Manufacturing Outlook August 2020 by Manufacturing Outlook

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GROW EXPORT SALES WITH SUPPORT FROM L I S T E N TO O U R P O D C A S T S AT:

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THE U.S. GOVERNMENT PAGE 10

MANUFACTURING OUTLOOK PAGE 6

THE CASS TRANSPORTATION INDEX PAGE 8

MANUFACTURING TIDBITS PAGE 10

METALS OUTLOOK JULY ISM PMI: 54.2%

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PAGE 38

Released August 3rd -The Full Executive Summary Report On Business - Page 26

Manufacturing Outlook / August 2020

Grow Your Export Sales

WITH SUPPORT FROM THE U.S. GOVERNMENT "Made in USA" is a mark of quality worldwide, and the sale of American exports should be booming. Unfortunately, extending credit to buyers and accessing working capital are major barriers to global growth for many manufacturers.

Fortunately, there is a solution.

The Export-Import Bank of the United States (EXIM), is an independent federal agency that enables U.S. companies of all sizes to compete successfully and win sales in more than 180 countries. EXIM financing overcomes the major barriers to global growth for many companies with:

EXPORT CREDIT INSURANCE — which enables manufacturers to extend open account

credit terms to buyers, protect against buyer nonpayment, and improve their cash flow.

WORKING CAPITAL GUARANTEE — that supports lenders’ credit lines to small and medium-sized U.S. businesses for producing their goods or services.

TERM FINANCING — assists international buyers in obtaining commercial lender loans

to purchase U.S. capital goods and related service, typically at competitive rates and longer repayment terms. Manufacturing is important to EXIM, comprising half of the agency’s customer base in terms of total support. With more than 90 percent of EXIM’s transactions directly support small businesses, no deal is too small.

Learn more now! Contact EXIM's export finance regional directors to answer your questions at 800.565.3946 (EXIM). Visit exim.gov. Don’t miss this special event! Register now for this excellent trade learning opportunity!

Publisher LEWIS A WEISS Editor in Chief TIM GRADY Creative Director CRAIG ROVERE Contributing Writers ROYCE LOWE CRAIG ROVERE NORBERT ORE CHRIS KUEHL THOMAS R. CUTLER 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

TABLE OF CONTENTS

5 PUBLISHER’S STATEMENT A word from our publisher

MANUFACTURING OUTLOOK

Manufacturing in the US, Canada & Mexico

A look at manufacturing around the globe

SOUTH AMERICA OUTLOOK

THE CASS TRANSPORTATION INDEX REPORT

Brazil in the spotlight

A look at shipping volumes and costs

ASIA OUTLOOK

COVER STORY: GROW EXPORT SALES WITH HELP FROM THE US GOVERNMENT by By James Burrows, Senior VP, Office of Small Business, EXIM Bank

MANUFACTURING TIDBITS

Insights from inside manufacturing in action

14 MORE THAN HALF OF ALL MANUFACTURERS ARE NOW ENGINEER-TO-ORDER AND GROWING by Thomas R. Cutler

16 WHAT WILL THE FEDERAL & STATE

GRANT LANDSCAPE LOOK LIKE POSTCOVID? by Thomas R. Cutler

18 WHAT’S WRONG WITH INDUSTRY

1.0 PRICING IN A SERVICE-DRIVEN, INDUSTRY 4.0 WORLD? by Thomas R. Cutler

WILL EMERGE FROM COVID-19 PROFOUNDLY CHANGED

© 2020 Jacket Media Co. No part of this publication may be reproduced or used in any form without the prior written permission of the publisher. Manufacturing Outlook is a registered trademark of Jacket Media Co.

ISM MANUFACTURING REPORT ON BUSINESS

NORTH AMERICAN OUTLOOK

20 RESHORING: GLOBAL MANUFACTURING Text “RADIO” to 66866 for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast.

by Bill Berutti, Plex Systems CEO

22 HANDWASHING: BRINGING THE SINK TO THE PLANT FLOOR. by Thomas R. Cutler

24 GARTNER SURVEY REVEALS 17% OF CHIEF SUPPLY CHAIN OFFICERS ARE WOMEN by Thomas R. Cutler

Open call for...

China, Japan and India

34 EUROZONE OUTLOOK A look at Europe

35 GLOBAL PMI OUTLOOK by Norbert Ore

36 THE CREDIT MANAGER’S OUTLOOK by Dr. Chris Kuehl

38 METALS OUTLOOK The cost, making and treating of metals

42 AEROSPACE OUTLOOK The aerospace industry

44 ENERGY OUTLOOK Energy and the environment

46 AUTOMOTIVE OUTLOOK Auto industry news

48 ISSUES OUTLOOK Issues around the globe

Contributing Writers for new and existing content. Let’s start a conversation – Contact us at info@jacketmedia.com or visit mfgtalkradio.com/writer for more information.

PUBLISHERS STATEMENT Publisher’s Statement

Unseen, Yet Undeniably Vital As the country reopens its businesses, schools, universities, municipal offices, and all the other operations that were either totally or partially shut down, the indicators for a recovering economy are moving upward. So are the cases of Covid-19, as revealed by aggressive testing, while the death rate from this awful virus begins to decline. We have to express a huge “Thank You!” to our front line health care workers, from the CEOs of hospitals to the sanitation staff, the researchers and scientists, and all of the government efforts to contain this pandemic and arrive at vaccines or therapeutic treatments to conquer it. Never before in the history of the world has a country gone from outbreak (first U.S. reported case was January 20, 2020) to effective in-hospital treatments reducing the mortality rate in less than 4 months, and onward to more than a dozen Clinical 3 trials in less than 6 months, and the potential for a widespread vaccination response in less than 1 year, possibly within 9 months. What is often not mentioned is how deeply manufacturing has been involved in this rapid response. All the PPE was manufactured. The medicines used for treatment, some either prophylactically or experimentally, and some proven, were manufactured. The hospital beds and equipment were manufactured. The test tubes, machines, analysis computers, electron microscopes, and other scientific equipment to examine, rip apart, and devise therapies to combat the virus were manufactured. The transportation equipment, from boxes and coolers, pallets and case wraps, to trucks, tires, pallet jacks, warehouse robots, and hand held devices to move the goods where needed were manufactured. Manufacturing is a backbone of America. And the courage of people to go to work as first responders in the face of civil and medical unrest are heroes. As are the workers who showed up on the production floors all across America, and other parts of the world, to keep machines running to produce the goods needed to respond to an event that hasn’t occurred in over 100 years. Now, more than ever before, America is witnessing first-hand the importance of Made in America. And although we acknowledge all the countries and people involved in combating this virus, we are more aware than ever of the need for the capability of home-grown solutions. At Manufacturing Outlook, on the air with Manufacturing Talk Radio, Manufacturing Matters with Cliff Waldman, Where’s Willie, The WAM Podcast, Hazard Girls, and our podcast websites, our emphasis is on manufacturing from 30,000 feet down to the boots on the ground, from great innovations to the forward flow and outlook of the industry, sector by sector, and a whole that is far greater than the sum of its parts. While some measurements calculate manufacturing as just 12% of GDP, our discussions, articles and interviews cover the entirety of manufacturing, including all its input, outputs, and every staff member at each of those companies. By this measure, manufacturing is more than 1/3 of GDP – probably larger. In this issue of Manufacturing Outlook, and future issues, you will begin to notice a shift from facts and figures to stories about manufacturing from top-level executives and industry professionals as we move the ezine content from where manufacturing has been over the last 30 days to where it is going over the next few months. This will help our readers gain insight into where they should be looking as each sector moves from near dead stop toward full operations, and from two quarters of negative GDP to positive GDP growth. Keep up with the “Outlooks” in every issue as we rally back from Covid-19. 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 / August 2020

MANUFACTURING OUTLOOK

AUGUST 2020

MANUFACTURING OUTLOOK GLOBAL MANUFACTURING CREPT BACK INTO GROWTH TERRITORY IN JULY, AS DID THAT IN THE EUROZONE. U.S. GDP IS WAY DOWN. THERE WAS A TRIUMPH FOR SPACE X AS CREW DRAGON SPLASHED DOWN.

by ROYCE LOWE The COVID-19 virus is still causing concern, particularly in the U.S., Brazil and India. The Bureau of Labor Statistics jobs report for July shows a gain of 1.8 million non-farm payroll jobs, with the unemployment rate easing to 10.2 percent. Employment was up sharply in leisure and hospitality, along with a partial resumption of economic activity. Manufacturing jobs were well below forecast, rising just 26,000 in July; while some 39,000 jobs were added in motor vehicles and parts, the gains were held back by declines at producers of fabricated metals, machinery and computers and electronic products. Manufacturing jobs are still down by 740,000 since February. Construction jobs were up by 20,000, and mining continued to shed jobs (-7,000). The Bureau of Economic Analysis recently released its ‘advance’ estimate for the annual rate of Real GDP growth in the second quarter of 2020, putting it at minus 32.9 percent. The figure for the first quarter of 2020 was minus 5.0 percent.

Manufacturing Outlook / August 2020

The ISM PMI figure for U.S. manufacturing retrieved more ground in July, moving from 52.6 percent in June to 54.2 percent. The overall economy returned to a third month of expansion. IHS Markit’s remarks on the U.S. for July show manufacturing conditions improved for the first time since February, with renewed upturns in production and new orders. There was a softening in employment contraction. There was a quicker increase in input costs and supplier shortages. Business confidence was at a five-month high. There was some concern for the near term with a rise in virus cases. Input prices rose amidst increasing input demands, with companies passing on higher costs with increased selling prices. The IHS PMI for July increased to 50.9 from June’s 49.8. GLOBAL STEEL PRODUCTION WAS DOWN BY 7.0 PERCENT YEAR-OVER-YEAR IN THE MONTH OF JUNE for the 64 reporting countries – which represent 99 percent of world crude steel production – to 148,295 MT. The only major country that did not show a

MANUFACTURING OUTLOOK month by 11.3 percent, to a SAAR of 14.5 million, but down on last year by 12.1 percent. The sales below are for July 2020 and YTD

U.S. crude steel production for June was 4,746 MT, down 34.5 percent year-over-year.

significant drop was China, whose output rose by 4.5 percent to 91,579 MT. Primary Global Aluminum Production in June was reported at 5.274 million tons, with production in China, at 3,005 million tons, representing 57 percent of world total. Production was 479,000 tons in GCC; 337,000 tons in the rest of Asia; 273,000 tons in

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 worldâ&#x20AC;&#x2122;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.

Western Europe; 346,000 tons in North America and 340,000 tons in Eastern and Central Europe. U.S. LIGHT VEHICLE SALES There is a dearth of information regarding vehicle sales for the month of July. Sales were up month on

Manufacturing Outlook / August 2020

CASS INDEX OUTLOOK

AUGUST 2020

CASS TRANSPORTATION INDEX REPORT

by CASS INFORMATION SYSTEMS, INC. The Cass Freight Index showed sequential volume improvement again in June, although freight volumes still remain well below year-ago levels and also below pre-pandemic levels. We were thinking the June rebound would have been stronger, based on what we’re hearing on the trucking side and what we’ve been seeing with respect to rail traffic and with the ISM Index now back >50. Earnings season for the transports kicks off this week, and we should get more color on why this may have been the case. In our view, U.S. freight volumes (the amount of “stuff” moving around the country) will not return to 2019 levels until 2021 at the earliest. Given the most recent Cass readings, there is still a wide gap to bridge. Cass Freight Index - Shipments As a measure of economic activity, Cass Freight Index shipment volumes dropped 17.8% vs yearago levels, better than last month’s -23.6% y/y change, but not good by any absolute measure. The index reading from May nudged up 3.5%, an acceleration from the 1.6% sequential improvement seen from April’s low to May. We believe the stock market run over the last few months has, therefore, largely been a function of very low interest rates (higher valuation multiples) and not a function of a better economy (higher earnings). Consumer confidence remained soft through June and looks much more like the small Cass bounce

Manufacturing Outlook / August 2020

in shipments than some of the other macro data bounces off the bottom. This recovery is still in the early stages, and certainly the timid consumer is unlikely to increase spending near-term (without further government “assistance”). As for what’s coming into the U.S., June container volumes were down at the Ports of L.A. and Long Beach, but while ocean freight is not strong, yields continue to go higher due to steamship line capacity rationalization – something we’re not used to seeing from the ocean carriers. This is inflationary if the carriers remain disciplined for an extended period. Moving from the water to air, airfreight volumes have been strongest out of Asia (even as PPE demand has slowed and shifted more to ocean), but capacity in all lanes remains the major issue with most commercial belly capacity staying out of the market by some estimates until late 2021. The weekly rail traffic data, excluding coal and grain shipments, showed steady improvements through the end of June and into July (the Week 27 comp was inflated due to an easy July 4th comp, as the holiday was observed on a Friday this year vs. a Thursday last year). This data set typically tracks similar to the Cass index, and while directionally still accurate, Cass has been lagging in the recovery. Halfway through July, the rail volume comps are getting better still, so we’d expect Cass to rise again next month.

CASS INDEX OUTLOOK Cass Freight Index - Expenditures As for what shippers are paying, freight expenditures were down 18.3% y/y in June (Charts 7 & 8) – better than May’s low. Spending jumped 6.4% sequentially due to better volumes and higher pricing, but revenue per shipment was slightly down y/y, due mainly to lower fuel surcharges (Chart 9). There could also be some mix changes due to this odd period driving that number, as we’ve talked about in recent Cass reports. Shippers are still benefiting significantly from the lower fuel prices. Truckload Linehaul Index The Truckload Linehaul Index, measuring permile linehaul rates, takes a look at the largest (and most fragmented) market in the domestic transportation landscape, and it declined 5.9% y/y in June after a 5.0% y/y drop in May. The absolute index, which excludes fuel surcharges, also declined slightly sequentially from May to June and has been around the same absolute level (129-131) since January. Supply is only coming out of industry, so why are rates not moving higher as demand recovers? We have heard that through the pandemic, shippers are continuing to be difficult in truckload contract rate negotiations. This may soon change, but we haven’t seen it yet. When we look at spot rates posted in June (and into this month), a much stronger pricing picture is painted than is reflected in the Cass Truckload Linehaul Index, which is comprised mostly of contract rates. Rates are currently tracking up

9.8% y/y (including fuel surcharges) in the dry van market. Reefer is up 4.6% y/y, while flatbed is now off just 4.4% vs a year ago. We believe the spot market (as well as the contract market) has bottomed and that the rebound in rates, as discussed above, will depend on the strength of the recovery coupled with the pinch of industry supply from factors besides just truck production – like rising insurance costs and limited driver supply. As we typically note, the Cass Truckload Linehaul Index has a strong correlation to the quarterly yield metrics reported by the publicly traded TL carriers. And June’s data is showing that TL yields will probably average ~6% decline y/y in 2Q20. The Cass Intermodal Price Index, measuring total per-mile costs, looks at the smaller intermodal market and shows significantly worse trends than TL, falling 16.8% y/y in June. The big difference right now is in the fuel surcharge, as the Cass Truckload Linehaul Index excludes fuel surcharge, whereas the Intermodal index includes fuel surcharges. With diesel prices down ~20% y/y, we believe this accounts for roughly 5% of the difference. So, with intermodal volume comps improving through June, we are surprised rates are not stronger, unless the contract pricing is lagging truckload and still under pressure. In summary, shipment volumes according to the Cass data showed improvement in June, as we make our way off the 2Q20 bottom. But, this does not paint a favorable picture of the overall U.S. economy, as there is still a long way to go before arriving back even at 2019 levels.

Manufacturing Outlook / August 2020

COVER STORY

AMERICAN MANUFACTURERS CAN GROW EXPORT SALES WITH SUPPORT FROM

THE U.S. GOVERNMENT

by By James Burrows Senior Vice President, Office of Small Business, EXIM Bank

Boosting sales. Increasing revenue. Supporting jobs. These are all challenges that U.S. companies face, especially those who sell their goods and services around the world. The Export-Import Bank of the United States (EXIM), with a mission of supporting U.S. jobs by facilitating exports, can assist U.S. manufacturers in overcoming these obstacles and growing their businesses with competitive financing solutions on both ends of the transaction that support the exporter and the buyer. EXIM is an independent federal agency that enables U.S. businesses of all sizes to compete successfully and win sales in more than 180 countries. When private-sector financing is unavailable, EXIM can fill the gap, helping level the playing field to enable U.S. businesses and workers to compete effectively in the fierce global marketplace. In doing so, EXIM partners with, but does not compete with, banks,

Manufacturing Outlook / August 2020

credit unions, and other lenders to empower U.S. businesses to increase their exports. For American manufacturers, this support can be critical. EXIM assists by allowing companies of all sizes to extend credit to buyers and access vital working capital, which are major barriers to global growth for many companies. Manufacturing is

COVER STORY essential to the nation — and to EXIM, comprising half of the agency’s customer base in terms of total support. In addition, more than 90 percent of EXIM’s transactions directly support small businesses, which means no deal is too small. EXIM’s Extensive Support for Manufacturers EXIM is a long-standing global leader and innovator in the development of competitive export credit financing solutions. The agency provides these key tools for U.S. manufacturers: Export credit insurance, an insurance policy that covers a business’ foreign accounts receivable against commercial and political risks. It assures U.S. companies that their bottom line will be protected should a foreign customer fail to pay. If a foreign buyer defaults due to an unforeseen bankruptcy or foreign political issue, EXIM will reimburse the business for up to 95 percent of its sales invoice. Working capital loan guarantees, which provides a line of essential credit from lenders to fulfill sales orders and take on new international business. With EXIM’s guarantee, U.S. companies can borrow more with the same collateral as well as secure performance and bid bonds without tying up

significant funds. Essentially, EXIM works with lenders to provide a loan guarantee that backs the borrower’s debt in the event something goes awry. Further, under the agency’s COVID-19 relief measures, EXIM can provide for an increased guarantee coverage option to 95 percent under the Working Capital Guarantee Program for a limited time. COVID-19 relief measures, which have been implemented since the onset of the COVID-19 (coronavirus) pandemic to assist U.S. exporters and financial institutions, including U.S. small businesses. These measures, with provisions for both export credit insurance and working capital facilities, include waivers, deadline extensions, streamlined processing, and enhanced flexibility. Benefits of EXIM’s Financing Solutions EXIM’s financing facilities enable buyers of U.S. goods and services to make selections based on the quality of the offerings, rather than on financing terms. Working with EXIM, U.S. companies can further grow their international customer base, showcase the quality of “Made in the USA” goods and services, monetize their valuable intellectual properties, and

Manufacturing Outlook / August 2020

support U.S. jobs while significantly reducing the risk of nonpayment on international sales. The benefits of EXIMâ&#x20AC;&#x2122;s export financing and risk mitigation solutions through include: Open account credit terms: Export credit insurance allows businesses to extend open account credit terms to foreign buyers. Requiring payment in advance can deter sales, but with EXIM support, U.S. manufacturers can confidently provide payment terms of up to 180 days. Buyers tend to buy more when offered terms since cash-in-advance can adversely affect their cash flow. Protection against buyer nonpayment: Export credit insurance reduces the risk of U.S. companies not getting paid due to commercial and political risks. Getting paid is often cited as the primary reason why companies are wary of exporting. Policies can cover a

Manufacturing Outlook / August 2020

single buyer, select buyers, or an entire portfolio. Expanded borrowing capacity: EXIM-insured foreign accounts receivable can be assigned to a lender, improving a companyâ&#x20AC;&#x2122;s liquidity and easing cash flow constraints. Access to vital export funding: EXIM provides a 90 percent loan guarantee that encourages lenders to provide credit to manufacturers. The funds can be used to fulfill sales orders as well as cover labor and overhead costs. EXIM also can help obtain standby letters of credit to be used as performance or bid bonds. Term financing: EXIM guarantees financing to creditworthy foreign buyers for purchases of U.S. capital goods and services. With this support, the U.S. companies get paid in full upon shipment. Meanwhile, foreign buyers have better access to lender loans, typically with lower interest rates and longer repayment terms.

COVER STORY EXIM Success Story: Boost International Sales While Protecting Cash Flow

creation of an additional 10 jobs in the past two years.

Competitive Engineering Inc. (CEI) of Tucson, Arizona, has leveraged EXIM’s working capital loan guarantee to expand its international sales while sustaining local jobs and creating additional ones.

“EXIM’s support has been critical to CEI’s continued success,” said CEI President Don Martin, who founded the company with his wife, Charlotte, in 1987. “Exports constitute a significant portion of our business, and we need our foreign accounts receivable to be included as collateral. EXIM’s program has given us access to the working capital we need to sustain our exports and the jobs of our hard-working employees.”

A small business of 73 employees, CEI manufactures precision components for a variety of customers, particularly in the aerospace and data-storage industries. When the company needed to improve cash flow to support its growing export business in 2005, CEI turned to EXIM’s working capital loan guarantee to find a lender that would include foreign accounts receivable as collateral in its borrowing base. CEI uses the EXIM-guaranteed working capital to cover inventory and purchase of materials while maintaining its cash flow while awaiting payment of foreign accounts receivable. This capacity has enabled the company to remain competitive and sustain exports to major buyers in Mexico and the Philippines. Over the past five years, EXIM has assisted nearly $55 million of CEI’s exports, which account for approximately 40 percent of the company’s revenues. As a result, CEI has been able to remain competitive and increase revenue — leading to the

For more information about EXIM financial products that support the manufacturing industry, contact Stephen Maroon, EXIM’s Director of Marketing, at (202) 257-4082 or stephen.maroon@ exim.gov. Author profile:

Mr. Burrows has more than 30 years of professional experience in both the public and private sectors of the U.S. financial services industry, including commercial banking, retail banking, and investment banking. Burrows joined EXIM as the Vice President of Small Business in October 2012 and was promoted to the Senior Vice President in 2013. Burrows has also held management positions at both large and regional commercial banks.

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Manufacturing Outlook / August 2020

MANUFACTURING TIDBITS

More than Half of All Manufacturers are Now Engineer-to-Order and Growing

by T.R. CUTLER

Fifteen years ago (2005), approximately 25% of all North American manufacturers were ETO (Engineer-to-Order), yet very few knew it. They referred to themselves as custom manufacturers or manufacturers within a particular sector. The TRCutler marketing research division tracks ETO manufacturing annually since 2005. The research survey is conducted every July and funded by the 8000 members of the Manufacturing Media Consortium. The report is a statistically significant sample size of 1600 manufacturers. The projected data (for 2025) was determined by asking each respondent what they anticipate in the next five years. That is the greatest growth trajectory in the ETO space since 2005. Fast forward to 2020 and the customer demand for customization and one-of-a-kind manufacturing has never been stronger; there has been a 100% increase in ETO manufacturing. More than half of all manufacturers produce non-standardized SKUs and finished goods. These are custom manufacturers rather than repetitive manufacturers. When counting manufacturers by process, there are gray areas including ATO (Assemble-to-Order) and BTO (Build-to-Order), however ETO manufacturers confront many unique challenges as illustrated by the unique ERP (Enterprise Resource Planning) features detailed below.

Manufacturing Outlook / August 2020

MANUFACTURING TIDBITS ETO has grown because of both customer customization demand as well as the fact that these projects produce significantly higher margins if managed correctly. What has not changed about these ETO manufacturers is that they build unique products designed to customer specifications. Each product requires an exclusive set of item numbers, bills of material, and routings. Technology gains from efficient software systems, specifically ERP have improved for ETO manufacturers. The customer is heavily involved throughout the entire design and manufacturing process and only engineering-driven manufacturers can effectively navigate the inherent changes characteristic of the ETO environment. Just as manufacturers have recognized the profitability and efficacy of ETO manufacturing, technology providers have advanced as well. Originally many ERP solutions providers took their off-the-shelf ERP solutions and made a few cosmetic changes claiming they could offer an ETO ERP solution. The result was significant buyers’ remorse as those solutions had a back-office accounting orientation rather than an engineering-centric focus. Since ETO is all about engineering, few ERP providers understand the pain points of industrial engineers. Industrial engineers identify needs of ETO ERP According to Andrew Schutte, General Manager of COUNTERPART, when running an engineer-to-order company it is critical to meet client expectations consistently. Schutte shared, “At the same time, you must take on as large a workload as possible to maintain throughput and revenue. This all starts with the engineers who must effectively manage job timelines; an expedient handoff and streamlining reliable dates to engineering, procurement, manufacturing, and assembly is a must have. This can only happen with bi-directional SOLIDWORKS® integration, eliminating all double entry without importing and exporting of BOMs (bill of materials). The result is saving valuable time and improving accuracy while effectively communicating partial or full BOMs to purchasing and manufacturing.” SOLIDWORKS Product Data Management (PDM) products manage and synchronize design data across the entire enterprise with a single, easily deployable solution tightly integrated with all SOLIDWORKS applications. Engineering teams require visual inventory management to see the location, quantity, and allocation of components with SOLIDWORKS images. Engineers are able to effectively manage the transfer and cycle counts of components, providing up-to-date information for the assembly team. All have a clear realtime awareness of what was ordered, what is completed, and what is ready to be assembled. Rather than clunky ETO ERP solutions with excessive, often unused features and needless functions, the new breed of best-in-class ETO ERP provides unparalleled engineering efficiency via industry leading SOLIDWORKS and PDM integration. Uniquely, COUNTERPART provides SOLIDWORKS driven data throughout the company, enabling real-time tracking of components though design, purchasing, manufacturing, inventory, and assembly while seamlessly tracking components throughout the company. Given the projected growth trajectory of engineer-to-order manufacturing over the next five years, rapid deployment of focused ERP technology solutions will ensure the high profit margins which make manufacturers gravitate toward customization and meet the unique demands of customers. Author Profile:

Thomas R. Cutler is the President and CEO of Fort Lauderdale, Florida-based, 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 4400 industry leaders follow Cutler on Twitter daily at @ThomasRCutler. Contact Cutler at trcutler@trcutlerinc.com. Manufacturing Outlook / August 2020

MANUFACTURING TIDBITS

What Will the Federal & State Grant Landscape Look Like Post-COVID? Engineer-to-Order and Growing by T.R. CUTLER

2020 has definitely gone down as a year to remember, and not necessarily in a good way. However, as a grant professional for the manufacturing community, I lean toward describing the pandemic with adjectives such as “interesting” and “opportune” rather than “scary” and “depressing”.

But what happens when the CARES Act funding is spent and a vaccine is on the market? What happens when we reach the “new normal” that is certain to appear post-COVID? Will all this funding disappear as well? Not only would I answer “no”, but I am also going to predict that funding for the manufacturing community will actually INCREASE post-COVID.

The COVID pandemic has prompted wave after wave of new and intriguing grant and government contract opportunities. First there were the emergency grants funding badly needed PPE and ventilator manufacturing. Then came contracting opportunities through organizations like USAID to distribute those goods. As CARES funding flowed from federal to state coffers, COVID funding became available to help manufacturers retool, increase their resiliency and spur economic recovery.

Why, you might ask? I truly believe a few longstanding manufacturing issues were in the spotlight during COVID. A few of the key ones are listed below:

Today, the conglomeration of COVID funding ranges from federal and corporate grants for pharmaceutical manufacturing to state awards that reimburse manufacturers for retooling costs and funding to reimburse businesses for the negative effects that COVID had on their operations. The amounts of money vary greatly as well, with federal grants in the millions of dollars, to state grants with awards in the tens of thousands of dollars.

Manufacturing Outlook / August 2020

Reshoring - Pre-COVID, there was an ongoing discussion surrounding reshoring. During COVID, however, this became a national conversation. I believe these discussions will not only generate a renewed “Buy America” movement, but will result in funding at the federal and state levels to help companies localize their supply chain. These grants could incentivize supply chain analysis as well as strategy development and execution. They could also fund a portion of the cost to retool American plant equipment or add manufacturing capacity to bring product in-house from overseas. Workforce - Pre-COVID, the talent skills gap in manufacturing was widely publicized. However, as companies bring product back to America, medium

MAANUFACTURING MANUFACTURING TIDBITS

to high skilled workers will be needed to address additional production requirements quickly. This situation will exacerbate the skills gap and highlight the dire need to quickly train workers through higher education and apprenticeships. I expect both state and federal governments to respond to this crisis with grants and tax credits to incentivize worker training as they have in the past but in increasing amounts. Federal grant programs to innovate career training have recently been announced and require consortiums involving manufacturers, education and economic development to develop these new career pathways. I expect this trend to continue through new and continuing federal and state funding opportunities as well. Broadband - COVID-19 brought a dramatic increase in remote workers, distance learning and telemedicine. These efforts to keep Americans safe has resulted in recognition by federal government agencies that internet service in many rural areas is poor or not available. As a result, government officials pumped money into USDA coffers this summer to increase the funding for rural distance learning and telemedicine efforts and broadband connectivity in rural areas. The government will need to continue to address these weaknesses as workers stay working from their homes in rural areas; schools tackle the risk associated with a return of

students to the classroom; and older Americans opt for telemedicine services to reduce their exposure to COVID and other infectious diseases. I expect continued additional funding to USDA to address these ongoing challenges. Summary - While there is no doubt that the pandemic had disastrous consequences for our country, it also brought issues that have long been the subject of backroom and boardroom discussions into the national spotlight. It is my fervent hope that these long standing and important issues will finally be addressed with the support of grants and incentives. Author Profile: Thomas R. Cutler is the President and CEO of Fort Lauderdale, Florida-based, 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 4200 industry leaders follow Cutler on Twitter daily at @ThomasRCutler. Contact Cutler at trcutler@trcutlerinc.com. Manufacturing Outlook / August 2020

MANUFACTURING TIDBITS

What’s Wrong with Industry 1.0 Pricing in a Service-Driven, Industry 4.0 World? Lots. But a new Machine-as-a-Service model may hold the key to reducing the risk of asset acquisitions in a post-pandemic world. by MICHAEL CROMHEECKE, CEO, STEAMCHAIN In the best of times, manufacturing leaders wrestle with capital budget constraints that prevent them from implementing even projects with a reasonable return on investment. Now coping with recession and the uncertainty of shifting demand trends in a postpandemic era, they’re facing great risk as they cope, alternately, with shutdowns and slowdowns; and the need to rapidly retool for opportunities that may call for greater capacity — and new machinery. Likewise, prior to COVID-19, another class of manufacturers, machine and equipment suppliers, were comfortable with orders backlogged for months running into quarters. Post-pandemic, they’re eager for new ways to keep cash fluid and grow their businesses. Both suppliers and customers have in recent years learned the value of service contracts, increasingly employing the Internet of Things (IoT) for remote monitoring and maintenance. Now, interest in a related business model for asset purchases is rising as companies seek greater cash fluidity and lower risk. That model goes by many names, including outcome- or output-based pricing or Machine-as-aService (MaaS). Outcome pricing models can work in any environment with a measurable, IoT-capable data flow. This includes process, discrete or hybrid environments. Historically, it’s been very difficult to respond to fast-moving consumer goods (FMCG) such as food and beverage, personal care and pharmaceutical production. There are many reasons relating to the number and complexity of suppliers, assets and customization requirements — as well as the sheer volume of data. Now, this problem has been solved.

Manufacturing Outlook / August 2020

A MaaS Breakthrough Contract terms vary widely, but one supplier of a “pure” MaaS offering, Pearson Packaging Systems, will install and commission automated casepacking machines on a packaging line, and provide remote maintenance and spare parts, in exchange for a charge per case packed — all for zero upfront capital. CEO Michael Senske, partnered with SteamChain to scale-up a broad rollout of MaaS, reports “overwhelmingly positive” feedback from operational leaders seeking to overcome budget constraints. This scalable solution eliminates the risk of relying on error-prone estimates and forecasts, instead leveraging real-time equipment data as the foundation for automated clearing of financial transactions. It’s the key to allowing FMCG and other high-volume production environments to employ MaaS. The reportedly first-of-a kind platform brings IoT performance monitoring together with a secure, immutable, blockchain ledger both parties can access but no party can modify. This, in turn, prevents disagreements while helping “build a very high level of trust with customers,” says Craig Francisco, vice president of strategy for RōBEX, a systems integrator and builder of robotic material handling systems also offering the MaaS platform. Shared Incentives, Shared Risk/Reward In a well-structured MaaS partnership, everybody wins. The supplier gains recurring revenue based on measurable results. The manufacturing end user, in turn, gains a partner financially vested and accountable in uptime, quality and efficiency, and high performance.

MAANUFACTURING TIDBITS MaaS is very different from buying or leasing a machine, where the supplier has been paid in full, and the leasing company doesn’t care if the machine’s working — it’s not their fault! Today, the traditional capital asset acquisition is milestone-based. Typically, the buyer pays 30% at contact signing; 30% at design complete; another 30% at factory acceptance at the OEM’s facility with a final 10% holdback pending installation and atsite acceptance. This way of managing transfer of risk through the transfer of capital has remained basically unchanged since the birth of the Industrial Revolution. But at the end of that process, there’s always some back-and-forth that shows the model’s age: The buyer wants to get as much trending, testing and validation that the asset’s going to work as promised, because they’re going to own it for many years. The seller, on the other hand, has gotten paid and wants, actually needs, to focus on the next project. This “Industry 1.0” mode of asset acquisition bears an update for the Industry 4.0 era. With all the rich data coming from automated machines, people are coming to realize that they can now use that data for

the most critical element: The procurement of the machine and the management of its performance over its lifecycle. The key to success with MaaS is to structure a model that works for both the machine builder and the customer, and creates the right incentives. That way, both parties profit when the machine is running well. And that’s exactly what’s driving the manufacturing industry to consider a new take on old asset acquisition model. About profile

Michael Cromheecke, Founder and CEO of SteamChain, has 17 years’ experience at Rockwell Automation. His background includes the acquisition and growth of early-stage robotics technology companies as well as the creation and development of multi-million dollar, cloud-based software platforms. Mike has a degree in Mechanical Engineering from Michigan Technological University.

Manufacturing Outlook / August 2020

MANUFACTURING TIDBITS

Reshoring:

Global Manufacturing Will Emerge from COVID-19 Profoundly Changed by BILL BERUTTI, PLEX SYSTEMS CEO

While manufacturers had begun reshoring well before COVID-19 began to spread, the virus has created a renewed urgency for manufacturers to take a closer look at the health of their supply chains. Weaknesses in single-threaded supply chains – for example, those that are entirely reliant on China – have accelerated the industry’s push toward a multi-threaded approach, including considering both reshoring and nearshoring efforts. Manufacturers should expect this shift to impact not only the way they approach their supply chains but also the technologies required to manage them to ensure they have the visibility and agility they need to quickly respond to unexpected situations. Single-Threaded Supply Chains: A House of Cards Set to Fall In the decades leading up to COVID-19, manufacturers had become increasingly reliant on single-threaded supply chains, largely driven by the cost benefit of manufacturing overseas. For many, the low cost and resulting competitiveness of this approach outweighed the potential risk of relying on a single source for manufactured goods or raw materials. However, even before COVID-19, the attractiveness of overseas manufacturing was already losing its luster, thanks to steadily growing labor costs and escalating trade wars. Suddenly, the risks associated with this type of arrangement began to overshadow the benefits. As a result, reshoring gained speed in 2019 as compared to 2018. Kearney’s latest index shows that

Manufacturing Outlook / August 2020

domestic U.S. manufacturing last year commanded a significantly greater share versus the 14 Asian lowcost countries (LCCs) tracked, with manufacturing imports from China registering a particularly sharp decline. And then the coronavirus began to emerge in Asia. Agility Becomes the Key Differentiator While manufacturers were likely aware of the potential risks of a single-threaded supply chain, no one could have predicted the full scope and impact of COVID-19. The companies that struggled the most to manage the business implications of the virus were largely the ones that had cornered themselves into sourcing from a single geography or supplier. Without an agile supply chain management strategy or even the ability to see how their operations could be impacted, these manufacturers faced significant disruptions in their supply chain, making it difficult, if not impossible, to meet their customers’ needs. The companies that were able to respond to the pandemic with agility were the ones that quickly turned to technology to help them not only survive, despite government-mandated shutdowns and social distancing requirements, but also win new business. For instance, with the help of cloud-based smart manufacturing technology, spice manufacturer Olde Thompson took advantage of the visibility it had into its digitized supply chain to rapidly correct for any interruption, allowing the company to attract business away from its competitors. As a result, the company saw revenues jump by 60 percent. And, while many manufacturers scrambled to shift non-

MANUFACTURING TIDBITS of this approach, carefully weighing the potential value of re- or nearshoring. The virus also highlighted the importance of technology to ensure resiliency during a crisis. Faced with supply chain disruptions, plant closures, and the need to quickly pivot to remote working environments, manufacturers that had invested in smart manufacturing solutions had visibility into and control of their operations and supply chains, making them best positioned to respond to the crisis with agility.

production employees to a work from home model without disrupting business, Olde Thompson’s staff seamlessly transitioned to working remotely. Data Suggests Global Supply Chain Transformation is Already Underway

As the industry gets back on its feet, investments into supply chain management and manufacturing operations solutions will likely pick up, as manufacturers recognize the need to respond more effectively to volatility and change, should another industry-wide disruption occur. These investments in technology will deliver greater operational visibility and control, ultimately helping manufacturers make better informed decisions as to how to best create a more resilient supply chain.

Plex’s latest smart manufacturing data, which tracks the production activity of more than 1,200 manufacturing plants worldwide, suggests that companies are already beginning to consider or move toward reshoring or nearshoring — specifically out of China.

The broader implications of the coronavirus will likely take years to be fully realized, but we can be certain of one thing: Manufacturers willing to disrupt the supply chain status quo will have the most to gain.

While factories in China saw a surge in activity during late winter, activity in the country has hovered around 50% of pre-pandemic rates since the beginning of April. The rest of the global manufacturing community, in the meantime, is operating at around 80% of pre-coronavirus rates as of late June.

Author Profile:

China’s lagging progression is likely to continue, given escalating tensions in trade relations between the U.S. and China as well as efforts by the U.S. to fund reshoring efforts. Placing operations in China under scrutiny may be the first of several disruptions, as the entire global manufacturing community closely evaluates their supply chain risks and opportunities. The Future of Manufacturing COVID-19 exposed the underlying weaknesses in many of today’s supply chains. To reduce their vulnerability, manufacturers must reassess their supply chain strategy, taking into consideration the benefits of multi-threaded supply chains and as part

Bill Berutti leads the Plex mission of driving continuous customer value with the most innovative smart manufacturing technology. With his deep roots in the industry, Bill brings firsthand knowledge of the transformative power of technology across manufacturing – from the shop floor to top floor. Under his leadership, Plex has expanded its product portfolio, increased its international presence, and achieved double-digit growth each year. A seasoned cloud and enterprise software veteran, Bill has more than two decades of experience leading global, high-growth cloud and enterprise software businesses. Before joining Plex, Berutti served as the president of a $1.5 billion division of multi-cloud management software firm BMC Software. Prior to BMC, he spent 17 years at PTC delivering solutions to manufacturers. Manufacturing Outlook / August 2020

MANUFACTURING TIDBITS

HANDWASHING: BRINGING THE SINK TO THE PLANT FLOOR.

IF THE EMPLOYEE WON’T GO TO THE SINK, THE SINK MUST COME TO THE EMPLOYEE. by TR CUTLER

Martin Watts, founder and CEO of Ozark River Manufacturing, wants to get handwashing out of the bathroom. Experts agree that gloves, masks, and social distancing are essential; equally important according to the CDC (Centers for Disease Control), OSHA (Occupational Safety and Health Administration), and other epidemiologists is that handwashing remains the frontline defense against the spread of disease. Since 2004, the company has been the leader in handwash compliance, delivering safety and convenience in the design and delivery of NSF (National Sanitation Foundation) certified portable hand sinks.

Manufacturing environmental health and safety (EHS) professionals attest to proper handwashing protocols, the importance of NSF certification, and how manufacturing remains an essential business during the pandemic.

Ozark River Manufacturing may be small (16 employees), but it was the only manufacturer of its kind able to meet the immediate demand of an order for the Jacob Javits Center “Makeshift Hospital” in NYC earlier spring 2020.

Watts oversees a team that provides a critical and convenient solution to improve personal hygiene and the ability to comply with state and local handwashing codes, critical to fighting the spread of diseases like COVID-19. These portable hand sinks feature instant hot water technology and convenient quick connect tanks. Without the expense of plumbing, manufacturers gain the hygiene benefits of instant hot water with indoor portable sinks ensuring that the twenty-second handwashing rule is practiced. The CDC recommends washing hands with soap and water as frequently as possible because handwashing reduces all types of germs and chemicals on hands.

Manufacturers recognize portable sinks as integral for reopening

NSF certified portable sinks important for manufacturers

Bathrooms are often situated quite far from a manufacturing cell, making frequent handwashing impractical. Manufacturers are now devising strategies to safely reopen, recognizing the value of portable sinks, which require no plumbing, can be in public areas or near workstations.

Most handwashing stations are not NSF certified. NSF certification is a guarantee; a third-party endorsement that ensures that products can be cleaned and sanitized properly. To the average worker on the plant floor this may not mean much, but to health and regulatory officials, it means everything.

Manufacturing Outlook / August 2020

MANUFACTURING TIDBITS

During COVID, the age of compliance will continue to escalate with a new focus on prevention. Manufacturers must protect our workers, and from an economic standpoint, it just makes sense. Watts emphasizes in the manufacturing sector that labor cannot work remotely. A 40,000 sq. ft. portable sink manufacturing facility located in middle Tennessee, Watts shared, “In our own facility, handwashing stations are placed strategically around the plant. Workers wash hands frequently. They arrive and leave washing hands. Truck drivers mask up and must wash hands. When COVID hit, we began scaling up immediately. We have invested and installed over $400k in new equipment since March. We’ve worked closely with staff to make sure their social circles are tight, and they are adhering to health and safety standards. We’re focused on sanitation in our own facility. It’s just the right thing to do.”

Martin Watts, founder and CEO of Ozark River Manufacturing

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 4200 industry leaders follow Cutler on Twitter daily at @ThomasRCutler. Contact Cutler at trcutler@trcutlerinc.com. Manufacturing Outlook / August 2020

MANUFACTURING TIDBITS

GARTNER SURVEY REVEALS 17% OF CHIEF SUPPLY CHAIN OFFICERS ARE WOMEN by TR CUTLER

Majority of Supply Chain Organizations Have Specific Goals to Enhance Gender Diversity Gartner clients can learn more in the report “2020 Women in Supply Chain Survey Highlights Consumer Value Chain Progress”. A complimentary webinar is available here. While supply chain organizations deal with the impacts of the coronavirus pandemic, they still pursue gender equality goals. According to Gartner, Inc.’s 2020 Women in Supply Chain Survey among 177 supply chain professionals, 17% of chief supply chain officers (CSCOs) are now women – a 6% increase compared to 2019 and the highest rate since the first edition of the survey in 2016. “The increase in women executive leaders over the past year is a positive sign, however the survey showed that women don’t consistently make

Manufacturing Outlook / August 2020

it through the pipeline,” said Dana Stiffler, vice president analyst with the Gartner Supply Chain Practice. “Lack of progress is not something the industry can afford at the moment. Supply chain’s role in the COVID-19 pandemic and subsequent recovery is crucial, with lives and livelihoods at stake. This is a pivotal time for many women in midlevel and senior management positions,” added Stiffler. The manufacturing sector representation in the survey results is split between the “consumer sector” (CPG, food & beverage, consumer durables), “industrial sector” (chemicals, A&D, automotive, high tech, industrial equipment, oil & gas, paper & pulp), and “Other” (various, includes life sciences manufacturing). Stiffler noted, “While the survey does not test for representation in manufacturing specifically, in our client work and over time we tend to see more women in consumer than in industrial or “other”/life sciences. We also see women more

MANUFACTURING TIDBITS “Another notable difference between industrial and consumer/ retail supply chain organizations is goal setting. Consumer and retail organizations were more than twice as likely to have formal targets and specific goals in management scorecards for gender diversity,” explained Stiffler.

frequently in quality and program management roles within manufacturing. To cut to the chase, the engineering degree requirement reduces the available pool of female talent, so companies that have more women working in manufacturing have worked quite hard to develop and source talent creatively.” Compared to 2019, there are proportionally fewer women at the vice president and director levels. In 2020, 63% of respondents do have active goals, objectives, or initiatives to recruit women and build pipelines, but Stiffler said it takes years for this activity to strengthen pipelines. This dynamic also contributes to representation of women in the total supply chain workforce remaining unchanged at 39% year over year. Consumer goods & retail organizations lead the way At 25%, consumer goods and retail supply chain organizations’ representation of women at vice president level is nearly twice that of industrial organizations (13%). One reason for this development is that 55% of industrial organizations prefer a science, technology, engineering, or math (STEM) degree for senior hires, compared to 39% of consumer organizations. As women are less likely to have a STEM background than men, they are also less likely to be hired for senior supply chain roles in industrial organizations.

Pipeline planning is key Until recently, genderfocused inclusion and diversity initiatives focused mostly on employee resource groups and women’s leadership development programs. While organizations still value those initiatives, they have found that improved pipeline planning and management is a key factor for attracting and retaining diverse talent in leadership positions. “Not a single respondent cited employee resource groups as a top action for progressing women to senior leadership roles in supply chain. Leadership development programs or improved work-life balance also didn’t make the list. However, 21% claim that integrated pipeline planning is their best approach. This reinforces what we have found over the years: The right place to focus for diverse senior leadership is the pipeline and the decisions that support it,” concluded Stiffler. Author Profile:

Thomas R. Cutler is the President and CEO of Fort Lauderdale, Florida-based, 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 4200 industry leaders follow Cutler on Twitter daily at @ThomasRCutler. Contact Cutler at trcutler@trcutlerinc.com. Manufacturing Outlook / August 2020

ISM REPORT OUTLOOK

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

BREAKING NEWS

ISM PMI at 54.2% for July ISM PMI for the past 5 years

JULY 2020 54.2%

Manufacturing Outlook / August 2020

ISM REPORT OUTLOOK INSTITUTE FOR SUPPLY MANAGEMENT®

Analysis by

reportonbusiness Economic activity in the manufacturing sector grew in July, with the overall economy notching a third consecutive month of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®. The July PMI® registered 54.2 percent. The New Orders Index registered 61.5 percent, an increase of 5.1 percentage points from the June reading of 56.4 percent. The Production Index registered 62.1 percent, up 4.8 percentage points compared to the June reading of 57.3 percent. The Backlog of Orders Index registered 51.8 percent, an increase of 6.5 percentage points compared to the June reading of 45.3 percent. The Employment Index registered 44.3 percent, an increase of 2.2 percentage points from the June reading of 42.1 percent. The Supplier Deliveries Index registered 55.8 percent, down 1.1 percentage points from the June figure of 56.9 percent. Of the 18 manufacturing industries, 13 reported growth in July, in the following order: Wood Products; Furniture & Related Products; Textile Mills; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Chemical Products; Apparel, Leather & Allied Products; Computer & Electronic Products; Primary Metals; Petroleum & Coal Products; Miscellaneous Manufacturing‡; and Electrical Equipment, Appliances & Components. ISM

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

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

MANUFACTURING

PMI at 54.2% ®

PMI

Manufacturing grew in July, as the PMI® regis2018 2019 2020 tered 54.2 percent, 1.6 percentage points higher than the June reading of 52.6 percent. 54.2% “The PMI® signaled a continued rebuilding of economic activity in July and reached its 50% = Manufacturing Economy highest level of expansion since March 2019, Breakeven Line 42.8% = Overall Economy when the index registered 54.6 percent. Four Breakeven Line of the big six industry sectors expanded. The New Orders and Production indexes returned to strong expansion levels. The Supplier Deliveries Index remained at a more normal level of tension between supply and demand. Seven of the 10 subindexes registered expansion, up from five in June,” says Fiore. 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

Jul Index

Jun Index

% Point Change

Direction

Rate of Change

Trend* (months)

Manufacturing PMI®

54.2

52.6

+1.6

Growing

Faster

New Orders

61.5

56.4

+5.1

Growing

Faster

Production

62.1

57.3

+4.8

Growing

Faster

Employment

44.3

42.1

+2.2

Contracting

Slower

Supplier Deliveries

55.8

56.9

-1.1

Slowing

Slower

Inventories

47.0

50.5

-3.5

Contracting

From Growing

Customers’ Inventories

41.6

44.6

-3.0

Too Low

Faster

Prices

53.2

51.3

+1.9

Increasing

Faster

Backlog of Orders

51.8

45.3

+6.5

Growing

From Contracting

New Export Orders

50.4

47.6

+2.8

Growing

From Contracting

Imports

53.1

48.8

+4.3

Growing

From Contracting

Overall Economy

Growing

Faster

Manufacturing Sector

Growing

Faster

*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 ‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

ISMWORLD.ORG

Commodities Up in Price: Aluminum (2); Copper (2); Crude Oil (3); Diesel Fuel (2); High-Density Polyethylene; Lumber; Oil-Based Products; Plastic Products; Polypropylene; and Precious Metals. Commodities Down in Price: Diesel Fuel (5); Steel — Hot Rolled; and Steel Products (4). Commodities in Short Supply: Alcohols; Personal Protective Equipment (PPE) (3); PPE — Gloves (5); PPE — Masks; and Sanitizers & Disinfectants (2).

Note: The number of consecutive months the commodity is listed is indicated after each item.*Reported as both up and down in price.

Manufacturing Outlook / August 2020

ISM REPORT OUTLOOK

ISM Report On Business ®

Manufacturing PMI®

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

New Orders (Manufacturing) 2018

2019

2020

New Orders

61.5%

ISM’s New Orders Index registered 61.5 percent. Of the 18 manufacturing industries, the 13 that reported growth in new orders in July — in the following order — are: Wood Products; Furniture & Related Products; Primary Metals; Plastics & Rubber Products; Chemical Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Fabricated Metal Products; Petroleum & Coal Products; Miscellaneous Manufacturing‡; Transportation Equipment; Computer & Electronic Products; and Machinery.

52.5% = Census Bureau Mfg. Breakeven Line

Production (Manufacturing) 2018

2019

Production

2020

62.1%

51.7% = Federal Reserve Board Industrial Production Breakeven Line

The Production Index registered 62.1 percent. The 16 industries reporting growth in production during the month of July — listed in order — are: Primary Metals; Wood Products; Textile Mills; Furniture & Related Products; Printing & Related Support Activities; Plastics & Rubber Products; Chemical Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Computer & Electronic Products; Nonmetallic Mineral Products; Fabricated Metal Products; Paper Products; Machinery; Transportation Equipment; and Miscellaneous Manufacturing‡.

Employment (Manufacturing) 2018

2019

Employment

2020

ISM’s Employment Index registered 44.3 percent. Of the 18 manufacturing industries, the five industries to report employment growth in July are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Furniture & Related Products; Plastics & Rubber Products; and Computer & Electronic Products.

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

44.3%

Supplier Deliveries (Manufacturing) 53.1% 2018

2019

2020 80

55.8%

Supplier Deliveries The delivery performance of suppliers to manufacturing organizations was slower in July, as the Supplier Deliveries Index registered 55.8 percent. Twelve of 18 industries reported slower supplier deliveries in July, listed in the following order: Textile Mills; Petroleum & Coal Products; Nonmetallic Mineral Products; Wood Products; Miscellaneous Manufacturing‡; Furniture & Related Products; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Machinery; Chemical Products; and Fabricated Metal Products.

Inventories (Manufacturing) 2018

2019

2020

Inventories The Inventories Index registered 47 percent. The three industries reporting higher inventories in July are: Food, Beverage & Tobacco Products; Paper Products; and Miscellaneous Manufacturing‡.

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

‡Miscellaneous

47%

Manufacturing (products such as medical equipment and

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

Manufacturing Outlook / August 2020

ISM REPORT OUTLOOK

ISM Report On Business ®

Manufacturing PMI®

July 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

2020

Customers’ Inventories ISM’s Customers’ Inventories Index registered 41.6 percent. Of the 18 industries, the two reporting higher customers’ inventories in July are: Petroleum & Coal Products; and Furniture & Related Products.

41.6%

Prices (Manufacturing) 2018

2019

2020

53.2%

Prices The ISM Prices Index registered 53.2 percent. The 10 industries reporting paying increased prices for raw materials in July — listed in order — are: Textile Mills; Primary Metals; Wood Products; Plastics & Rubber Products; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; Miscellaneous Manufacturing‡; and Machinery.

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

Backlog of Orders (Manufacturing) 2018

2019

2020

51.8%

Backlog of Orders ISM’s Backlog of Orders Index registered 51.8 percent. The 10 industries reporting growth in order backlogs in July, in the following order, are: Wood Products; Plastics & Rubber Products; Primary Metals; Nonmetallic Mineral Products; Paper Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Chemical Products; Machinery; and Electrical Equipment, Appliances & Components.

New Export Orders (Manufacturing) 2018

2019

2020

50.4%

New Export Orders ISM’s New Export Orders Index registered 50.4 percent. The six industries reporting growth in new export orders in July — in the following order — are: Furniture & Related Products; Wood Products; Computer & Electronic Products; Plastics & Rubber Products; Chemical Products; and Miscellaneous Manufacturing‡.

Imports (Manufacturing) 2018

2019

2020

53.1 %

‡Miscellaneous

Imports ISM’s Imports Index registered 53.1 percent. The 11 industries reporting growth in imports in July — in the following order — are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Wood Products; Textile Mills; Fabricated Metal Products; Furniture & Related Products; Plastics & Rubber Products; Chemical Products; Electrical Equipment, Appliances & Components; Machinery; and Food, Beverage & Tobacco Products.

Manufacturing (products such as medical equipment and

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

Manufacturing Outlook / August 2020

NORTH AMERICAN OUTLOOK

AUGUST 2020

NORTH AMERICAN OUTLOOK by ROYCE LOWE

The Institute of Supply Management PMI figure continued to gain ground in July, rising from Juneâ&#x20AC;&#x2122;s 52.6 to 54.2. New orders and production are growing; employment is contracting; supplier deliveries are slowing at a slower rate; backlogs are growing; raw materials inventories are contracting; customer inventories are too low; prices are increasing and exports and imports are growing. Of the 18 manufacturing industries, 13 reported growth in July, in the following order: Wood Products; Furniture & Related Products; Textile Mills; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Chemical Products; Apparel, Leather & Allied Products; Computer & Electronic

Manufacturing Outlook / August 2020

Products; Primary Metals; Petroleum & Coal Products; Miscellaneous Manufacturing; and Electrical Equipment, Appliances & Components. The three industries reporting contraction in July are: Transportation Equipment; Machinery; and Fabricated Metal Products. There is good news from Computer & Electronic Products and Food, Beverage & Tobacco Products, but there is not much to cheer about in the heavier manufacturing sectors such as Transportation Equipment, Machinery and Fabricated Metal Products. Itâ&#x20AC;&#x2122;s not all doom and gloom, but there is much concern. Commodities Up in Price Aluminum (2); Copper (2); Crude Oil (3); Diesel Fuel

NORTH AMERICAN OUTLOOK (2); High-Density Polyethylene; Lumber; Oil-Based Products; Plastic Products; Polypropylene; and Precious Metals. Commodities Down in Price Diesel Fuel (5); Steel — Hot Rolled; and Steel Products (4). Commodities in Short Supply Alcohols; Personal Protective Equipment (PPE) (3); PPE — Gloves (5); PPE — Masks; and Sanitizers & Disinfectants (2). Note: The number of consecutive months the commodity is listed is indicated after each item. CANADA’s PMI rose to an 18-month high in July, on the back of increases in production, new orders and employment. At 52.9 in July, the PMI was up from June’s 47.8, reading over 50 for the first time in five months. Suppler delivery times lengthened in July, at the same time as excess capacity exists across the manufacturing sector. There is a generally good optimism regarding prospects for higher production over the next 12 months, but there is some concern regarding a possible second wave of the pandemic.

Canadian light vehicle sales for the first half of 2020 were down 35 percent year-over-year. Canada produced 750 MT of crude steel in June, down 30.8 percent year-over-year. MEXICO saw a further marked decline in the health of its manufacturing sector in July, with production and new orders continuing to fall, but at a lower rate. There was a sharp drop in employment. The PMI for July was at 40.4, slightly up from June’s 38.6. There have been many virusrelated business closures, and there is continuing negativity regarding the business outlook, but not quite so much as four months ago. Mexico produced 1,130 MT of crude steel in June, down 23.4 percent year-over-year.

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

Manufacturing Outlook / August 2020

SOUTH AMERICAN OUTLOOK

GLOBAL OUTLOOK

SOUTH AMERICA by ROYCE LOWE

BRAZIL saw its strongest ever increase in production along with recovering demand. This was accompanied by the sharpest rise in new orders since early 2010, and jobs added for the first time in five months. There was input cost inflation, disadvantageous exchange rates, higher metals prices, and thus substantial increases in selling prices. The PMI rose from 51.6 in June to 58.2 in July, the highest level in the survey’s history, which dates from February 2006. Demand was primarily domestic, with export orders continuing to weaken. There is over 80 percent optimism for positive growth. Brazil’s crude steel production for the month of June was 2,100 MT, a decrease yearover-year of 27.1 percent. 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) – rose from 47.9 in June to 50.3 in July, with production and new orders increasing for the first time in six months. Global manufacturing employment was down for the eighth consecutive month. There was growth in all three major categories, consumer goods, intermediate goods and investment goods. International trade volumes fell at a slower pace. Business sentiment was at a five-month high. Average input costs increased at the fastest rate in 15 months. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook.

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Manufacturing Outlook / August 2020

ASIA OUTLOOK

GLOBAL OUTLOOK

ASIA OUTLOOK by ROYCE LOWE

CHINA saw a further solid improvement in its manufacturing sector in July, with continuing recovery from COVID-19. There was the quickest pick up in production and new orders since January 2011. Export orders fell at the slowest rate for six months. There is still a cautious approach to hiring. The July PMI, at 52.8, was up from June’s 51.2. There is a general confidence that production will be higher in twelve months’ time. New vehicle sales jumped 11.6 percent in June to 2.3 million, from 2.06 million last year. There was a 63 percent jump in commercial vehicle sales to 536,000 units, while passenger vehicles rose by just 1.8 percent to 1.76 million. The first half of the year is still down 16.7 percent at 10.26 million units from 12.32 million a year ago. CHINA produced 91,579 MT of crude steel in June, up 4.5 percent year-over-year; Japan 5,598 MT, down 36.3 percent year-over-year; India 6,917 MT, down 26.3 percent year-over-year and South Korea 5,097 MT, down 14.3 percent year-over-year. Taiwan produced 1,700 MT in June, down 6.0 percent. JAPAN’s manufacturing production fell at its slowest pace since February, in July, with a sharp reduction in production downturn compared to the second quarter of 2020. New orders fell to the smallest extent for five months.

Business expectations rebounded from April’s low, with 34 percent of those surveyed looking for a production increase in twelve months; 21 percent looking for contraction. The PMI increased from 40.1 in June to 45.2 in July. There was some easing of supply chain pressures and some signs of recovery across the automotive supply chain. INDIA’s manufacturing business conditions continued to deteriorate in July due to prolonged closures at clients’ businesses. Both production and new orders were in significant decrease , but there was the softest reduction in export orders for four months. Reduced demand meant reduced staffing. The PMI fell back from 47.2 in June to 46.0 in July In spite of all this, manufacturers’ positive sentiment regarding the future persists.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. Manufacturing Outlook / August 2020

EUROZONE OUTLOOK

GLOBAL OUTLOOK

EUROZONE by ROYCE LOWE

IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) returned to growth for the first time in 18 months, with the PMI moving up from 47.4 in June to 51.8 in July, along with further easing of COVID-19 restrictions. There were gains in both production and new orders, with growth seen in new export orders for the first time since September 2018. Consumer, intermediate and investment goods were all in growth, with consumer goods showing their strongest expansion in 18 months. There were severe job cuts, as firms continued to operate below capacity. Backlogs were down and firms were using inventory to fill orders. Business confidence continues to recover.

up from 50.1 in June. Production growth was at a 32-month high, as reopening of manufacturers and clients took off. There was growth in domestic new orders, but continued contraction in new export orders. There was growth in all three production categories, especially in consumer and intermediate goods. Export business was down for the ninth straight month, employment down for the sixth straight month. Business confidence is at its highest since March 2018, with 62 percent of companies looking for higher production in one year, 12 percent looking for contraction. The UK produced 570 MT of crude steel in June, down 16.3 percent year-over-year.

Car sales in Western Europe were down 24.8 percent year-over-year in June, with French sales up 1.2% year-over-year; German down 32.3%; Spanish down 36.7%; Italian down 23.1% and UK down 34.9%. Forecasts are putting the reduction in sales for the year at 20-25 percent. Crude steel production in Germany in June was at 2,475 MT, down 27.3 percent year-over-year; in Italy 1,810 MT, down 13.0 percent year-over-year; in France 836 MT, down 34.9 percent year-over-year and in Spain 834 MT, down 31.5 percent year-overyear. Russia’s crude steel production for June was at 5,600 MT, down 7.6 percent year-over-year; Ukraine’s was 1,809 MT, up 9.0 percent year-over-year. IHS Markit’s PMI for the UK was at 53.3 in July,

Manufacturing Outlook / August 2020

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

GLOBAL PMI OUTLOOK

increase in the Index added to the likelihood that the recovery is on track to be V-shaped as opposed to other suggested and less attractive symbols. Subcomponents making major contributions to the strengthening were New Orders (61.5, +5.1) and Production (62.1, +4.8).

by NORBERT ORE, DIRECTOR, HEAD OF INDUSTRIAL SURVEYS, STRATEGAS RESEARCH PARTNERS

The past relationship between the PMI® and the overall economy indicates that the PMI® for July (54.2) corresponds to 3.3- percent annualized GDP growth, according to the press release.

The global recovery is now a full-fledged work in progress. Based on the July survey results, 14 of the 18 surveys we follow grew at an average PMI of 53.1. The remaining four surveys grew at a 44.6 average. Even the slow-to-recover German (51.0) economy strengthened for the first time in 18 months.

Drivers: In addition to the improvement in New Orders and Production, the PMI® expansion was aided by quicker Supplier Deliveries (55.8, -1.1). Inventories (47.0, -3.5) indicated some liquidations are starting to take place and Employment (44.3, +2.2) moved at a slower rate of contraction.

Compared to June when 8 of 18 grew at an average of 52.0, we see a strengthening and broadening of the recovery. Most surveys indicate that new orders and production are the drivers for this phase of the recovery. Lagging employment numbers will add significantly to all global indexes when re-openings progress and confidence recovers.

New Orders Minus Inventories: This key measure (+14.5) shows New Orders expanded faster than Inventories in July. Compared to the average gap (6.8), inventories are not a constraint to most supply chains.

The Manufacturing PMI (54.2, +1.6) evidenced progress in the continuing re-opening of supply chains decimated by the pandemic. The 1.6 percentage point

Customers’ Inventories: Two industries reported higher customers’ inventories in July: Petroleum & Coal and Furniture. Thirteen industries reported customers’ inventories as too low: Wood; Fabricated Metal; Paper Products; Plastics & Rubber Products; Primary Metals; Food, Beverage & Tobacco Products; Machinery; Textile Mills; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Chemical Products; Transportation Equipment; and Computer & Electronic Products.

Manufacturing Outlook / August 2020

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 Ladies and gentlemen, we seem to have a trend on our hands and it is one that is more encouraging than would be expected given all the economic turmoil that has dominated the world since March. The pandemic continues to threaten and baffle as very little of the containment strategy has worked as intended. The lockdown of the global economy was intended to last only a few weeks as the viral infection was supposed to reach its peak in April, allowing the much anticipated May rebound. We are now at the end of July and the virus is nowhere near a peak. The lockdown lift has halted and many states are considering a reimposition of restrictions. In the midst of all this the credit managers are responding with significant enthusiasm regarding the future. This matters as the Credit Managers’ Index is very often prescient due to the tendency for credit managers to think more about the future than what is happening right now. The months of March and April were flat disastrous with numbers lower than the index has seen since its inception – far lower than were recorded in 2008/2009. The recovery started in May with numbers that got within shouting distance of expansion but by June the combined index was above 50 and in the growth territory again. Now comes July and the numbers are even a bit stronger than they were the month before. The combined score jumped to 55.6 from June’s 51.0 and the gains in the favorable categories were even more impressive as the index returned to the 60s with a 61.6 reading compared to the 55.3 in June and the truly miserable reading of 32.0 in April. The latest reading takes the index back to where it was in February before the pandemic restrictions set in. There was some expectation that there would be decline in the unfavorable numbers by this point but that has not yet been the case as this month’s reading is 51.7 as compared to last

Manufacturing Outlook / August 2020

month at 48.1. This latest number takes the index back to February as well. As is usually the case there is interesting activity in the sub-index readings. The most significant and encouraging sign was the return to the 60s in terms of sales. In April of this year the readings had fallen all the way to 20 and that was a level that had never been reached – truly catastrophic. In February, the level had been at 64.0 and this month it stands at 64.3. Only once in the last twelve months has the level of sales activity been higher and that was in August of 2019. Sales was not the only measure that returned to the 60s as new credit applications went from 57.9 to 62.4 and that is higher than it has been in the last year as well. The reading in February was 62.2. The dollar collections data also jumped back to these high levels with a reading of 62.5 as compared 53.9. This makes yet another category that has not been more robust this year, the closest being 62.1 last October. Finally, there is the amount of credit extended and it just missed hitting that 60 level with a reading of 57.3. This is the only one of the four that languished a bit as compared to the previous year but is still higher than it has been since February. There has been some expectation that the unfavorable factors would start to show some weakness by now given the blows the economy has taken in the last several months but there has been some good news showing up in these categories as well. The rejections of credit applications reading improved from 49.8 to 50.0 and thus escaped the contraction zone by a hair. This is better news than it seems given the sharp rise in credit applications as it suggests that the applicants have been credit worthy. The accounts placed for collection also moved out of the contraction zone with a reading of 50.8 as compared to the 46.7 that had been notched

CREDIT MANAGER’S OUTLOOK in June. The disputes category became the third of these readings to move into expansion territory with a reading of 50.7 after registering a 49.6 in the prior month. The dollar amount beyond terms made a major jump as it went from 44.4 to 57.3 and this has as much significance as any of the readings. There had been an assumption that companies would start falling seriously behind in paying their debts by this time but there has been little evidence of this so far as companies are showing the ability to keep current on their obligations. The dollar amount of customer deductions had moved into expansion territory the month before but that position has solidified a bit this month with a reading of 52.4 as compared to the 50.6 in June. The filings for bankruptcies continued to falter a little and didn’t quite escape contraction with a reading of 48.8 as compared to 47.7 in June. Manufacturing Sector There has unquestionably been considerable damage caused to the economy by the lockdown and other reactions to the pandemic but the manufacturing sector has proven to be more resilient than many had assumed. It has depended on sectors with some feeling extreme decline while others have actually boomed in this environment. The data this month shows there has been a significant bounce back. The index of favorable factors jumped back into the 60s with the best number it has seen in over a year. The reading now sits at 62.2 and in February it was at 62.0. The index of unfavorable factors also improved and left the contraction zone with a reading of 50.6 as compared to the 47.8 in June. It has been interesting to note that the unfavorable readings have never fallen that low throughout this crisis as the low point was reached in April with a 47.2. The majority of the activity was seen in the favorable categories with sales dominating the surge. In June, the reading was 57.8 and that was acceptable enough. This month it jumped to 66.3 and that is higher than it has been all year and a far cry from the 21.4 that was noted in April. The new credit applications score also returned to the 60s with a 64.4 as compared to 57.5 in June and 35.7 in April. The dollar collections numbers returned to 61.1 for the first time since January when it stood at 62.9. The amount of credit extended improved a bit from the levels in June as it went from 55.4 to 56.8. There has not been the same level of volatility as has been seen in the other categories as the worst reading from April was 45.1 but the high point was in February with a 62.8. The rejections of credit applications did not move much from last month and is still out of the expansion zone with a reading of 49.8 as compared to June’s 49.5. Even in April and May these numbers were still in expansion territory. The accounts placed for collection improved a little as well but remained

in contraction territory. It was sitting at 47.1 and is now at 49.3 – close but still not quite in expansion territory. The disputes numbers behaved similarly as they are now sitting at 49.6 after June’s reading of 47.4. The biggest jump was notched in the dollar beyond terms category as it has moved from 44.0 to 53.7. This was an area where there was more expectation of distress but the fact is that most are keeping up with their terms and that is a good sign for the future. The dollar amount of customer deductions went from 49.9 to 52.0 and escaped the contraction zone in a decisive manner. The filings for bankruptcies improved a little but remained in contraction territory with a reading of 49.4 as compared to the 48.8 in June. Within manufacturing there has been remarkable variety of experience with some sectors still near collapse and others on their way to real recovery. The aerospace sector has been suffering as much as any of them but in contrast there has been a gain in the automotive sector over the last month. Construction has gained and so has the oil and gas sector but there have been holes in both of these. It has been mixed as far as retail oriented manufacturing. 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. Manufacturing Outlook / August 2020

METALS OUTLOOK

AUGUST 2020

METALS OUTLOOK

by ROYCE LOWE

The COVID-19 pandemic, together with the accompanying reduced demand from the automotive industry, recently resulted in muchreduced production of aluminum in Canada. Over 80 percent of Canada’s primary aluminum production is exported to the U.S., and this year saw a near 40 percent decline in basic commodity exports to that country.

America’s total aluminum production.

The Aluminum Association of Canada reports an approximate 30 percent drop in July exports to the U.S. of standard commodity ingot or P1020 (112,000 tons) over June (155,000 tons), following an initial 16 percent reduction in June numbers over May (185,000 tons.) Production shifted to P1020 during the first half of 2020, as opposed to value-added-products (VAPs), following the drastic drop in demand from the automotive sector. Demand for VAPs is now returning.

There are three companies involved in Québec’s aluminum production, namely Alcoa, Aluminerie Alouette, and Rio Tinto. Alcoa and Rio Tinto (which took over Alcan) produce annually just over one million tons each. Aluminerie Alouette produces around 600,000 tons.

Canada is the world’s fourth-largest aluminumproducing country, behind China, Russia and India. It produces some 2.9 million tons of primary aluminum annually from nine plants, eight of which are located in the province of Québec. The other plant is located in British Columbia. This tonnage equates to over 60 percent of North

Manufacturing Outlook / August 2020

The reduction of aluminum from bauxite requires lots of electricity, and the major reason Québec was able to attract aluminum smelters was its endless supply of very reasonably-priced hydroelectric power. Québec aluminum is, in fact, the world’s greenest aluminum.

It is Canada’a aluminum that keeps America’s aluminum industry going. Primary production in the U.S. is insufficient, and in itself inefficient. Hence the good luck that Canada’s hydroelectric power is running. Next month we’ll take a closer look at the actual aluminum extraction process, together with a look at the future of aluminum technology. The price of steel coil in the U.S. just doesn’t want to get up and rise these days, at least not in the

METALS OUTLOOK Trump was kind to Canada and took them off the tariff list on both commodities. China, of course, the original target, is still very much on the tariff list. Canada ships, in a normal year, some 2.3 million tons of primary aluminum and some 5 million tons of steel products. Things changed, as they are wont to do, and demand fell, prices with it, and companies regretted having re-started blast furnaces. That’s the way the business went. Aluminum went the same way. Demand fell, prices fell, smelters in the U.S. that had been losing money were closing. Business was not good for the U.S. aluminum business. Nor for anybody’s really.

month of July, when H.R. coil fell from around $470 per ton in early July to around $440 per ton in early August; C.R. from around $640 to $610 per ton. In Europe, the price of H.R. coil took a slow increase from early July to early August from 403 euros to 407 euros per ton. The increases the mills hoped might stick are just not working at the moment. Non-ferrous metal data show aluminum spiking twice, from $0.72 per lb in early July to $1.00, then back to $0.72 per lb in early August; copper ranging from $2.79 per lb in early July to $2.96 in early August; nickel from $6.00 to $6.30, and zinc from $0.93 to 1.05. Update on the Trump Tariffs: Aluminum and Steel It doesn’t seem that long since Donald Trump put tariffs on steel and aluminum of 25 and 10 percent respectively, just a couple of years in fact. These were meant to make billions for the U.S., and create jobs in steel and aluminum. Not much was said about the average consumer having to pay more for their goods. This was good for U.S. steel mills at the time, when demand was high and prices were up. And everybody in the business was happy for a while.

Then came the pandemic, putting a whole different twist on the words demand, prices, profits etc. This was serious. And then, on August 7th last, news was released to the effect that Trump had decided to put the 10 percent tariff back on Canadian aluminum. And this just a few weeks after the revised North American trade agreement known as USMCA came into effect. Why? What brought this on, and why now, so soon after USMCA? There were claims in May-June last that there had been a “surge” of primary aluminum imports from Canada into the U.S. The Aluminum Association, a body comprising executives from the major aluminum producers and fabricators in the U.S., in reply to this claim, state that they have data demonstrating that current import levels are largely consistent with historical trends and market fundamentals. More than 15 CEOs and other senior executives, representing the entire aluminum industry value chain in the United States, sent a letter in late June to U.S. Trade Representative Robert Lighthizer calling for continued quota-free Section 232 tariff exemptions for aluminum in North America. Fully 97 percent of U.S. aluminum industry jobs are in mid-and-downstream production and processing. These jobs depend on a mix of domestic and imported primary aluminum, including that from countries like Canada, to meet demand and support U.S. aluminum jobs. U.S. primary production is far from able to meet the demand of downstream consumption. Manufacturing Outlook / August 2020

METALS OUTLOOK Canadian producers - who provide most of the metal to the U.S. - when the pandemic forced shutdown of auto assembly lines. So what the Canadian producers did was to stop production of specialized alloy products and produce the primary aluminum known as P1020, for shipment to the only cost-effective storage, namely facilities in the U.S. Glencore has, to say the least, an interesting history. Its mining ventures in Africa, the Philippines and Brazil point to a trail of bribery and corruption, as a quick Internet check will confirm. It is not presently in a good position. And yet, in the midst of the re-imposition of a 10 percent tariff on Canadian aluminum, it pops up its head as a major player in the North American aluminum business.

So why, on the heels of USMCA, in the midst of a pandemic, with industry in chaos, was this considered the right time to reinstate these tariffs? As the French might say, “suivre l’argent”, follow the money. Or would it have something to do with an election campaign? Or with $16.3 billion worth of Russian aluminum? The surge in Canadian imports was not missed by the U.S. Trade Representative’s (U.S.T.R.) Office, but probably more specifically not missed by two U.S. producers, Century Aluminum and Magnitude 7 Metals, which together make up a pro-Trump lobbying effort known as the American Primary Aluminum Association (APAA). There was applause from this group at the recent re-imposition of the 10 percent tariff. They had written to Robert Lighthizer, the U.S.T.R., in May, stating that the surge of Canadian Aluminum had caused a price collapse, and was threatening the U.S. primary aluminum industry. Magnitude 7 Metals, owned 47 percent by Glencore Plc, a Swiss-based metals trader, and founded by a former Glencore aluminum trader, operates a single plant in Missouri that did well from Trump’s 2018 tariffs, but which recently warned it was shutting down. Century Aluminum saw its share price up by some 50 percent just a few days before the recent tariff announcement. Did somebody know something? The surge has a very reasonable explanation. Aluminum smelters can’t simply shut down when demand dries up, which is what happened to

Manufacturing Outlook / August 2020

Glencore holds the exclusive rights to sell Russianproduced aluminum in the U.S., and it agreed in April to spend $16.3 billion over the next five years on up to 6.9 million tons of the metal from Russia’s Rusal, the world’s third-largest aluminum producer (behind China’s Chalco and Hongqiao.) Rusal was subject to U.S. sanctions since Moscow annexed Crimea in 2014, but these were lifted in January 2019 as part of a company restructuring. Glencore was involved here, swapping shares in Rusal for a direct stake in Rusal’s parent company. Jean Simard, the president and CEO of the Aluminum Association of Canada, doubts very much that the U.S.T.R. and the Trump administration “cannot be unaware of the corporate structure around Rusal and Glencore.” Is there some strong political motivation here that has really nothing to do with a 10 percent tariff on Canadian aluminum? Trump recently said that Canada had been taking advantage of the U.S. for a long time, words normally reserved for China. Is being there to supply primary aluminum to the U.S., as and when required, of good quality and in sufficient quantity, taking advantage? Canada will retaliate, on $3.6 billion worth of U.S. goods, on anything from washing machines to bike wheels to golf clubs. Tariffs are wont to leave a bitter taste at the best of times, but in this case they seem both pointless and inexplicable. The reasons and ramifications may make interesting reading for some time to come.

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

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Manufacturing Outlook / August 2020

AEROSPACE OUTLOOK

AUGUST 2020

AEROSPACE OUTLOOK

by ROYCE LOWE

It’s still mostly about Boeing. The FAA has carried out recertification flights on Boeing’s 737 MAX aircraft, but says it must still evaluate the data from the three days of testing, and then has “other tasks to complete.” As such, there is as yet no fixed date for the plane to take to the skies. Production of the 737 MAX resumed in the second quarter, but the next planned deliveries were put back from September to ‘sometime before year end’. Adding to all this uncertainty are the 355 cancellations Boeing received for its 737 MAX in the first half of 2020, plus the 420 or so it has in inventory still awaiting FAA clearance. Between them, as of late July, Airbus and Boeing had a total of 628 commercial planes in inventory. Both Boeing and Airbus recently released results

Manufacturing Outlook / August 2020

for the first half of 2020 and both, not surprisingly, had bad news, with Boeing’s first-half revenue at $28.7 billion versus $38.7 in 2019; Airbus’s at 19 billion euros ($22.4 billion) versus 31 billion euros ($36.6) in 2019. Along with reduced orders, both companies have seen production cuts and heavy staff and worker layoffs. In addition to the 10 percent layoff already committed earlier in the year, Boeing put forward a program of voluntary layoffs to reduce costs before resorting to involuntary layoffs. Airbus, as reported last month, has also seen heavy layoffs. Airbus delivered 196 aircraft in the first half of 2020, versus 389 in the same period in 2019; Boeing’s respective figures were 70 and 239,

AEROSPACE OUTLOOK although the figure for the first half of 2019 was appreciably less than the 378 for 2018. Boeing’s miseries had already started. Production of the 747 will cease in 2022. Boeing’s CEO, Dave Calhoun, estimates that the commercial aircraft market will need “around three years to return to 2019 passenger levels.” Latest word regarding the FAA tests on the 737 MAX is that the plane probably won’t fly again until 2021. If there is any good news for Boeing it is a $1.2 billion defense contract they were recently awarded for the production of eight Boeingdeveloped F-15EX fighter jets over the next three years. This is a new version of the F-15, which dates from the 1960s. It may serve to help them through their chaotic times in the commercial business. In the final analysis, the future of the aviation industry is about the willingness and the financial

ability of people to actually fly. Do they want to risk the pandemic? Will they want to risk the 737 MAX, regardless of the results of the FAA tests? What about the airlines - will they offer deals to try to get passengers back in their seats? Air France is offering deals out of Montreal to Europe and Africa. Europe’s refusing entry to people from the U.S. is a blow to both U.S. and European airlines. The bottom line is the pandemic itself. Will most people continue to be responsible, and most importantly when will a vaccine be available? If planes don’t fly it’s bad for employment, and not just for the aerospace industry itself. Suppliers of titanium, aluminum, and other metals and materials and their employees will suffer. There are many unknowns. Time will tell. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook.

Manufacturing Outlook / August 2020

ENERGY OUTLOOK

AUGUST 2020

ENERGY OUTLOOK by ROYCE LOWE

South Korea’s Hyundai, already well into batterypowered cars, is now looking to develop an alternate source of electric power: fuel cells. Instead of storing and then releasing electricity from the mains, as does a battery, a fuel cell generates current from a chemical reaction between hydrogen and oxygen; oxygen from the air, hydrogen compressed and stored in a tank on board the vehicle and replenished at a service station. Unlike a battery, there are exhausts from a fuel cell, but it is simply the reaction product of hydrogen and oxygen, namely water. Hyundai is on a campaign to sell the Nexo, its second foray into fuel-cell cars, which was launched in 2019. Hyundai is not the only company looking at this technology. Toyota, the maker of the Prius, the world’s best-selling battery-hybrid vehicle, announced a joint venture with several Chinese automobile manufacturers to develop fuel-cell technology.

Manufacturing Outlook / August 2020

Hydrogen is being suggested for buses and trucks, even ships and aircraft. There is talk of it replacing natural gas as a source of heat, of its being used to store the surplus output of solar and wind power stations, of it being used as a chemical feedstock, and even as a replacement for coke as a means of extracting metallic iron from its ore. If these things were to happen, then hydrogen would be right up there as a dominating factor in human life, as hydrocarbons currently are. Hydrogen would, in fact, become part of the economy. The whole scenario has been considered before at least twice in the past 50 years; after the 70s oil crisis, and as a means of replacing hydrocarbons. It didn’t fly. Tearing apart and replacing the world’s fossil-fuel infrastructure would be a mammoth task, and hydrogen itself has drawbacks. Though better than batteries, it stores less energy in a given volume than fossil fuels; it’s not a primary fuel and has to be made from something else,

ENERGY OUTLOOK which, of course, can be done by processes called steam reforming or electrolysis of water. Although not terribly efficient, costs are coming down and the use of hydrogen will go a long way to cutting carbon emissions. So far hydrogen has not been a big hit in the automobile business, due to its relative inefficiency and the lead battery cars have already accumulated. But hydrogen’s greater energy density becomes more attractive for longer-distance travel, e.g by trucks. Hydrogen compressed to 700 atmospheres contains from two to five times more usable energy per litre than a lithium-ion battery. Since trucks spend most of their time on busy highways, only a minimum number of filling stations would be required. Tesla plans a battery-powered truck with a range of 500 miles. Hyundai already makes a hydrogenpowered one, but its range is only 250 miles. Daimler and Volvo have a joint venture looking into fuel-cell trucks. Shipping is looking into fuel cells. There’s a possible use in heating, as a substitute for natural gas. The possibility of using hydrogen for iron ore reduction is being researched by ArcelorMittal, and by a conglomerate of SSAB, a

Finnish-Swedish steelmaker, LKAB, a Swedish iron ore producer, and Vastenfall, a Swedish energy company. In the final analysis, the economics seem to be right for hydrogen to become at least an important part of the renewable energy mix, along with solar and wind power. Germany, China, and Japan are all fans of the technology, and are investing accordingly. The price will (need to) come down to make changes viable. On another level, it has been estimated that replacement of natural gas with hydrogen would mean tripling or quadrupling the world’s gasstorage infrastructure, at a cost of some $600 billion. In the meantime, don’t place your fuel-cell car order just yet.

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

Manufacturing Outlook / August 2020

AUTOMOTIVE OUTLOOK

AUGUST 2020

AUTOMOTIVE OUTLOOK by ROYCE LOWE

Manufacturing Outlook / August 2020

AUTOMOTIVE OUTLOOK Nikola Tesla, born in Croatia in the middle of the nineteenth century, was an inventor in the electrical field who later worked for Thomas Edison, then couldn’t get along with him, so he sold an invention to George Westinghouse, and at the age of 86 he died a poor man, having suffered a nervous breakdown because one of his pet projects didn’t work out. His surname was picked up by we-all-know-who, but Nikola was claimed by a recently-formed company that now wants into the truck business, first as Battery Electric Vehicles (BEVs), then as Fuel-Cell-Electric Vehicles (FCEVs.) Ground was recently broken in Coolidge, a small town in Arizona, on a one- million-sq-ft manufacturing facility, whose first phase will be completed late in 2021, with phase two to be completed some 12-18 months later. The investment is $600 million, and the plant will initially produce the Nikola Tre and the Nikola Two. At full production, the facility will produce 35,000 units annually, on a two-shift basis. Nikola is in partnership with IVECO in Ulm, Germany, where the Tre cab-over will be produced for European customers. They will also avail themselves of some of IVECO’s expertise and their test-track facilities, prior to building their own in Arizona. CNH Industrial, a Dutch holding company, is a major investor. Initial production of the Tre will be done in Germany, based on IVECO’s S-WAY platform. A BEV heavy-duty truck was unveiled in December 2019 as a first step on the way to the FCEV. We are looking here at a bunch of people and partners who say they are dedicated to reducing carbon emissions, that they will put down the smallest possible environmental footprint while making the highest quality, high-tech products. Coolidge, in the Arizona sunshine, will certainly provide lots of renewable energy. Detroit’s Big 3 announced second quarter results. Ford reported net income of $1.1 billion, versus a $2 billion loss in Q1; GM a loss of $0.8 billion versus income of $276 million in Q1; and Fiat-Chrysler a loss of $1.24 billion versus a loss of $2 billion in Q1. There is a change at the top at Ford, with Jim Hackett retiring and handing over the reins to Jim Farley the ex COO.

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The merger between Fiat-Chrysler and the PSA Group, announced eight months ago, and due to be completed early in 2021, has given rise to a new company name, STELLANTIS. This is a 50-50 merger, both companies will continue their own marques, and this will be the world’s fourth-biggest automobile company.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. Manufacturing Outlook / August 2020

ISSUES OUTLOOK

AUGUST 2020

ISSUES OUTLOOK

FORGING VS CASTING VS 3D PRINTING by ROYCE LOWE

A long, long time ago, or some 6,000 years, workers and artisans and blacksmiths started forging metals; that is, they heated up metals and hammered them against an anvil to make a part, maybe a tool to till the ground, or a weapon to kill something for dinner. They had no idea at the time what they were doing to the metal, why what happened was happening, or what structure and properties meant. In fact, the words structure and properties were most likely not part of their limited vocabulary. Time, and progress, changed all that, and millennia saw the metals being forged graduate from copper-base (bronzes) to iron-base, and around 3,000 BC something called Wootz steel came out of India. Humans tinkered with their newfound skills, and they learned to make better materials to forge, but it was quite some time before they

Manufacturing Outlook / August 2020

built what we might today called forges, based on water power, slow but strong machines that would be the forerunners of the mammoth, multi-thousand-ton hammers that dominate todayâ&#x20AC;&#x2122;s forging industry. Today we know what happens when we heat metals before hot working, and we know that forging furnishes a grain structure that is unique amongst hot-worked metals. We know that forged metals are strong, tough and ductile. We also know that forged metals for the most part require machining prior to final use, and that the intricacy of the parts made by the process is limited. Unlike casting, where the molten metal is nursed into numerous shapes and sizes, allowing the intricacy missing in forging, but leaving parts requiring many stages of further processing.

ISSUES OUTLOOK The big winners in all this are the machine shops, there to give the final shape and surface finish to the parts. There’s a relatively new kid on the block. It’s called 3D Printing, or Additive Manufacturing, and it’s making some inroads into the manufacturing scene. 3DP, as it’s commonly called, involves the construction of a three-dimensional object from a CAD - Computer Assisted Design - model, where material is joined or solidified under computer control to create the object with materials being added together (liquid molecules or powder grains), layer by layer. A little history is in order here, beginning in 1981, when Japan’s Dr. Hideo Kodama applied for a patent for a “rapid prototyping device.” The application never went through as he had funding issues and was unable to complete the process before the one-year deadline. Three (unlucky) Frenchmen filed for a patent in 1984, for “stereolithography” but their backers pulled out, citing a “lack of business perspective.”

In 1984, Charles “Chuck” Hull, working for a tabletop and furniture manufacturer, became frustrated at the time required to make small, custom parts. He therefore suggested using the company’s UV lamps to cure photo-sensitive resin layer by layer, eventually creating a part. He was fortunately given his own small laboratory to develop the process, and a mere three weeks after the team in France applied for their patent, Hull applied for his. He called the technology stereolithography. The patent was issued in 1986, and in that same year, Hull started his own company in Valencia, CA: 3D Systems. The first commercial product, the SLA-1, was released in 1988. Things moved pretty quickly after that and in 1988 another 3DP technology, selective laser sintering (SLS), entered the fray. This was invented by Carl Deckard, an undergraduate at the University of Texas. A patent application was submitted, and while the patent was awaiting approval, another patent application for additive manufacturing technology was submitted. This time it was fused

Manufacturing Outlook / August 2020

ISSUES OUTLOOK company, Norse Titanium, which has an operation in Plattsburgh, NY, has a patented process, RPD, or Rapid Plasma Deposition. This process involves the melting of titanium wire in an inert argon atmosphere, and the subsequent build up in layers to a near-net-shape part. As such, very little final machining is required.

deposition modeling (FDM), and was submitted by Scott Crump, who went on to become the cofounder, in 1989, of Stratasys, one of the market leaders for high-precision 3D printers. Initially the technology was considered suitable only for the production of functional or prototype parts. As of 2019, advances had been made to the precision, repeatability and material range of 3DP to the point where some processes were considered as bona fide industrial production technology. A key advantage of 3DP is its ability to produce very complex shapes, including hollow parts or parts with internal truss structures to reduce weight. The technology has found niches in architecture where homes can be 3D printed, and a stainless steel bridge that was 3D printed in midair in Amsterdam using robots. The bridge hasnâ&#x20AC;&#x2122;t yet been installed over its target canal. Construction, automotive - for prototypes and parts such as brake pads - are other common applications. Jet engine components have been 3D printed for both Boeing and Airbus. There is a 3D printer on the International Space Station and tests are being performed on a rocket printed from an aluminum alloy. Manufacture of 3DP metal parts was initially mostly done from powders, but a Norwegian

Manufacturing Outlook / August 2020

The claim is that the tensile strength, ductility and fatigue strength are at the levels of those of forged titanium, and that there is an attendant lack of porosity. Norsk claims production of â&#x20AC;&#x2DC;largeâ&#x20AC;&#x2122; standard parts around 100 pounds in weight, at a 50 to 100 times faster deposition rate than found in powder-based mechanisms, and huge savings in titanium losses seen in the forging-machining route. There is little or no doubt that Advanced Manufacturing will continue to grow in both volume and applications, but there is also little doubt that forging is not likely to be threatened by 3DP, rather complemented by it. Forging is still the choice for large runs of geometrically simple components, while DED -Directed Energy Deposition - can be used for small runs of specialty parts that would otherwise require tooling. When it comes to more expensive materials like titanium, for example, DED can be more cost effective, saving money on dies, material and machining. DED parts, 3DP, RPD, call it what you will, can also be used for auxiliary operations such as repairs to forging dies and adding features to forged parts. There are also applications where printed parts are manufactured and finished by forging, to improve material properties. We may have witnessed the pinnacle of the open or closed-die forging processes, but improvements to and innovation in the process of Advanced Manufacturing will continue to show themselves for a good time to come. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook.

Manufacturing Outlook / August 2020