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November 1, 2001

5 Min Read
International Molding Report: "War" impacts all molders for now

Editor's note: This article was prepared as part of IMM's International Molding Report series, which is written by Agostino von Hassell of The Repton Group. 

The economy is slowly returning to normal since the terror attacks on the U.S., but it is a new "normal." Many aspects of running an injection molding company will change now. Some of this change may be very subtle. Other changes are quite dramatic. And it will be six months or more before we see the full scale of the change to the new normal. 

So what is changing? Here is the short list: 

 Just-in-time manufacturing needs to be reevaluated and adjusted. 

 Molders who export face tougher controls and longer delays getting product to customers. 

 The changed nature of business travel will impact sales calls, trade shows, and other face-to-face meetings. 

 It is an open secret that many molders have hired illegal aliens. Very tough controls by the U.S. Immigration & Naturalization Service will be more common and disruptive. 

Just-in-time manufacturing will need to be reevaluated and adjusted.

This will probably be the biggest change. In the wake of the Sept. 11, 2001 attack, plants across the United States had to slow production or just stop. Why? Vital shipments of parts from Canada and Mexico got tied up in massive border delays as each truck was searched. 

The transportation problems caused "dramatic curtailments of production at some establishments with tight JIT supply chain practices," Federal Reserve Chairman Alan Greenspan told the Senate banking committee on Sept. 20. 

The situation has improved somewhat but delays remain common. Car parts maker Dana Corp., for instance, has already announced plans to reevaluate just-in-time practices. Key automakers such as Ford and General Motors are studying how to adjust their JIT systems. 

Additionally, all molders may face sharply higher shipping costs and insurance rates. And imports of electronic components, mostly from Asia, are showing sharp delays. Sources at Dell Computer Corp.--with typically just a four-day inventory on hand--say the company is already looking at ways to protect itself from further transportation delays. 

All the delays would have been substantially worse if plants had been operating at full capacity. But the slowdown in the economy alleviated the worst effects of the border snarls. 

What are the solutions? Canada's Customs Minister Martin Cauchon said Canada would make its long border with the U.S. "smarter" to cope with the long delays. Almost $700 million in parts move from Canada into the United States daily, much of which is destined for automotive assembly lines. 

Cauchon is pushing for quick passage of a bill aimed at redirecting resources by making routine travel and trade across Canada's borders easier through preclearance so that customs officials can focus on risks and health and safety issues. He also says that Canada is willing to discuss the idea of a North American perimeter, which would harmonize some immigration, security, and customs regulations with the United States. 

Canadian International Trade Minister Pierre Pettigrew says trade between the U.S. and Canada should not be affected over the long term by the attacks, but adds that he's worried by the impact delays at the border could have on just-in-time deliveries and perishable goods. 

Shipments from Mexico are also slow. U.S. Customs is now conducting extensive searches and the once-swift movement of goods has slowed to a crawl. No immediate relief is in sight and molders in the U.S. dependent on Mexican-made components for subassemblies are already trying to adjust production schedules. On a typical day almost 15,000 trucks enter the U.S. from Mexico. 

Molding plants in northern Mexico say that they are now facing added costs from the disruption in shipments and the need to rent space to store undelivered goods. Plans are in the works to use giant X-ray machines and other technology to expedite inspections. In Ciudad Juarez, across from El Paso, TX, assembly plant managers and truckers decided to hand over detailed employee information to U.S. officials and to restrict trucks to designated routes in hopes that the added assurance will expedite U.S. inspections. 

Manuel Sotelo, president of the Juarez trucking association, says trucking firms in the Mexican border's largest city are losing about $100,000 a day. He fears the terrorists may have forever changed an increasingly integrated cross-border way of life that's been evolving with the increase in trade between Mexico and the United States over the past decade. 

At this stage we do not yet know the full dimension of the shipment delays. Two examples provide an indication: One molder told us that his mold supplier in Taiwan indicated that shipment of several new tools would be delayed by as much as six weeks; air freight costs are suddenly exorbitant and the only cost-efficient way to transport the tools is by ship. Another molder in Arizona faces massive production delays; the molder makes components for scanners and assembles them using some components produced in Malaysia. Now the supply is essentially shut down and "we may have to wait three weeks before we can resume assembly and shipment to the OEM." 

Other National Changes 
The wake-up call of Sept. 11 will force a rapid shift in national priorities: 

 National research dollars will shift from innovations that could enhance productivity to technologies that enhance national security. Most molders will see few benefits from that and may find that the pace of product development in key markets slows. Most affected will be the pace of new product introduction in the medical equipment, appliance, automotive, and electronics markets. This means fewer orders for new parts and growing demands to reduce part costs. 

 Investment capital resources are shifting away from basic manufacturing to areas that need bailouts. For instance, the $15 billion for airlines and the estimated $60 billion needed to rebuild New York will result in reduced capital availability for molders and other manufacturers. 

 The majority of economists project sharply lower consumer spending in the next six months. The result will be a massive downturn in tourism, cruise lines, and support services for airlines, hotels, and restaurants. Many injection molding plants produce products for these markets--disposable drinking glasses, caps for miniature shampoo bottles, or institutional food containers. There is one small bright light: As the airlines have stopped using metal cutlery the demand for molded knives, forks, and spoons has exploded. 

 Business insurance rates will rise rapidly. Policies that insure molders against loss of income due to business interruption will jump in price. Insurance for foreign shipments will increase. And molders will face higher payments to state governments to help fund unemployment benefits. 

Contact information
The Repton Group
New York, NY
Agostino von Hassell
(212) 750-0824
[email protected]



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