Global Fastener News

NFDA’s Shannon to Global Distributors: Adopt Economic Survival Tactics

John Wolz

National Fastener Distributors Association president Mark Shannon advised distributors around the world to adopt economic survival tactics during a meeting hosted by the Taiwan Fastener Trading Association.

Shannon’s suggestions included distributors keeping inventories low and maximize turns, gaining market share in growing markets such as aerospace and medical, evaluating long term contracts that impact expenses, “hoard cash,” and reducing controllable expenses.

“Storm warnings are in effect for the general economy and the areas of impact are widening,” Shannon was quoted in a Fastener World magazine report of the TFTA meeting.

The combination of the fastest rising consumer loan delinquency rates in post World War II, falling housing prices, tighter lending requirements, the lowest year-over-year growth for retail sales in 15 years and pressure from rising energy and food prices “offer few avenues of escape for consumers and businesses,” Shannon warned distributors. “Higher energy costs are putting a squeeze on profits and in many instances results in reduced incentives for businesses to expand. Consumer confidence is at a level not seen since the early 1980s. The troubles in the banking industry are ongoing, which means those firms who want to physically expand will have a harder time doing so.”

The U.S. dollar is strengthening, which slows inflationary pressures from imports but hurts U.S. production for exporting. Barring U.S. Federal Reserve Board action to raise interest rates, which seems unlikely, inflation will continue in 2009, further squeezing consumer discretionary.

Even with the bad economic news, the Fed’s fastener production index shows “growth is still occurring but at a dissipating pace,” Shannon pointed out. “The forecast is that 2009 and 2010 will be characterized by a broad-based economic recession that will drag down fastener manufacturing.”

Shannon cited projections showing drops in housing starts dropping 10.8% in the coming year after a 14.1% reduction last summer for the steepest decline in 34 years. Light vehicle production is forecast to fall 10.5% overall U.S. industrial production will be down 2.9%.

“This economic crisis is expected to catch up to distributors if it already hasn”t,” Shannon warned. Higher prices, strong demand and the MRO business has helped firms such as Grainger, McMaster Carr, Fastenal and MSC in recent years, “but with the current crisis deepening and industrial activity coming down, prices have begun to drop and demand has waned putting pressure on these companies.”

The Institute for Supply Chain Management reported its index (ISM) of national factory activity fell to 38.9% in October 2008 after a 43.5% drop in September. “In short bookings are soft which means out the door will be soft too,” Shannon explained.

The Freedonia report on World Industrial Fasteners observed that after a 4.8% growth rate from 2002 to 2007, North America’s fastener growth rate will slip to 2.7% by 2012.

“After achieving a 4.8% growth rate from 2002-2007, North America’s growth rate will slip to 2.7%, achieving annual revenue of $16.75 billion by 2012.”

“Global fastener demand is projected to increase 4.8% annually to $66 billion by 2012, driven by increases in “world economic output, fixed investment activity, manufacturing production, and aerospace equipment and motor vehicle output” Freedonia predicts China will have the largest gains.

Shannon commented that the new U.S. president Barack Obama is “relatively unknown politician” and the world must “wait and see” how he will govern. “Increases in government spending could impact the economy positively in the short term,” Shannon said, but tax increases “could have a stifling effect on the economy in the long term.”

For the fastener distribution associations Shannon advocated information sharing, timely product news and efforts to eliminate redundancies.

The associations should work to “improve service levels” that are world class and exceed expectations, consistent, measurable, obtainable, concise and timely. “We must continue to brainstorm ways in which to lower the cost of doing business together.”

“We must strive for zero defects,” in meeting expectations, quality standards and responding to market demand, Shannon continued. “In a global environment things change quickly. We need to anticipate change, plan for it and share what we have learned.”

Shannon proposed joint ventures with the European, North American and Taiwan fastener associations in training, standards and “best practices in a business relationship.”

The three associations will participate in a May 2009 European Fastener Distributors meeting in Italy. �2009 FastenerNews.com and Fastener World