Survival of the Most Efficient

After preparing our latest Custom Injection Molders’ Hourly Rates Survey report, with its grim picture for custom molders, I became curious about long-term trends in molding economics. So I opened up my handwritten spreadsheets of survey data going back to 1983. I’m no CSI, but what I found were unmistakable scuff marks of a competitive struggle that has been ratcheting up in intensity for a quarter century. Just for a reality check, I discussed my data with plastics economist Bill Wood, who often writes for this magazine, and with an executive of a custom molding firm that employs 2000 people in eight plants and four countries. They agreed that my data are plausible.

The graph at right shows an interesting correlation between trends in custom injection molding machine capacity utilization and machine-hour rates over a decade. That’s only part of the story. Machine utilization in the 1980s averaged in the 70% to 80% range. Then in the 1990s it abruptly dropped into the sixties, except for a brief rebound in 1993-95. Just as abruptly, from 2000 on, machine utilization stepped down into the fifties and stayed there over 16 semi-annual surveys until the last quarter of 2008, when capacity utilization sunk below 50% for the first time ever.

A concurrent trend appears in machine-hour rates. My Hourly Rates Index (which averages together all press sizes and regions of the country) starts in 1998, when the Index was set at 100. The Index rose gradually through the end of 2000 and then abruptly started falling from 2001 through 2004, when it hit a low of 85.8. Then the Index started rising in 2005 to 2008—until the last quarter, when it suddenly dropped again. But even at the high point in mid-2008, the index was at 94.3, meaning that average hourly rates never fully recovered from the 2000 recession and post-9/11 slump.

What caused these trends? One factor has been a proliferation of molding shops over the past 25 years. “Every time I turn around, I find another competitor—another small molding shop has popped up,” said the custom molding executive. According to Bill Wood of Mountaintop Economics & Research in Greenfield, Mass., another factor is the long-term trend for plastics machinery productivity to outstrip growth in plastics markets. In other words, fewer and fewer machines can produce more and more goods. (The same thing happened in agriculture and in industry generally over the last century.) The third crucial factor is the emergence of China as an enormous competitor in this decade.

The effect of all this has been to force down molding prices (hourly rates), except during the bubble years of 2005-2008, when overall demand was artificially inflated. The long-term trend is that U.S. molders must use new technology and good management to become more efficient so they can survive and prosper in an era of deflating prices for molding services.