competed for and won orders to upgrade equipment initially installed by competitors. Various instances of this have been reported in the Pulp and Paper Project Report or elsewhere in the trade press. The configuration of paper industries machinery, as to width, trim, capacity, and grade of paper to be produced, makes it almost impossible to estimate a typical price for a machine. One industry source indicated that, depending on these and other factors, newsprint machines have sold for between $5 million and $50 million. Typically, major pieces of equipment such as headboxes, fourdrinier tables, dryer sections, or pulp digesters have been constructed at the supplier's factory and installed in the mill by field erection personnel employed by the supplier. On a large machine rebuild or a new mill project, an architect/engineering firm will normally supervise the erection and installation of equipment. However, the supplier firm is generally obligated to provide initial setup and training of the mill personnel designated to operate the equipment. The major suppliers maintain regional service personnel and field erectors for this purpose. Rapid deployment of troubleshooters to a mill is expected by mill personnel in order to reduce machine downtime. Domestic suppliers have sought to emphasize the ability to provide rapid service in competing with foreign suppliers. Consequently, most foreign producers have established service outlets in the United States and Canada to quickly service imported machinery. Machine Rebuilding Market Over 40 percent of all mill jobs which were planned in the United States and Canada between 1986 and 1988 were machine rebuilds. In a rebuild, an existing machine is shut down for a period of time and key components replaced. Such shutdowns normally last from several weeks to over 2 or 3 months, depending on the extent of the rebuild. A rebuild is ordinarily undertaken for one of five reasons: (1) to increase production capacity; (2) to change the product or grade of paper produced on the machine; (3) to install new technology on the machine; (4) to increase machine efficiency; and (5) to improve product quality. A typical example of such a rebuild involves installation of a twin-wire or top former on an existing fourdrinier table. Rebuilding may also involve sections of the machine such as the press and dryer sections, or installation of a new headbox. When complete, the rebuilt machine will be restarted and will be, in effect, renewed equipment. Typically, a paper machine, while bearing its original number and remaining physically in place at the mill, will undergo several rebuilds during its useful life.3 3 For a concise discussion of why rebuilds are undertaken see McCollister, Mark A., "Well Planned Rebuilds Can Revitalize Dated, Slow-Speed Paper Machines", Pulp & Paper, January 1985, pp. 90-93. Although rebuilding is practiced worldwide, North American rebuilds have been particularly vital in allowing U.S.-based companies to maintain healthy order books during the period since 1983. Rebuilds have accounted for up to 70 percent of the new orders received by U.S. suppliers since the 1982 recession. For example, in the South alone five paper companies announced major rebuild projects in early 1987 although only two new paper machines were due to come on-stream in the region during the year. In the Northeast, three major rebuild projects were under way in late 1987. Traditionally, U.S. suppliers have been better positioned to receive orders for rebuilds than for new machines, since the equipment to be rebuilt has usually come from a U.S.-based supplier. However, this U.S. advantage is less pronounced today than it was in the past. As noted earlier, feasibility studies for a machine rebuild in a U.S. or Canadian mill are more likely to be provided by a U.S. or Canadian consulting firm. Hence, North American suppliers will usually have a leg up in bidding for such projects. U.S.-based suppliers also appear to be better able to apply geographic advantages (quicker field service and easier access to field erection personnel) to rebuild orders. In executing rebuilds, mills seek to reduce downtime and, therefore, require quick deliveries and rapid work schedules. Depending on scale, machine rebuilds may exhibit the long lead-time characteristics associated with new machine installations. Rebuilding also occurs in such other aspects of machine operation as calenders and dryer sections, press sections, and pulp lines. Recent reports by consultants to the paper industry have indicated concern about the growing age of the machinery in place. Despite extensive rebuilding, it appears that U.S. pulp and paper mills will face increasing pressure to modernize machinery in the face of foreign competition. If properly exploited, these conditions, bred by the boom-bust cycle affecting the paper industry since 1974, may offer substantial new sales opportunities to U.S.-based machinery producers. The scope of the rebuild market can be seen from assessing the age of the paper machines currently in place at U.S. pulp and paper mills. According to an annual survey conducted by the American Paper Institute almost half of the 1,044 paper and board machines in place surveyed as of January 1, 1986 were installed or last rebuilt prior to 1971, and 9 percent of the machinery dates from before 1950. These older machines accounted for 37 percent of the paper and paperboard production capacity, with the pre-1951 installations representing 4 percent of the machinery in place. Machines over 15 years old accounted for 30 percent of the newsprint capacity surveyed, 48 percent of the tissue machines, and two-thirds of the machinery for making recycled paperboard. Pre-1951 installations were concentrated in printing and writing papers (22 machines), converting (19 machines), and recycled paperboard (25 machines). Geographically, the older machines are most numerous in the East North Central states, a region encompassing the major paper producing states of Wisconsin and Michigan. Nearly 41 percent of that region's production was on 128 machines installed or rebuilt before 1970, of which 30 machines, or 9 percent, antedate the Korean War. In the Mid-Atlantic region, 87 machines (42 percent of the total in place) predated 1971. These machines accounted for more than half (53 percent) of the region's production capacity. The large share of older machinery in place indicates that the domestic rebuild market will continue to flourish into the next decade. Since this is the market segment which has provided the greatest opportunities for U.S.-based suppliers, it is imperative that they remain competitive and alert to future rebuilding jobs. Used Machinery Market Quite separately from machine rebuilding, a used paper machinery market also flourishes. In 1982, an estimated $21 million worth of used machinery accounted for nearly 2 percent of total machinery shipments for that year. Domestic suppliers, primarily specialty firms dealing in used paper machinery, provide most used machinery consumed by the U.S. paper industries. Used paper machinery is most commonly sold as a section of the wet or dry end of the machine. Specialty equipment, calenders, and woodyard equipment frequently are sold on the used machinery market. Smaller pieces of equipment employed at the beginning (woodyard) or the end (converting) of the papermaking process are most readily sold as used equipment. There is a modest export market for used paper machinery, although the market is hindered by foreign restrictions commonly applied to imports of used machinery. Such restrictions, which may appear arbitrary, have often arisen in light of bad experiences many foreign countries have had with dumping and lack of service provided on used machinery. These constraints have led in some instances to generic prohibitions on the import of used machinery. However, these provisions have not hindered machinery rebuilding.4 A Foreign Trade Deficit: How It Came to Be The U.S. paper machinery industry historically maintained a favorable trade balance prior to 1979. After declining through much of the 1970s, the industry's terms of trade turned negative in 1979, only to recover a favorable position in 1980. This improvement did not survive the steep recession of 1982 even though that recession slowed the demand for both imported and domestic machinery. Table 9 summarizes trends in U.S. trade in paper machinery between 1982 and 1986. In 1983, the previous year's trade surplus of $109 4 Roberts Fred "Used Equipment Can Provide Quick, Low Cost, Answer to Capital Needs," Pulp & Paper, December 1988. million was wiped out and replaced with a $7 million deficit, which has grown substantially in the ensuing years. Even if conservatively estimated, the deficit skyrocketed in 1986 to approximately $300 million, including such additional items as stock treatment pumps and certain roll bars. Final trade figures for 1987 showed a trade deficit of $254 million for the year. Imports, including closely related equipment, were up 9 percent over 1986, totaling $562 million. Exports, in comparison, showed a rise of 14 percent for the year and at $308 million were still 2 percent below the pre-recessionary level of $316 million achieved in 1982.5 Several component products have formed the industry's trade deficit. Parts for machines in this industry are the largest item of trade both in exports and imports. Exports of parts fell by $10 million over the 5-year period from 1982-86, dropping from $179 million to $169 million. During the same period, imports of parts rose by $100 million, from $97 million to $197 million. This translated the major surplus item (at $72 million) into a deficit of $28 million. Another major contributor to the trade deficit lies in the converting area, in box-making machinery. This item primarily consists of corrugating machinery, an industry segment which has undergone swift change within the past year. While exports of box-making machinery have remained steady, rising from $19 million to $22 million over the period, imports rose from $37 million to $92 million over the same time. Emergence of a trade deficit at the start of the decade shocked some U.S.-based firms into action. Even as trade terms improved, companifs and associations began to reassess steps which might be undertaken to become more competitive. The U.S. International Trade Commission (ITC) prepared a report entitled A Summary of Trade and Tariff Information which was issued in August 1982 and revised again in October 1984, that highlighted the deteriorating trade position of the industry. A grant provided to the Pulp and Paper Machinery Manufacturers Association (PPMMA) by the Economic Development Administration, U.S. Department of Commerce led to a 1981 report entitled An Analysis of the Changes in the Markets for Pulp and Paper Machinery (1974-1979). This report surveyed the recent history of the paper machinery industry, sought to explain the initial appearance of the trade deficit, and offered recommendations, on behalf of the grantee PPMMA, as to steps which both industry and the trade association might undertake to become more competitive globally. 5 Trade data used in this report, unless otherwise stated, are customs value for imports and f.a.s. for exports. With respect to industry efforts the report made the following recommendations: (1) Increased industry R&D into process improvements and energy saving; (2) use of metric engineering standards for both original equipment manufacturers and replacement parts; (3) stronger efforts to meet delivery dates; (4) better language and other training for sales personnel; (5) greater product promotion; (6) improved warranties; (7) improved quality control; and (8) better technical support service to the paper industry. With respect to the association, the report recommended several steps to improve the balance of trade in paper machinery. These included the following: (1) Support of efforts to achieve equal tariff treatment for paper machinery between the major trading partners; (2) PAMMA sponsorship, in conjunction with the U.S. Department of Commerce, of booths at major foreign paper trade shows and of technical seminar missions to foreign countries; (3) PPMMA work with U.S. Export-Import Bank to develop a program for low-interest loans for long-term projects above $5 million; and (4) PPMMA work to achieve revisions in the Standard Industrial Classification (SIC-3554) of paper industries machinery. As an offshoot of a recommendation contained in the earlier report, the industry undertook its first trade mission in 1982. The mission was an industry organized/government assisted (IOGA) mission to Norway, Sweden, and Finland. The mission produced a technical reports and generally satisfactory results for the U.S. 6 Advanced Technology In U.S. Pulp and Paper Machinery, Pulp and 1987. |