrial supply spend.

2021 still has tariff ambiguity in the market.

Manufacturers, relying on forward-looking predictive models to set prices, are able to identify and reduce wasteful pricing processes while reducing over-discounting. Poor pricing methods effectively transfer the incremental profits from lean activities away from the company and into the pockets of customers.

Now that there is an affordable pricing optimization solution for small and midsized manufacturers applying lean principles to pricing process is immediately accessible.

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MANUFACTURING TIDBITS Lower cost materials available Instead of simply ordering from Grainger or other distributors out of habit, it would be nice to know if the price offered is the best price or even at market price by geo-location! The data are collected and shared by ManufacturingPower daily.

Products can be manufactured utilizing a variety of different materials, depending on marketplace requirements and the practices of the manufacturers.

When considering a change in the materials used, the manufacturing method may be impacted by increasing cycle times or labor costs. Changing the composition of a product may be worthwhile, even when the material costs are higher due to a simplified production process.

To continually order from the same vendors and suppliers without a price comparison is simply not effective. Larger manufacturers may be able to absorb a 2% margin loss; this kind of loss could shut the doors of a smaller manufacturer.

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Manufacturing Outlook / January 2021

Technology is constantly improving; prices move up and down due to market fluctuation as well as supply and demand constraints.

Surviving the margin squeeze Small and midsize manufacturers report the biggest 2021 challenges are price-cut mandates and online reverse auctions which compromise quality and endanger the business. Supporters of the practices say the strongest suppliers will survive, making supply chains more efficient.

When operating margins are already thin, a rigorous and continuous process improvement mandates on-going SKU pricing evaluations for every element in the manufacturing operation.

Author Profile:

Mike Franz is the founder and creator of the WorkCenter from ManufacturingPower, a cloudbased market intelligence solution designed to help small to mid-sized companies streamline and achieve real-time visibility into Industrial Supply spend, collaborate better with suppliers, mitigate risk, and realize significant cost savings.

MANUFACTURING TIDBITS

MANUFACTURERS’ BEST TOOL FOR 2021:

KNOW THE COMPETITION

by T.R. CUTLER

Too often manufacturers have their head in the sand, ignoring declining sales, customer acquisition costs, and the truth about the causal implication.

Too often the competition is taking away customers or simply bad-mouthing a manufacturer’s operation. Ignorance about the competition is inexcusable. The ability to compete and win business requires manufacturers to pay attention, be aware, and engage in competitive knowledge gathering.

Step 1: Know the competition Every manufacturing sales team knows the competition from whom business has been lost.

Start there. Setting up models to track and monitor

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the known competitors is vital. This can be done by using a simple Google Alert to see what they are posting. Knowing how these competitors are branding, messaging, and marketing will help to overcome objections and create differentiated value propositions.

Step 2: Explicitly define deficiencies of the competition It is not enough to simply say, “We are the best.”

The marketing research (often by a third party) can reveal if the clients of competitors are dissatisfied, representing a sales opportunity. Manufacturers wishing to grow their sales book while diminishing the scope of the competition is optimal. Rarely is

MANUFACTURING TIDBITS As a journalist it amazes me how easily manufacturers share their perceptions of vendors far more freely than might be expected. Asking directly, “What do you think about company A or company B” creates an open-ended opportunity to capture issues and concerns about products, delivery times, and personnel.

there a need to publicly excoriate the competition; simply emphasizing the features, advantages, and benefits of a manufacturing company versus the competition will suffice. This can be done as a series of three press releases a week or monthly feature articles within leading industry trade publications.

Step 3: Define the customer profile versus the competition Perhaps the product being manufactured is similar, yet the target customer is different by title or function. If there is a QA/QC functionality for example, it will require using nomenclature which resonates for this audience. Terminology such as Zero-defects, Lean Six Sigma, Overall Equipment Effectiveness, and regulatory compliance will shorten the sales cycle by demonstrating an understanding of the quality paradigm.

Sometimes products which may have horizontal multi-industry applications need to be described to the customer demonstrating an understanding of their industry sector. Machinery used in a food manufacturing plant (such as a conveyor) must be explained for this target audience.

Step 4: Marketing intelligence Put marketing intelligence into the budget.

Whether professionally conducted marketing research surveys of target customers, existing customers, or perception of the competition, manufacturers cannot fly blindly unaware of customer perceptions. Looking at lost sales in 2020, proposals which did not close, offers insights to what “could have been” a better year in sales.

Market intelligence is the information relevant to a company’s market trends. Competitor and customer (existing, lost, and targeted) monitoring must be gathered and analyzed specifically for the purpose of accurate and confident decision-making in determining strategy.

Market intelligence includes the process of gathering data from the company’s external environment such as online sources - news websites, company websites, secondary data sources, and social media. These data are different from business intelligence processes primarily based on internal recorded events – such as sales, shipments, and purchases. The purpose of incorporating market Information or intelligence into the Business Intelligence (BI) process is to provide decision-makers with a more “complete picture” of ongoing corporate performance in a set of given market conditions.

If just one sale is recovered in 2021 or one fewer sale is lost, the price tag ($15K - $30K per year) of marketing intelligence is well worth the money, time, and information.

Author Profile: Thomas R. Cutler is the President and CEO of Fort Lauderdale, Floridabased, TR Cutler, Inc., celebrating its 21st year. Cutler is the founder of the Manufacturing Media Consortium including more than 8000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement.

Cutler authors more than 1000 feature articles annually regarding the manufacturing sector. More than 4600 industry leaders follow Cutler on Twitter daily at @ThomasRCutler. Contact Cutler at trcutler@ trcutlerinc.com.

Manufacturing Outlook / January 2021

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ISM REPORT OUTLOOK

THE INSTITUTE FOR SUPPLY MANAGEMENT’S MANUFACTURING REPORT ON ® BUSINESS

BREAKING NEWS

ISM PMI at 60.7% for December ISM PMI for the past 5 years

DECEMBER 2020 60.7%

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ISM REPORT OUTLOOK

INSTITUTE FOR SUPPLY MANAGEMENT®

Analysis by

reportonbusiness Economic activity in the manufacturing sector grew in December, with the overall economy notching an eighth consecutive month of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The December Manufacturing PMI® registered 60.7 percent. The New Orders Index registered 67.9 percent, up 2.8 percentage points from the November reading of 65.1 percent. The Production Index registered 64.8 percent, an increase of 4 percentage points compared to the November reading of 60.8 percent. The Backlog of Orders Index registered 59.1 percent, 2.2 percentage points higher compared to the November reading of 56.9 percent. The Employment Index returned to expansion territory at 51.5 percent, 3.1 percentage points higher from the November reading of 48.4 percent. The Supplier Deliveries Index registered 67.6 percent, up 5.9 percentage points from the November figure of 61.7 percent.

The Prices Index registered 77.6 percent, up 12.2 percentage points compared to the November reading of 65.4 percent. Of the 18 manufacturing industries, 16 reported growth in December, in the following order: Apparel, Leather & Allied Products; Furniture & Related Products; Wood Products; Fabricated Metal Products; Machinery; Computer & Electronic Products; Transportation Equipment; Plastics & Rubber Products; Paper Products; Chemical Products; Petroleum & Coal Products; Primary Metals; Textile Mills; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing‡. ISM ‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

12

ISMWORLD.ORG

Timothy R. Fiore, CPSM, C.P.M.,

Chair of the Institute for Supply Management® Manufacturing Business Survey Committee

MANUFACTURING

PMI at 60.7% ®

PMI

Manufacturing grew in December, as the 2018 2019 2020 60.7% Manufacturing PMI® registered 60.7 percent, 3.2 percentage points higher than the November reading of 57.5 percent. The Manufacturing PMI® signaled a continued 50% = Manufacturing Economy rebuilding of economic activity in December, Breakeven Line 42.8% = Overall Economy with four of five contributing subindexes in Breakeven Line strong growth territory. All six of the biggest manufacturing industries — Fabricated Metal Products; Computer & Electronic Products; Transportation Equipment; Chemical Products; Petroleum & Coal Products; and Food, Beverage & Tobacco Products — expanded. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Manufacturing at a Glance INDEX

Dec Index

Nov Index

% Point Change

Direction

Rate of Change

Trend* (months)

Manufacturing PMI®

60.7

57.5

+3.2

Growing

Faster

7

New Orders

67.9

65.1

+2.8

Growing

Faster

7

Production

64.8

60.8

+4.0

Growing

Faster

7

Employment

51.5

48.4

+3.1

Growing

From Contracting

1

Supplier Deliveries

67.6

61.7

+5.9

Slowing

Faster

14

Inventories

51.6

51.2

+0.4

Growing

Faster

3

Customers’ Inventories

37.9

36.3

+1.6

Too Low

Slower

51 7

Prices

77.6

65.4

+12.2

Increasing

Faster

Backlog of Orders

59.1

56.9

+2.2

Growing

Faster

6

New Export Orders

57.5

57.8

-0.3

Growing

Slower

6

Imports

54.6

55.1

-0.5

Growing

Slower

6

Overall Economy

Growing

Faster

8

Manufacturing Sector

Growing

Faster

7

*Number of months moving in current direction.

Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.

Commodities Reported

Note: The number of consecutive months the commodity is listed is indicated after each item.

Commodities Up in Price: Aluminum (7); Aluminum Products (3); Brass Products (2); Copper (7); Corrugate (3); Corrugate Boxes (2); Crude Oil; Electrical Components; Electronic Components; Freight (2); Isocyanates; Labor — Temporary; Linerboard; Lumber (6); Ocean Freight; Oil-Base Lubricants; Packaging Supplies; Paper Products; Personal Protective Equipment (PPE) — Gloves; Phosphates; Plastic Resins (4); Polyethylene Resins (3); Polyurethane; Polypropylene (6); Polyvinyl Chloride (3); Solvents; Soybean Products (3); Steel (5); Steel — High Carbon; Steel — Cold Rolled (4); Steel — Hot Rolled (4); Steel Products (4); Steel — Scrap; Steel — Stainless (2); and Wood — Pallets. Commodities Down in Price: None.

Commodities in Short Supply: Aluminum; Aluminum Cans; Corrugate Boxes (2); Electrical Components (3); Electronic Components; Personal Protective Equipment (PPE) — Gloves (10); PPE — Masks (2); Semiconductors; Steel; Steel — Galvanized; and Steel — Hot Rolled (2).

Manufacturing Outlook / January 2021

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ISM REPORT OUTLOOK

ISM Report On Business ®

®

Manufacturing PMI® New Orders (Manufacturing) 2018

2019

December 2020 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

20

New Orders

2020

67.9%

ISM’s New Orders Index registered 67.9 percent. Of the 18 manufacturing industries, the 13 that reported growth in new orders in December — in the following order — are: Apparel, Leather & Allied Products; Wood Products; Furniture & Related Products; Petroleum & Coal Products; Machinery; Computer & Electronic Products; Fabricated Metal Products; Transportation Equipment; Plastics & Rubber Products; Primary Metals; Chemical Products; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products.

52.5% = Census Bureau Mfg. Breakeven Line

Production (Manufacturing) 2018

2019

Production

2020

64.8% 70

51.7% = Federal Reserve Board Industrial Production Breakeven Line

The Production Index registered 64.8 percent. The 13 industries reporting growth in production during the month of December — listed in order — are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Wood Products; Furniture & Related Products; Fabricated Metal Products; Primary Metals; Computer & Electronic Products; Plastics & Rubber Products; Petroleum & Coal Products; Machinery; Transportation Equipment; Electrical Equipment, Appliances & Components; and Chemical Products.

Employment (Manufacturing) 2018

2019

Employment

2020

ISM’s Employment Index registered 51.5 percent. Of the 18 manufacturing industries, the eight industries to report employment growth in December — in the following order — are: Apparel, Leather & Allied Products; Furniture & Related Products; Primary Metals; Miscellaneous Manufacturing‡; Fabricated Metal Products; Computer & Electronic Products; Chemical Products; and Machinery.

51.5%

50.8% = B.L.S. Mfg. Employment Breakeven Line

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Supplier Deliveries (Manufacturing) 53.1% 2018

2019

2020 80

67.6%

Supplier Deliveries The delivery performance of suppliers to manufacturing organizations was slower in December, as the Supplier Deliveries Index registered 67.6 percent. Sixteen industries reported slower supplier deliveries in December, listed in the following order: Fabricated Metal Products; Paper Products; Plastics & Rubber Products; Printing & Related Support Activities; Furniture & Related Products; Textile Mills; Electrical Equipment, Appliances & Components; Machinery; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing‡; Chemical Products; Transportation Equipment; Wood Products; Computer & Electronic Products; Nonmetallic Mineral Products; and Primary Metals.

Inventories (Manufacturing) 2018

2019

Inventories

2020

51.6% 44.3% = B.E.A. Overall Mfg. Inventories Breakeven Line

‡Miscellaneous

Manufacturing (products such as medical equipment and

supplies, jewelry, sporting goods, toys and office supplies).

22

Manufacturing Outlook / January 2021

The Inventories Index registered 51.6 percent. The eight industries reporting higher inventories in December — listed in order — are: Apparel, Leather & Allied Products; Wood Products; Textile Mills; Paper Products; Machinery; Chemical Products; Fabricated Metal Products; and Transportation Equipment.

ISM REPORT OUTLOOK

ISM Report On Business ®

®

Manufacturing PMI®

December 2020 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

Customer Inventories (Manufacturing) 2018

2019

Customers’ Inventories

2020

ISM’s Customers’ Inventories Index registered 37.9 percent. Of the 18 industries, the only one reporting higher customers’ inventories in December is Printing & Related Support Activities.

37.9%

Prices (Manufacturing) 2018

2019

Prices

2020

77.6%

52.5% = B.L.S. Producer Prices Index for Intermediate Materials Breakeven Line

Backlog of Orders (Manufacturing) 2018

2019

The ISM Prices Index registered 77.6 percent. All 18 industries reported paying increased prices for raw materials in December, in the following order: Apparel, Leather & Allied Products; Petroleum & Coal Products; Wood Products; Paper Products; Fabricated Metal Products; Furniture & Related Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Machinery; Printing & Related Support Activities; Miscellaneous Manufacturing‡; Chemical Products; Transportation Equipment; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; and Textile Mills.

Backlog of Orders

2020

59.1%

ISM’s Backlog of Orders Index registered 59.1 percent. The 12 industries reporting growth in order backlogs in December, in the following order, are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Wood Products; Primary Metals; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Machinery; Furniture & Related Products; Transportation Equipment; Chemical Products; Computer & Electronic Products; and Plastics & Rubber Products.

New Export Orders (Manufacturing) 2018

2019

New Export Orders

2020

57.5%

ISM’s New Export Orders Index registered 57.5 percent. The nine industries reporting growth in new export orders in December — in the following order — are: Wood Products; Electrical Equipment, Appliances & Components; Machinery; Fabricated Metal Products; Chemical Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Primary Metals; and Transportation Equipment.

Imports (Manufacturing) 2018

2019

2020

54.6%

‡Miscellaneous

Imports ISM’s Imports Index registered 54.6 percent. The 12 industries reporting growth in imports in December — in the following order — are: Wood Products; Printing & Related Support Activities; Paper Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Machinery; Primary Metals; Miscellaneous Manufacturing‡; Plastics & Rubber Products; Computer & Electronic Products; Chemical Products; and Food, Beverage & Tobacco Products.

Manufacturing (products such as medical equipment and

supplies, jewelry, sporting goods, toys and office supplies).

Manufacturing Outlook / January 2021

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NORTH AMERICAN OUTLOOK

JANUARY 2021

NORTH AMERICAN OUTLOOK

by AMELIA ROY

The Institute of Supply Management PMI figure rose from 57.5 in November to 60.7 in December.

New orders, production and employment are growing; supplier deliveries are slowing at a faster rate; backlogs are growing; raw materials inventories are growing; customer inventories are too low; prices are increasing, and exports and imports are growing.

Of the 18 manufacturing industries, 16 reported growth in December, in the following order: Apparel, Leather & Allied Products; Furniture & Related Products; Wood Products; Fabricated Metal Products; Machinery; Computer & Electronic Products; Transportation Equipment; Plastics & Rubber Products; Paper Products; Chemical Products; Petroleum & Coal Products; Primary Metals; Textile Mills; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing. The two industries reporting contraction in December are: Printing & Related Support Activities; and Nonmetallic Mineral Products.

All six of the biggest manufacturing industries, Fabricated Metal Products; Chemical Products;

24

Manufacturing Outlook / January 2021

Computer & Electronic Products; Transportation Equipment; Petroleum & Coal Products and Food, Beverage & Tobacco Products registered moderate to strong growth in December.

Comments from the industry are generally very optimistic, but there is still concern regarding the Covid-19 pandemic, and its effect on labor and the general supply-chain.

Commodities Up in Price Aluminum (7); Aluminum Products (3); Brass Products (2); Copper (7); Corrugate (3); Corrugate Boxes (2); Crude Oil; Electrical Components; Electronic Components; Freight (2); Isocyanates; Labor — Temporary; Linerboard; Lumber (6); Ocean Freight; Oil-Base Lubricants; Packaging Supplies; Paper Products; Personal Protective Equipment (PPE) — Gloves; Phosphates; Plastic Resins (4); Polyethylene Resins (3); Polyurethane; Polypropylene (6); Polyvinyl Chloride (3); Solvents; Soybean Products (3); Steel (5); Steel — High Carbon; Steel — Cold Rolled (4); Steel — Hot Rolled (4); Steel Products (4); Steel — Scrap; Steel — Stainless (2); and Wood — Pallets.

NORTH AMERICAN OUTLOOK Commodities Down in Price None Commodities in Short Supply Aluminum; Aluminum Cans; Corrugate Boxes (2); Electrical Components (3); Electronic Components; Personal Protective Equipment (PPE) — Gloves (10); PPE — Masks (2); Semiconductors; Steel; Steel — Galvanized; and Steel — Hot Rolled (2).

Note: The number of consecutive months the commodity is listed is indicated after each item.

U.S. LIGHT VEHICLE SALES U.S. light vehicle sales for the fourth quarter of 2020 were off by 7 percent, at 4,003,763 year-overyear.

CANADA saw production and new orders - both domestic and export - up sharply in December, and the steepest rate of job creation since November 2018. Suppliers delivery times lengthened markedly. In fact, Canadian manufacturers saw a survey-record overall business improvement in December (since 2010), and there is optimism regarding 2021. Input and output price inflation hit 26-month highs in December. The December PMI was at 57.9, up from November’s 55.8. Canadian light vehicle sales for the year 2020 were at 1.54 million, down 19.7 percent year-over-year.

MEXICO continues to suffer from the pandemic.

Operating conditions worsened to a greater extent in December as reductions in production and employment accelerated. The PMI fell to 42.4 in December from 43.7 in November. There is nothing good to report except, strangely, increased optimism.

Amelia Roy, Staff Writer

Manufacturing Outlook / January 2021

25

SOUTH AMERICAN OUTLOOK

GLOBAL OUTLOOK

SOUTH AMERICA

by JEANNE-MARIE LOWRIE

BRAZIL saw continuing growth in new orders and production The PMI slipped from 64.0 in November to 61.5 in December, but there was still sharp growth.

Employment was up at a slower but marked pace. Raw materials were scarce, along with a steep deterioration in supplier performance. There were good orders, both domestic and export.

Jeanne-Marie Lowrie, Staff Writer

26

Manufacturing Outlook / January 2021

ASIA OUTLOOK

GLOBAL OUTLOOK

ASIA OUTLOOK

by CHRIS ANDERSON

CHINESE manufacturers saw a continuing improvement, but at the lowest rate in three months. There were slower, still good expansions of production and new orders, with a modest improvement in export sales. Manufacturers noted a strong, sustained increase in new orders that led to further pressure on operating capacities.

Manufacturers also noted a sharp and accelerated increase in average raw material input costs in December, particularly for metals. The December PMI fell from November’s 54.9 to 53.0. The business outlook for the next 12 months is positive.

Chinese vehicle sales, including trucks and buses, were up 12.6 percent year-over-year, in November to 2.77 million units, according to the Chinese Association of Automobile manufacturers. Sales for the first 11 months are just 2.9 percent down on year-earlier figures, at 22.47 million units. NEVs, electric and plug-in hybrids, increased by 105 percent to 200,000 units in November. Cumulative sales for the year are up 3.9 percent at 1.109 million units.

JAPAN’s manufacturing sector ended 2020 with stabilized manufacturing conditions, following

19 months of decline. Production volumes were unchanged for the first time in two years. Stability encouraged hiring for the first time in 10 months.

The PMI went from 49 in November to 50 in December. Business optimism is down due to the pandemic’s lingering impact, but there was evidence of improving conditions, particularly in the automotive sector. Raw material prices are up, with some of the increase reflected in selling prices.

INDIA saw further continuing expansion in production and new orders at the end of 2020.

The manufacturing PMI rose very slightly from November’s 56.3 to 56.4 in December. Production growth eased to a four-month low, but was still strong; new orders rose for a fifth consecutive month.

Stock purchases expanded to the greatest extent in nearly a decade, but raw material scarcity at suppliers caused delivery delays and the fastest increase in input costs for over two years.

Chris Anderson, Employment fell, for the ninth Staff Writer consecutive month.

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Manufacturing Outlook / January 2021

27

EUROZONE OUTLOOK

GLOBAL OUTLOOK

EUROZONE

by CHRIS ANDERSON

IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI), rose from 53.8 in November to 55.2 in December, amid accelerated manufacturing growth, and strong increases in production and new orders. There were supply side shortages leading to delivery delays and price hikes.

New export rose significantly, greater than November, particularly out of Germany and the Netherlands. Backlogs were up for the fifth month.

There were general cuts in employment.

The intermediate and investment goods sectors continued to expand at strong monthly rates, but in contrast consumer goods producers registered only a modest improvement. Business confidence was at its best in almost three years.

28

Manufacturing Outlook / January 2021

Passenger car registrations in Western Europe were down 12.3 percent year-over-year in November.

The forecast for sales in Western Europe for the year 2020 is 10.58 million units, versus 14.29 million units sold in 2019. The sales forecast for 2021 is 12.45 million units.

IHS Markit’s PMI for the UK was up from 55.6 in November to 57.5 in December, a 37-month high.

Clients were bringing forward orders to beat the end of the Brexit transition period. The ongoing stimulus from re-opening of the global economy boosted an inflow of new orders and hence pushed production higher. Simultaneously, port delays and other logistical disruptions meant supply-chain delays lengthened to one of the greatest extents in survey history.

The PMI value is mainly a reflection of the marked lengthening of suppliers’ delivery times and the subsequent increase in stocks of purchases. There were job cuts for the 11th consecutive month. Raw material shortages, port delays, freight issues (land, sea, air) and Chris Anderson, Brexit concerns all contributed Staff Writer to supply-chain disruptions.

GLOBAL PMI OUTLOOK

GLOBAL PMI OUTLOOK

by NORBERT ORE, DIRECTOR, HEAD OF INDUSTRIAL SURVEYS, STRATEGAS RESEARCH PARTNERS The global recovery continues as the major industrial economies have bounced back to pre-COVID-19 levels. But this is not without challenges. On the positive side, 11 of the 18 PMIs that we follow, printed above 55 and are strengthening. Therefore, the carryover from this report should be a good indicator that the first half of 2021 will continue to see positive economic activity.

The leaders in manufacturing in December were Brazil (61.5, -2.4), Taiwan (61.3, +0.1), and the U.S. (60.7, +3.2). December’s results strongly suggest global economies are poised for growth well into 2021. Mexico (42.4, -1.3) is the only manufacturing economy in contraction as it has soft demand, fewer employment opportunities, and the virus which has resulted in 14 consecutive months of PMI decline.

It appears that global manufacturing has survived the COVID-19 generated collapse in demand during the February to May period. The sector continues above average growth stimulated by new orders and production which have both remained above the 60-mark monthly for the July to December period.

The December PMI® (60.7, +3.2) supports a rapidly growing U.S. manufacturing sector. New Orders (67.9, 2.8), Production (64.8, 4.0), and Supplier Deliveries (67.6, +5.9) made major contributions to the continuing rapid acceleration. The past relationship between the PMI® and the overall economy indicates that the PMI®for December(60.7) corresponds to 5.2-percent annualized GDP growth, according to the press release.

Drivers: New Orders, Production, and Supplier Deliveries provided the aggressive expansion in December. Inventories (51.6, +0.4) indicates accumulation in support of higher output levels is starting to take place. Employment (51.5, +3.1) on a national level is still lagging. Domestically it appears that the decline in blue collar jobs has slowed while white collar has yet to hit bottom.

Norbert Ore, Director, Head Of Industrial Surveys, Strategas Research Partners

Manufacturing Outlook / January 2021

29

CREDIT MANAGER’S OUTLOOK

CREDIT MANAGERS’ OUTLOOK

by DR. CHRISTOPHER KUEHL MANAGING DIRECTOR OF ARMADA CORPORATE INTELLIGENCE THIS REPORT REPRINTED COURTESY OF THE NATIONAL ASSOCIATION OF CREDIT MANAGERS (NACM.ORG) WHERE MORE IN-DEPTH INFORMATION CAN BE FOUND.

Combined Sectors Astounding as it may appear, the economy may have reached a stage of some stability. At least that is what the latest Credit Managers’ Index seems to be suggesting. But that indication is not the only one that seems to be pointing to a little less gyration.

This has been a spectacularly difficult year to forecast and anticipate as the data has been swinging wildly. The utter collapse that followed the pandemic-inspired shutdown led to several months of artificial rebound. The economy behaved like a spring that was pushed down and then released. Neither the down state nor the rebound was accurate. It now appears that the movement has slowed and what we are seeing now could be considered normal or at least some version of normal. This is not to say that there has been an end to the economic crisis. Unemployment remains very high; thousands of businesses have been forced to shut down and many others are hanging on by a thread. The data from the latest CMI makes that abundantly clear but for the first time in almost a year there is some reason to expect the future to look a little brighter.

The combined score for the CMI changed very little from its position last month – going from 57.9 to 57.8 and this is just slightly off from the 58.4 reached in October. The last three months have been the high points for the past couple of years. The index of favorable factors improved over November’s reading with a 65.7 as compared to 64.4. Again, the high point was in October when the reading stood at 68.0. The index of unfavorable factors went the other direction with a slight decline from 53.5 to 52.5. This is really the story of the economy at the

30

Manufacturing Outlook / January 2021

end of 2020 in a nutshell. There was a definite surge in activity at the start of the holiday spending season but the arrival of the second wave of the virus prompted more shutdowns and a receding pace of economic expansion.

The sub-sector readings told that story even more clearly. The sales numbers have been climbing and at 70.2 they have almost returned to the levels seen in October. The consumer responded to the sales and discounts on offer and the business community also found a reason to invest and spend. The new credit applications data also improved over last month, moving from 63.9 to 64.4. The dollar collections data stayed very stable at 62.8 – just slightly above the 62.8 in November. The last of the favorable readings also trended back towards the levels se in October with a reading of 65.3 compared to 64.8 in November (and 68.0 in October).

There was more activity and more of a retreat in the unfavorable categories. The rejections of credit applications remained very similar to the month prior with a reading of 51.3 as compared to 51.5. There was a much more pronounced change as far as accounts out for collection as this reading had been 56.2 in November and has fallen back to 51.6. This is a reversal to be sure but the data remains above the 50 line and therefore in expansion territory. There are more than a few indications that businesses remain fragile and the imposition of new restrictions pushed more over the edge. The disputes reading actually improved from November as it went from 50.6 to 51.2. There was a slight dip as far as the dollar amount beyond terms reading is concerned – moving from 58.1 to 57.0 but these are still very solid numbers and

CREDIT MANAGER’S OUTLOOK

Manufacturing Outlook / January 2021

31

CREDIT MANAGER’S OUTLOOK well into the expansion zone. The dollar amount of customer deductions showed very little change at all – moving from 51.7 to 51.5. The data regarding filings for bankruptcies showed a decline from 53.0 to 52.5 but these numbers are still firmly in the expansion zone. Despite some weakening of the data in the unfavorable category all the readings are in expansion territory and that makes two months in a row for this kind of positive data. The favorables are all in the 60s this month as well and that points in a positive direction going into the first quarter.

Manufacturing Sector Manufacturing has been all over the place as one would expect. There have been sectors that have done quite well through this economic crisis while others have been damaged – it has all depended on what sector of the market has been the focus. Automotive has done pretty well while the aerospace sector has suffered an abrupt drop in December 2020 demand. Export centric manufacturing has taken a hit while domestic focus has paid off with consumers buying everything from appliances to lawn equipment. In general, the data has been promising and fairly consistent.

The combined score for the sector is very close to

32

Manufacturing Outlook / January 2021

what was noted in November – moving from 58.6 to 58.4. The index of favorable factors shifted up to levels beyond October’s reading. It now stands at 68.5 and was at 64.3 (67.9 in October). The index of unfavorable factors slipped a bit with a reading of 51.7 compared to the 54.8 noted in November.

The variety in the sub-sectors has been illustrative.

The sales numbers nearly recovered to where they were in October with a reading of 71.1 (October clocked in at 75.3 and November fell back to 69.9). The new credit applications jumped into the 70s with a reading of 70.2 after hitting 62.4 in November. This surge in credit applications seems to match some of the data regarding capital investment and capacity utilization. It has been a year of restrained investment and now some of that money may be shaking loose. The dollar collections data also improved with a reading of 65.9 compared to 62.3 in November. There was also positive movement as far as the amount of credit extended. It was at 62.6 and shifted to 66.8 this month – another sign that credit is being sought by some pretty large companies.

CREDIT MANAGER’S OUTLOOK

The movement in the unfavorable categories showed a little more stress. The rejections of credit applications slipped a bit from 52.5 to 51.3 but remained in expansion territory and that is a good sign given the increase in applications. The accounts placed for collection dropped drastically and that is a more distressing sign. It was reading at 63.0 but this month it fell back to 51.4 which is where it was in October.

There is a deep split between the businesses that have been weathering all this and those that have been affected by the shutdowns and that shows up in terms of collection. The disputes numbers climbed out of the contraction zone with a reading of 50.7 as contrasted with the 49.8 registered last month. The dollar amount beyond terms fell a little from 58.9 to 53.5 but is still in the expansion zone.

The companies that starting to fall behind in their obligations will need to be watched carefully going forward. The dollar amount of customer deductions also fell and that reading is very close to the 50 line with a reading that moved from 51.0 to 50.6. The filings for bankruptcies data also slipped a bit from 53.7 to 52.8. All of these reductions merit some further examination but the good news for the moment is all of the categories are in the expansion zone again after seeing a little decline in November.

October’s numbers are still better overall but December bounced back a bit. The real drag on the month has been accounts for collection.

Author profile

Dr. Christopher Kuehl (PhD) is a Managing Director of Armada Corporate Intelligence and one of the co-founders of the company in 1999. He has been Armada’s economic analyst and has worked with a wide variety of private clients and professional associations in the last ten years. He is the Chief Economist for the National Association for Credit Management and is on the Board of Advisors for their global division – Finance, Credit and International Business. He prepares NACM’s monthly Credit Managers Index. He is the Economic Analyst for the Fabricators and Manufacturers Association and writes their bi-weekly publication, Fabrinomics, which details the impact of economic trends on the manufacturer.

Chris is the chief editor for the Business Intelligence Briefs, distributed all over the world by business organizations and he is one of the primary writers (with Keith Prather) for the Executive Intelligence Briefs. He also makes close to a hundred presentations each year to business and industry associations in the US and overseas. He is on the Board of the Business Information Industry Association in Hong Kong and serves as a resource for the media and for many trade publications.

Chris has a doctorate in Political Economics and advanced degrees in Soviet Studies and Asian Studies and was a professor of international economics and finance for over 15 years prior to starting Armada.

TO READ THE COMPLETE REPORT CLICK HERE OR VISIT MFGTALKRADIO.COM Manufacturing Outlook / January 2021

33

METALS OUTLOOK

JANUARY 2021

METALS OUTLOOK

by ROYCE LOWE

STEEL PRICES GOING NUTS U.S. prices for steel flat products are changing rapidly, almost on a daily basis. Steel producers are taking every chance to push up prices, making times tough for steel buyers. Low stock levels, increasing raw material costs, and strong demand from the automotive and construction sectors are pushing up hot-rolled coil prices. Service center inventories remain low. Orders on the mills are almost full for the first quarter of 2021, with bookings already into the second quarter.

Now, times are really tough. On U.S. election day, the price of hot-rolled coil was $700 per ton; a month later it was $840 per ton. Early January saw the price at $1010 per ton. Cold-rolled went from $860 per ton on election day to $1110 in early January. “What goes up, must come down” must be the theme song of many a steel buyer these days. The main

34

Manufacturing Outlook / January 2021

responsibility of steel buyers is to ensure continuing supply to manufacturing or to resale - at the best possible price. This is forcing many service centers and manufacturers to purchase when they can, with price almost a secondary consideration. The concern, of course, is being caught with high-priced stock when demand, hence price, goes down.

China’s continued, very strong steel consumption is causing most of the turmoil in global markets. As this drops, there will be an almost immediate effect on steel prices. It is likely, however, that this will go on for some time, and that U.S. steel prices will continue to increase through the first half of 2021. Those that buy steel in a market such as this are under pressure to keep optimum-priced stock at optimum levels. This is not an easy job.

METALS OUTLOOK Global stainless steelmakers are scrambling to adjust their pricing levels, due to rapidly increasing nickel costs. It is reported that several Chinese mills temporarily withdrew their offers while they evaluated their swiftly rising raw material costs.

Producers in other Asian countries also delayed quoting local service centers, as they awaited pricing information from China.

Asian export offers to European buyers were also held back during the past few weeks. In recent months, imports from Asia have been unattractive to European buyers, due mainly to the EU safeguard quotas and anti-dumping investigations. Rapidly rising European stainless steel prices and extended local delivery lead times, especially for 300 and 400 series flat products, may again make imported material of interest to some customers.

In addition to price increases, buyers everywhere are faced with soaring sea freight costs because of a lack of container and ship availability. Congestion at ports is currently disrupting stainless steel deliveries from Asia, especially into Europe, and UK buyers report that several shipments destined for the UK were diverted to mainland European ports. Transport between the UK and mainland Europe is beset with problems, as new coronavirus-related movement

restrictions add to the continuing uncertainty surrounding EU-UK trade under the new Brexit deal.

Shipping costs are expected to remain high into the first quarter of 2021.

Nickel, and other raw materials that go to make stainless, have seen price increases of late that are expected to remain firm in the short term.

Production outages at nickel mines, coupled with higher domestic demand in China, mean that global stainless steel pricing will likely continue on the up in the coming months.

Non-ferrous metal data show price increases in the four metals we follow, with aluminum up from $0.830 per lb in early November to $0.90 in early December, and from $0.70 to $0.90 over the past six months; copper up from $3.04 to $3.38, and from $2.50 to $3.38 over past six months; nickel up from $6.90 to $7.40, and from $5.70 to $7.40 over six months; zinc up from $1.14 to $1.26 and from $0.90 to $1.26 over six months.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook.

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Manufacturing Outlook / January 2021

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AEROSPACE OUTLOOK

JANUARY 2021

AEROSPACE OUTLOOK

by ROYCE LOWE

NEXT STOP, ANYBODY’S GUESS Starship, SpaceX’s next-generation spacecraft ended up as a massive fireball following a recent mission that otherwise went smoothly until landing, prompting an upbeat reaction from Elon Musk. The flight, that lasted almost seven minutes, was stable until the landing attempt, when the Starship failed to slow down enough.

The company saw the flight as a major success, since the vehicle stayed aerodynamically stable during its ascent, a turn to orient for landing, and a precision approach to the landing pad. Musk said pressure in a fuel tank was too low on descent, causing a too-high landing velocity.

The Starship, made of stainless steel, is designed as a versatile, fully reusable craft that can carry 100 metric tons for a deep space mission to the moon and Mars, but also serve as a hypersonic, point-to-point vehicle to reduce travel times across earth. Starship is 160 feet high and 30 feet in diameter - excluding a heavy booster that creates a two-stage system - able to carry as many as 100 passengers.

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Manufacturing Outlook / January 2021

SpaceX has won a contract from NASA to develop a version Starship capable of landing astronauts on the moon in 2024. It also has an agreement with a Japanese entrepreneur for a flight around the moon in 2023. Starship’s first flight to Mars will launch in 2026, but possibly two years earlier if it’s “lucky” in development progress.

The Federal Aviation Administration (FAA) has gained increased authority over the process of certifying the airworthiness of new commercial jets following the enactment of new legislation, recently signed into law by the president. The new law will impact Airbus and other domestic aircraft manufacturers, but it mainly replies to problems revealed during Congressional inquiries into the FAA’s certification of the Boeing 737 MAX aircraft.

FAA and Boeing came under severe criticism for their 737 MAX certification, completed in 2017.

The agency had operated according to a program that allowed Boeing employees, rather than FAA officials, to oversee the aircraft development process.

AEROSPACE OUTLOOK Whistleblowers claimed that Boeing coerced those of its employees assigned to inspection of different 737 MAX designs and systems into speeding up the certification process. Legislators charged that FAA had been overly compliant with Boeing in accepting its handling of the certification procedures.

The FAA stated that with the new authorization granted by the legislation it would implement the changes as directed by Congress. The FAA reiterated its committment to continuous advancement of aviation safety, and improvement of its organization, processes, and culture.

According to the new legislation, the FAA must report to Congress on implementation of the recommendations issued after the 737 MAX crashes. FAA employees may no longer receive bonuses or other financial incentives based on meeting manufacturer-driven certification schedules or quotas.

The law authorizes civil penalties against manufacturers’ supervisors who interfere with employees acting on behalf of the FAA. It also authorizes more funding for the FAA to add to its technical staff, and requires the agency to review pilot training. Boeing has not commented on the new regulations.

The infamous Boeing 737 MAX has taken to commercial skies again. The first commercial flight recorded was by Brazil’s budget airline Gol on December 9. American Airlines did a return flight from Miami to La Guardia on December 29, with 100 passengers outbound and an almost full flight returning. United is due to begin flying the MAX on February 11. An Air Canada flight from Arizona to Montreal was told to land at Tucson due to a hydraulic problem with the left engine.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook.

Manufacturing Outlook / January 2021

37

ENERGY OUTLOOK

JANUARY 2021

ENERGY OUTLOOK

by JOCELYN BRIGHT

GOODBYE COAL? King Coal started the industrial revolution in the late-eighteenth, early nineteenth centuries. It burned hot and allowed the melting, shaping and treating of metals, whilst pouring smoke and its accompanying gases into the atmosphere. It also came in very useful for heating homes, running railways and cooking dinners. In its heyday it was, by far, the most versatile fuel available. In the UK and throughout Europe, before the advent of widespread central heating in the 1960s and 1970s, it was used, along with wood, to heat homes. It was the foundation of the British steel industry, both as a primary fuel, and later, worldwide, turned into coke as a blast furnace feed.

Today we look at coal’s main function as the provider of electricity via coal-burning power plants, particularly in Asia, or China and India, where most of the coal is burnt. In fact, almost 80 percent of coal is burned in Asia, some 52 percent of the global total is burned in China, and about a quarter of that, around 13 percent, in India.

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Manufacturing Outlook / January 2021

There’s a lot of talk about coal these days, because there’s a lot of talk about climate change, and even though consensus is not unanimous, by far the majority of countries are of the accord that something must be done about the air we breathe. This includes reducing, as far as possible, the amount of coal we burn, and generating our electricity using means that will serve to keep the planet’s temperature from rising by no more than 2 degrees Celsius, preferably 1.5 degrees Celsius over the next several decades. This was decided at the Paris Agreement in 2015.

China is the world’s largest emitter of carbon dioxide, CO2. Its coal-fired generating capacity between 2000 and 2012 helped reshape their economy, and increased by 200 percent China’s GDP per person. During this period, CO2 emissions increased three-fold. China’s spending on nuclear energy is the world’s highest, and it has a huge renewables sector. It recently stated that it will achieve carbon neutrality by 2060. But coal plant

ENERGY OUTLOOK construction increased in 2019 and permission was granted for a further 17 GW of new coal capacity for the first half of 2020. It may be that more electricity will be needed for electrification of heating and cars. China is also exporting coal mining equipment and power plants as part of its Belt and Road initiative.

Britain’s share of electricity from coal fell from 40 percent in 2013 to 2 percent in the first half of 2020. It further cut by one-third its generating capacity in the first half of 2020. Britain, in fact, burns less coal than it did when the first coal-burning power station was built in London, in 1882, by Thomas Edison, who later that same year built a plant in New York. The EU’s coal consumption for power almost halved between 2012 and 2019.

Spain halved its coal capacity in the first half of 2020. Japan says it will get 26 percent of its power from coal in 2030; Germany plans to continue using coal until 2038.

In the U.S., despite Trump’s promise to save the “beautiful” coal industry, the country burned 20 percent less coal in 2019 than in 2016. The U.S. is, of course, putting much emphasis on fracking and renewables. There is little doubt that coal burning will continue to decrease in the U.S., but there is also little doubt that its elimination will run into very heavy lobbying from the coal industry.

In addition to its use as an electricity generator, coal is also used to make metallurgical coke for use in the blast furnace. U.S. Steel Corp. has ten blast furnaces, China has 260, and there is one in South Korea, the world’s largest, that has a capacity of over 5.5 million tons of hot metal per year. There are alternatives to the blast furnace, but the process is not going to go away in the near future. Direct-reduced iron, which uses natural gas as a reducing agent, is a viable alternative, and is used as a feed for electric furnaces. The electric furnace has been the preferred route for steelmaking for some time. It is quicker and cleaner than the blast furnace - basic oxygen route.

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The world’s steel industry is, and will be for some time to come, dependent upon blast furnaces and basic oxygen furnaces. As such, it would be impossible to predict the demise, or even significant reduction, of this technology. Suffice it to say it will be around for some considerable time.

The key to coal’s retirement lies in Asia, particularly in China, to a lesser but still significant extent in India. China will continue to emphasize its participation in nuclear and renewables technology, but its dependence upon coal will continue for many decades. India may have the will, but it also has a very powerful coal lobby, and lacks the money to push for drastic infrastructure changes.

Jocelyn Bright, Staff Writer

It will remain to the West to continue to take the lead, and to negotiate firmly with China.

Manufacturing Outlook / January 2021

39

AUTOMOTIVE OUTLOOK

JANUARY 2021

AUTOMOTIVE OUTLOOK ARRIVAL’S ARRIVED

Several months ago we talked about a company in the UK called Arrival Ltd. They had an agreement with UPS for the supply of some 10,000 electric delivery vans. At the time, they were looking to open headquarters in the U.S., which they have since stated will be in Charlotte, North Carolina.

Arrival Ltd will start producing electric buses and vans this year, using what it calls a system of micro factories, which will each require an investment of about $50 million, compared with $1 billion for conventional factories, and ten of them could make as many vehicles as a traditional facility for half the capital expenditure and in a tenth of the space, it says.

The man who is making all this happen is a Russian-born entrepreneur named Denis Sverdlov.

He wants to revolutionize auto manufacture and figures the Arrival idea will do it. Five years have gone into development of the model and proprietary technology. They are not using “metal stamping, welding and paint shops,” rather aluminium for chassis, proprietary composites for bodies and structural adhesive.”

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Manufacturing Outlook / January 2021

by LAWRENCE MAKAGON

The company already has two microfactories - one northwest of London in the town of Bicester, and the other in Rock Hill, South Carolina - and aims to have 31 plants by 2024. EV startups normally take years to make a profit but Arrival says it hopes to start generating one by 2023.

The company was founded in 2015, and employs 1,400 people. It has recruited top talent from the auto and tech industries. Thanks to the cheaper micro factories, it will be in a position to sell electric vans and buses at around the same price as their diesel equivalents. Joe Biden’s administration is looking to fully switch to EVs by 2030 for buses built in the U.S. Things are presently looking good for Sverdlov, who says, “There are more than 560 cities in the world with a population of over 1 million people, and each of these cities could have a microfactory producing 10,000 vehicles specifically tailored for the needs of that market. This model can be as scalable as McDonald’s or Starbucks.”

AUTOMOTIVE OUTLOOK A new star will illuminate the car industry today.

Stellantis (derived from the Latin for “to brighten with stars”) was rubber-stamped by shareholders of Fiat Chrysler - whose brands include Jeep, Ram and Dodge - and PSA Group, the maker of Peugeots and Citroëns. The deal creates an industry giant, bringing together a firm with a strong presence in America with a European powerhouse that has a toehold in China, all under the leadership of Carlos Tavares. Matching his success in the rapid revival of PSA, a basket-case when he took over in 2014, will be a challenge. The difficulty of merging differing corporate cultures has sunk many a car-industry megamerger and the challenge of remodelling existing carmakers for the electric age will undoubtedly lead to casualties along the way. But if anyone can navigate the course it is Mr Tavares, the brightest star Lawrence Makagon, among bosses in the business.

Staff Writer

Manufacturing Outlook / January 2021

41

ISSUES OUTLOOK

JANUARY 2021

ISSUES OUTLOOK

by ROYCE LOWE

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Manufacturing Outlook / January 2021

ISSUES OUTLOOK HAVE I GOT A DEAL FOR YOU… For some time now, Britain and the European Union have been grappling with something that someone christened Brexit. As of January1, 2021, Britain is no longer part of the EU, and a deal has been negotiated that is not really the one the UK wanted, but more likely one the EU laments, and the UK “calls it a way to come back in 2021.”

The deal will leave businesses facing more barriers to trade than they did while Britain was in the EU. Boris Johnson, Britain’s Prime Minister and the chief architect of the exit, can claim he’s got some control on fishing rights and that he has ended the role of the European Court of Justice in the affairs of the UK. In other words, he thinks the country might be returning to those glory days of yesteryear.

Here are summaries of a few of the clauses that will most impact the role of manufacturing. The whole agreement runs to over 1200 pages.

The agreement ensures that most goods traded between the EU and the U.K. won’t face new tariffs or quotas, but British exporters will face a number of regulatory hurdles that will make it more costly and burdensome to do business in Europe.

Rules of origin: U.K. firms will need to certify the origin of their exports to qualify for tariff-free access to the EU. There will be limits on what proportion of goods can be assembled from parts made overseas to qualify for tariff-free access. EU parts will count as local content. Cars will face special restrictions. Gasoline or diesel vehicles will need to be made with at least 55% local content to escape tariffs.

Electric transition: electric and hybrid vehicles will be allowed to contain 60% overseas content -- but that will fall to 55% by 2026. Batteries will be allowed to contain 70% international content, but that will drop over the same period of time to 50%.

Testing and certification: The absence of a mutual recognition agreement means U.K. regulatory bodies won’t be able to certify products for sale in the EU, a potentially big barrier to trade.

One of the most contentious areas was control of British fishing grounds, and this came to symbolize the country’s desire to leave the EU. U.K. fleets will take 25% of the current EU catch in British waters, worth 146 million pounds ($198 million), phased in over five years. Britain’s opening negotiating position called for an 80% increase, so this represents a significant compromise. There is a transition period of five-and-a-half years during

Manufacturing Outlook / January 2021

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ISSUES OUTLOOK The U.K. is no longer part of the EU’s emissions trading system but both sides agreed to cooperate on carbon pricing in the future and “consider linking their respective systems.” The U.K.-EU agreement would be suspended if either side breaches their commitments to the 2015 Paris Agreement on climate.

So Boris Johnson thinks he has won. Or at least that’s what he’s saying. We will not know for some time if the fears of the Confederation of British Industry and “The Economist” magazine were well founded or not.

which reciprocal access rights to each other’s waters remain unchanged. After that point, British officials stress, the U.K. will be in control of its own waters -- but the EU would be able to impose tariffs on fish if its access to British waters was limited.

Energy is an important part of this agreement.

The U.K. won’t have access to the EU’s internal energy market. This was expected but there will be new arrangements in place by April 2022 to make sure that trading is smooth and efficient on interconnectors -- huge power cables that run between the U.K. and Europe. The U.K. is a net importer of electricity and gets 8% of its power from the continent. As an island nation, making sure trading across these interconnectors is efficient is important to Britain.

Making trading smooth will “benefit U.K. consumers and help integrate renewables and other clean technologies onto the grid in line with our domestic commitment to net zero emissions” the U.K. document says. The deal includes guarantees on security of energy supply.

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Manufacturing Outlook / January 2021

The agreement additionally “extends the elimination of tariffs on 98 percent of goods traded between the two countries, and sets the stage for negotiations toward a permanent and more ambitious deal in the new year.” Without a new agreement, trade between the UK and Canada could be hampered by “tariffs and increased paperwork” once the UK leaves the European Union.

Canadian Prime Minister Justin Trudeau said, “Now we get to continue to work on a bespoke agreement, a comprehensive agreement, over the coming years that will really maximize our trade opportunities and boost things for everyone.”

The agreement will be subject to final legal checks before it is formally signed.

Finally, a Brexit deal has been reached. Doubtless, both sides compromised. How it works will determine how good a deal it is. So, the UK is out of the European Union, choosing their own economic and political destiny.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook.

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