Stay Patient, My Friends  

January 27th, 2015

 

I love the Dos Equis ad campaign in which the Most Interesting Man in the World (He took the title from me.) proclaims, “I don’t always drink beer but when I do, I prefer Dos Equis.”  He ends each spot with, “Stay thirsty, my friends.”  I think I am going to end each blog this year with, “Stay patient, my friends.”

The verbal sparring regarding the Greece situation has started in full force.  In case you missed it, the socialist leaning party won the election in Greece.  They want the European Union to provide leniency on Greece’s repayment of bailout money.  The EU has indicated it will not bow to Greece’s demands and is demanding Greece repay its debts.  US durable goods orders dropped in December, prompting concerns of an economic slowdown.  Several large companies have reported earnings that missed expectations and they are warning about earnings shortfalls for the coming year.  Everywhere you look there’s bad news yet again.  Or is there?

Perhaps the most significant news impacting the packaging industry this week is Rock-Tenn and Mead Westvaco announced they are merging.  Combined, they will have nearly $16 billion in revenue worldwide in the containerboard/corrugated segments.   Once again, a mature industry is demonstrating that consolidation will improve the profit pool.  That will continue to put pressure on other public companies in packaging to seek strategic alternatives.  For those of us that are smaller players in the packaging industry, this pressure will create great opportunities.  As with any large merger, there will be job losses from synergies between the two companies.  I’m sure that won’t be a lot of fun for a lot of people.  However, there will be talented people available that can contribute to your business almost immediately.  There will also be opportunities for competitors to take share due to the distractions associated with the merger.  There will also likely be large suitors looking for “tuck in” acquisitions of smaller players.

In my little world of labels, Honeywell, which purchased Intermec a few years ago, announced it was acquiring Datamax in mid December.  The same results demonstrated above apply to this acquisition.  Disruption creates opportunities.  While the macro economy gets all the news, the real action happens on the micro economy level.  Pay attention to what’s impacting your world and stay patient with the what is happening in the world, my friends.

Hoping for a Price Decrease?  Think Again.  

January 21st, 2015

 

With the fall in oil prices, a lot of customers are calling us wondering when price decreases are coming.  Certain areas of packaging have seen decreases due to raw material prices falling.  I doubt we’re going to see decreases in the label world.  Here’s why:

Why Prices Aren’t Coming Down

Pulp remains near its all time high.  Paper mills have consolidated.  Verso and NewPage just combined.  Both are large suppliers to the PS industry.  Rumor has it paper mills are starting to send increase letters out as I write.

  1. Some film products and adhesive component costs have declined, but they are still above early 2013 levels.  There was no increase in 2013 or 2014, so margins are returning to where they were.
  2. Diesel has come down but carriers are raising rates because of driver shortages, new regulations, and capacity constraints.  People are removing fuel surcharges but adding increases, making the net 2-3% instead of 5-7%.  If diesel goes back up, it’s a 5-7% increase.  As I wrote a few weeks ago, UPS and Fed Ex raised their rates again.
  3. Operating costs for everyone have gone up.  I know I’m not alone on this one – if I told you how much our healthcare costs have risen over the last 24 months, you would vomit.
  4. To end my list on a positive note, things are still OK in the US economy.  I don’t think growth is robust, but there is activity.  As long as there is demand, people aren’t cutting prices.  That’s a good thing.

If we start seeing wide spread price decreases, I think we have a bigger problem.  It is very unlikely that demand for labels will go up if prices come down.  More than likely, if prices come down, it is because we are entering a deflationary environment (not good for any of us) or economic growth has gone away.  I don’t think either scenario is likely in the US but if either happens, you better have a plan B.  Mine involves copious amounts of wine.  If economic growth continues, I would not be surprised to see a price increase later this year.

 

Do You Have a Bench?  Lessons from Ohio State’s National Championship

January 14th, 2015

One of the reasons I love sports is they provide great life lessons.  On Monday night, Ohio State completed a very unlikely run to a college football national championship.  In case you missed it, their starting quarterback, Braxton Miller, got hurt 8 days before the season started.  After a shaky start, his replacement, J.T. Barrett, turned into a Heisman Trophy (best player in college football) candidate.  He got hurt in the last game of the season, leaving the backup to the backup, Cardale Jones, as the starter.  Jones became a Cinderella story, winning the Big Ten championship game and helping Ohio State beat Alabama and Oregon to win the national championship.

Praise is being lavished upon Jones and the Ohio State coaching staff and it is justified.  Ohio State was an underdog in all three games Jones started.  They dominated 2 of the 3 games.  There are a lot of lessons from Ohio State’s success.

1. Be prepared even if you get passed over.  Cardale Jones could have checked out after being beat out for being the back up.  He was 3rd string.  3rd stringers only play in mop up time.  By all accounts, he didn’t check out.  He stayed focused and worked hard.  If you get passed over for a job or by a customer, don’t tune out.  Stay focused and figure out how to get better.  If you fade away, you’ll be forgotten.

2.  If you’re in leadership (like the coaching staff), you’ve got to make sure everyone is engaged.  There are 85 scholarship players on a Division 1 college football team.  Think about the leadership it requires to take a bunch of high school stars that were all the best players on the team and tell over 60 of them they are backups.  (Certainly several of those would play significant minutes but they aren’t starters.)  The coaching staff needs to keep them ready – players get hurt and sometimes don’t play well.  For the team to succeed, inevitably someone will need to step up from a backup role and perform.

3.  Put the team first.  Urban Meyer, Ohio State’s head coach, has said this is one of the closest teams he’s ever coached.  Meyer has had success everywhere he’s been.  He’s able to create a team first mentality throughout his organization.  Just as easily as Cardale Jones could have checked out when he was 3rd string, the team could have checked out when J.T. Barrett got hurt.  Instead, they rallied around Jones and played their three best games of the year.

We all love Cinderella stories.  Beyond every Cinderella story, there is a lot of work and emotional strength that lead to what seems improbable.  Do the work and stay emotionally attached and you can create your own Cinderella story.  (PT: Looking forward to some Oregon libations to settle the bet.  We agreed on a six pack but an Oregon Pinot Noir works as well!  Go Bucks!)

Oil Crashing, Stocks Down, Greece Potentially Exiting the Euro: Is the World Ending (Again)?  Let’s Keep Things in Perspective

January 6th, 2015

 

A hobby of mine is following financial markets.  I love hearing the latest opinions from the “experts” that grace the airwaves.  When oil started going down, it was a positive.  If I heard “lower gas prices are a tax break for the US consumer” once, I heard it a thousand times.  I do find it somewhat funny to hear people that want to raise taxes talk about gas prices going down being a tax break and a positive development.  Doesn’t that imply lower taxes would be a positive development for the economy?  Hmm…

Now that oil has come down even more, it’s now a potential negative.  The oil industry has been a key driver of employment growth in the US.  Certainly, lower oil prices could lead to job losses in that industry.  The nasty “d” word – deflation – is  being bantered about because of lower oil prices.  I’m attending a packaging conference and many petroleum based products are coming down in price.  I don’t think that creates widespread deflation in the economy.  It does mitigate some of my inflation concerns.  Diesel is starting to come down, which will lower transportation costs.  It’s going to be hard for anyone to get a price increase through with oil down significantly.  As I’ve written in the past, many of our suppliers would love to get a price increase – they saw commodity inflation last year.  They’re getting it right now through raw material decreases that they’re not going to pass through unless things get really bad.  I doubt things will get really bad.  Demand in the US is turning the corner.  Look at car sales.  I’ve written about equipment demand recently.  That’s not going away either.   I would also note oil is only one commodity.  Pulp has stayed high.  Operating costs haven’t come down.  Wage pressure is starting.

The longest losing streak for US stocks in 13 months is occurring. Stock market indices have dropped for 5 straight days.  That’s a week of trading.  Markets don’t operate in straight lines.  With all the hubbub about 100 and 200 point drops in the Dow, today’s 130 point drop represents a 0.74% decline.  Yes, not even a 1% decrease.  Let’s keep things in perspective.

Europe isn’t imploding.  Does it really matter if Greece turns more socialist and gets kicked out of the Euro?  Greece makes up less than 1.5% of the EU’s GDP.  I feel bad for the Greek people if Greece is forced out of the EU but it’s really not that big of a deal.  Is there the possibility of contagion occurring?  Sure, but I think that’s why Germany is rattling swords about kicking them out – to let others know they’re serious about keeping the EU intact.

It’s easy to get rattled as we are inundated with data and seemingly terrible news.  Don’t overreact.   As Warren Buffett likes to say, “Be fearful when others are greedy and be greedy when others are fearful.”   Instead of worrying about the global economy, worry about your customers.

 

 

A New Year’s Wish: Self Awareness

January 1st, 2015

We went to a nice buffet for New Year’s Eve dinner last night.  Our son went to get dessert.  As my wife likes to put it, I am the instigator in our family.  I took his dessert fork and substituted a little seafood fork while he was away.  He came back to the table with his cake, picked up the little fork, and exclaimed with 8 year old gusto, “What the hell is this?”  Almost instantly, his eyes bugged out and he realized he said something inappropriate.  Fortunately, my wife and I had a few glasses of wine so we found it funny and we all had a good laugh.  Of course the instant comment came from my wife, “That’s YOUR son,” with the your greatly emphasized.  It’s amazing how the inappropriate behaviors are a result of my DNA but the straight A student (with the exception of handwriting, my DNA) and everything he does right comes from her genes.

I pondered this incident, which will become a fun family memory, quite a bit last night and this morning.  My wife is right – that is my son talking.  That is exactly what I would have said had one of my brothers or a friend taken my fork.  I’d react with the same passion he did.  I’d laugh with whomever did it to me.  I thought a lot about how my actions and words have such a profound impact on his actions and words.  It’s pretty scary when you think about it.  It’s also pretty cool.  I have tremendous influence as a role model.

Not only do my actions and words have a big impact on my son, they have a big impact on our business.  Everything leaders write, say, and do is witnessed by their teams.  People have a need to fit in and belong.  By observing how their leaders act, they get their cues how to act.  Even seemingly little things, such as the dinner table incident above, can have a profound impact on your team.  If your team (or children) aren’t doing what you want, it’s probably time to look in the mirror.  Most likely, they are reflecting your behaviors.

(in case anyone is concerned, our son does know that “swears” (his term) are inappropriate (in most circumstances).)

I hope you have a great 2015 and accomplish what you want personally and professionally.

Have Yourself a Merry Little Christmas

December 23rd, 2014

I wrote this blog last year.  We attended the concert again this year but “Have Yourself A Merry Little Christmas” wasn’t on the playlist.  I think about this song quite a bit this time of year.  Merry Christmas, Happy Hanukah.

(I’m glad I checked the link for the song.  My original link was removed due to “multiple copyright infringements.”)

The last few years, Kelly and I have kicked off the holiday season by attending a Christmas concert by the Cleveland Orchestra with good friends. Regardless of your beliefs, put attending a holiday concert by an orchestra on the bucket list if you haven’t already done so. Hearing classical arrangements of carols both old and new puts things in a different light, at least for me.

The conductor did a wonderful job providing context to the songs. One in particular hit home to me. I’ve seen the movie “Meet Me in St. Louis” with Judy Garland. In that wartime movie (1944), she sings “Have Yourself a Merry Little Christmas” (video link https://www.youtube.com/watch?v=yudgy30Dd68

Warning: it will bring a tear to your eye.) The conductor explained how this became a wartime anthem in those still dark days of World War II, both home and abroad. It brought a smile to my face and a tear to my eye. My grandfather was one of those patriots that lied about his age to enlist in the Army after Pearl Harbor. He was not even 17 when the war broke out. He had just started dating my grandmother. He, of course, made it home and they got married.

I remember my grandparents singing “Have Yourself A Merry Little Christmas” to each other over the years and the looks on their faces as they sang to one another. I never understood the significance of that song until I heard the conductor’s explanation. Music was a big part of their lives and a big part of our family holidays – we sang together before we could open presents. For some reason, their musical abilities were not passed down to any succeeding generation thus far. We’re well into gen 3 and the caroling sounds worse every year.

Grandpapa and Grams, as you look down upon us, know that your love and spirits live on. Merry Christmas.

2015: Be Prepared for Freight Disruptions  

December 17th, 2014

One thing we all take for granted in the US is the incredible transportation and logistics infrastructure we have.  We can order something from virtually anywhere on the continent and know when it will be delivered to our door.  As a result, we can practice just in time inventory and improve our working capital positions.  Well, unless you’re willing to pay more for guaranteed deliveries, you better build some slack into your JIT and prepare for shipments not to arrive when scheduled.  We have already had several issues in the past few weeks, both inbound and outbound, with product not arriving as expected.  In classic “the power pendulum has swung our way” behavior, the freight carriers that were involved shrugged their shoulders and said, “Next time, pay for guaranteed delivery.”  Estimated delivery dates were assumed to be the real delivery date for years.  Not anymore.  It’s not fun telling a customer the shipment that was supposed to arrive 2 days ago will get there tomorrow.  It’s even less fun not being able to run a job because the material is still in a freight terminal somewhere.

Despite the recent drop in oil prices, freight rates are going up.  Regulatory changes, driver shortages, and consolidation all play a role in freight costs increasing.  UPS has announce a 4.9% increase effective December 29.  By sheer coincidence, Fed Ex has also announced a 4.9% increase, effective January 5, 2015.  If this isn’t classic duopoly behavior, I don’t know what is.  Additionally, both are also introducing dimensional weight (DIM weight) pricing.  If you haven’t paid attention to this stealth price increase, please read:  http://www.ups.com/content/us/en/resources/ship/packaging/dim_weight.html?WT.mc_id=VAN701060.  While DIM Weight won’t have a huge impact on labels, it will raise rates on lighter packaging products.  Be ready.

In the past, we’ve usually had a rogue freight company that wanted to pick up market share and did so via aggressive pricing.  On the parcel side, we’ve basically got a duopoly.  DHL’s decision to pull out has left few alternatives.  On the LTL and truckload side, consolidation has removed a lot of the aggressive players.  Additionally, the economy continues to get better, raising demand.  Add it all up and we are going to enter an inflationary environment for freight costs.  The dollars involved will be real but the “soft” costs of adjusting inventory and ordering patterns and stock outs will be where the real pain is.  Start talking to your customers now about managed inventory programs and other things you can do that your competitors can’t.  You don’t want to wait until your customer calls you.

Words of Wisdom: “You Can’t Discount Your Way to Profitability”  

December 10th, 2014

 

I had dinner with a good friend and trusted business partner last week.  While we’re in different industries, his industry and mine share some common traits.  Both are highly fragmented and starting to see consolidation.  Both are being impacted by technology.  Both are often thought of as an expense by their customers instead of a value-add solution.

We spent some time on fragmentation and consolidation and how those trends are impacting our businesses.  We both lamented the situation we’re both in: we see intense price competition from “the hangers on” as he put it.  The hangers on are the firms that haven’t invested (see last week’s blog) or have adapted to changing customer needs.  Their only way to compete is a lower price.  Too often, they don’t understand their cost structure and lack of profitability.  As he said so candidly, “You can’t discount your way to profitability.  How these guys think they can just shows how clueless they are.”  In the long run, they’ll go away – either out of business or acquired.  In the short run, they make life challenging for everyone.

Customers are quick to throw a ridiculous price in our faces.  Like lemmings, we often jump off the cliff to match it before investigating where that ridiculous price came from.  Usually, it’s from someone that can’t deliver what the customer wants, either quality wise, delivery date, or some other critical component the customer needs.  That’s why they’re calling us – they want our service/quality/whatever with the low price.  We marginalize the value we bring by matching prices.

It’s certainly not easy but it pays to take a deep breath before matching a competitive price.  Make sure your customer is providing an apples to apples comparison.  Don’t be afraid to ask, “Why are you calling me if you’ve got such a great deal from my competitor?”  (To all my great vendors: I know you’re going to have great comments for me on this one.  Send them to our purchasing department!  Their job is to get us a better deal!  Remember, being price competitive is a given.  That doesn’t mean you have to match every price but if you’re high on everything, you better bring some great other value to the table.  Otherwise, your customers won’t be competitive.)

Are Good Times Ahead in 2015?  For Those Who Planned, Yes.

December 2nd, 2014

I’ve spent the last several weeks planning for 2015.  Fortunately, members of our team started planning a while ago.  We’ve seen growth in a couple of product lines that require dedicated equipment.  Some of that equipment had lead times of 16 – 20 weeks.  If we just started planning now, we’d be looking at delivery in Q2 2015 and likely miss out on a lot of business.  Due to good planning,  our equipment will be in service before the end of the year.

Curiosity got the best of me yet again, so I had to check if it’s just our vendors that has long equipment lead times.  It’s not.  I’ve had conversations with people in several industries who have told me equipment lead times are the longest they’ve ever seen.  Certainly, part of the increased lead times is related to capacity that went away during the recession.  Another factor is pent up demand – people cut way back on capital expenditures during the recession and need to upgrade now.  But I’m confident the biggest reason for long lead times for new equipment is new demand.  That’s a good thing for the economy.  New demand is what drives growth.  Despite what you might read, the US economy is growing.

One of the biggest challenges business leaders face is knowing when to invest.  As I’ve written in the past, one of the legacies of the Great Recession is we’ve become skittish and scared to make decisions.  Another legacy is visibility into the future is much less than it used to be.  Put those two together and you have a lot of people and businesses afraid to make decisions and certainly afraid to allocate capital.  That’s a recipe for disaster.  Unfortunately, meeting customer demands generally requires an upfront investment.  If you didn’t make that investment and someone else did, you will lose your customer.  “Creative destruction” is the fancy economics term used for this characteristic of capitalism.  Time and time again, it has been proven that those that invest win.  Those that don’t lose. If you haven’t invested yet, you’re probably going to lose in 2015.  It’s too late.  Those that have invested will enjoy a prosperous 2015.  If your company isn’t investing, it might be time to move on.  We’re going to start to see a separation between those companies that invest to meet their customers’ needs and those that have hung on simply because the economy recovered.  Again, another win for those that invest.

The More Things Change, the More They Stay The Same

November 25th, 2014

As you celebrate with family and friends, take a few minutes to read Abraham Lincoln’s Proclamation creating Thanksgiving.  (Prior to Lincoln’s proclamation, Thanksgiving was celebrated by different states at different times.  The history is very interesting – link is below.)

Whatever your religious beliefs might (or might not) be, take a moment to ponder the peril the United States faced in 1863.  As talking heads tell us the world has never been a more dangerous place and our standard of living in the US is declining, ask yourself if you’d rather be alive in 1863 or 2014.  I don’t think that’s a hard choice.

Enjoy your time off, enjoy your company, and make someone’s day by thanking him or her for being in your life.

http://www.abrahamlincolnonline.org/lincoln/speeches/thanks.htm

Washington, D.C.
October 3, 1863

By the President of the United States of America.

A Proclamation.

The year that is drawing towards its close, has been filled with the blessings of fruitful fields and healthful skies. To these bounties, which are so constantly enjoyed that we are prone to forget the source from which they come, others have been added, which are of so extraordinary a nature, that they cannot fail to penetrate and soften even the heart which is habitually insensible to the ever watchful providence of Almighty God. In the midst of a civil war of unequaled magnitude and severity, which has sometimes seemed to foreign States to invite and to provoke their aggression, peace has been preserved with all nations, order has been maintained, the laws have been respected and obeyed, and harmony has prevailed everywhere except in the theatre of military conflict; while that theatre has been greatly contracted by the advancing armies and navies of the Union. Needful diversions of wealth and of strength from the fields of peaceful industry to the national defence, have not arrested the plough, the shuttle or the ship; the axe has enlarged the borders of our settlements, and the mines, as well of iron and coal as of the precious metals, have yielded even more abundantly than heretofore. Population has steadily increased, notwithstanding the waste that has been made in the camp, the siege and the battle-field; and the country, rejoicing in the consciousness of augmented strength and vigor, is permitted to expect continuance of years with large increase of freedom. No human counsel hath devised nor hath any mortal hand worked out these great things. They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy. It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and one voice by the whole American People. I do therefore invite my fellow citizens in every part of the United States, and also those who are at sea and those who are sojourning in foreign lands, to set apart and observe the last Thursday of November next, as a day of Thanksgiving and Praise to our beneficent Father who dwelleth in the Heavens. And I recommend to them that while offering up the ascriptions justly due to Him for such singular deliverances and blessings, they do also, with humble penitence for our national perverseness and disobedience, commend to His tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife in which we are unavoidably engaged, and fervently implore the interposition of the Almighty Hand to heal the wounds of the nation and to restore it as soon as may be consistent with the Divine purposes to the full enjoyment of peace, harmony, tranquility and Union.

In testimony whereof, I have hereunto set my hand and caused the Seal of the United States to be affixed.

Done at the City of Washington, this Third day of October, in the year of our Lord one thousand eight hundred and sixty-three, and of the Independence of the Unites States the Eighty-eighth.

By the President: Abraham Lincoln

William H. Seward,

Secretary of State