If you expect to find yourself with a decent amount of end or year capital by the end of 2022, now is the time to start thinking about buying packaging machinery.
You may protest in the face of significant inflation and the ever-rising prices of, well, everything, which would be understandable.
But, if your packaging machinery is nearing the end of life, waiting until the new year to make a purchase could lead to catastrophic consequences.
With packaging machinery lead times sometimes exceeding thirteen months, you run the risk of not only being unable to acquire the packaging machinery you need to run your business but paying a lot more for it when you do.
We understand that packaging machinery is a significant investment, and you may be weary of the current state of the economy.
But, taking that end-of-year capital and investing in the packaging machinery you need for next year may very well save you a ton of unwanted headaches later.
This article will explain why you should consider using your end-of-year capital to upgrade your packaging equipment.
Why Should You Use Your End Of Year Capital For New Packaging Machinery?
From cost savings to avoiding potentially excessive lead times for packaging machinery, there are many reasons why you will want to consider using your end-of-year capital to buy packaging equipment now.
Now, it would appear that we are on the verge of a recession and a natural downturn in economic spending for most companies.
So it is fair for you to wonder why you should do the opposite and make a significant investment in packaging machinery at this time.
The main question you are most likely thinking of now is why make such a purchase as we are on the verge of a recession?
Below, we will look at a few reasons why you want to seriously consider buying packaging machinery with your end-of-year capital.
Packaging Machinery And The Cost Of Money
Over the past six to seven months, we have already seen the FED raise interest rates. Therefore, the longer you wait to pull the trigger on year-end capital expenditures, the more you will pay in interest.
So, for even large companies who can afford to pay out of pocket with cash for their packaging equipment, many choose not to buy outright and opt to finance the machinery instead.
This makes sense for many companies, including small to medium businesses. However, there are pros and cons to both financing and buying packaging machinery.
Packaging Machinery Lead Times
Lead times are the next item you need to consider when deciding if you want to use your end-of-year capital for a packaging machinery purchase.
As we go into a recession, buying the equipment you need next year now will allow you to safeguard against the economic downturns coming to us. These economic downturns will undoubtedly adversely affect packaging materials and labor.
As businesses start to slow due to volume decreasing as a byproduct of the average consumer spending less, these dynamics will negatively affect the packaging machinery industry.
This will lead to many packaging machinery manufacturers struggling to find the necessary labor. At the same time, the cost of their raw materials will increase simultaneously.
Due to these issues, which will compound previous supply chain problems such as the effect of international conflict, gas price increases, labor shortages, trucker shortages, pandemics, and other related events, lead times will only continue to increase as we move into 2023.
Therefore if you wish to avoid lead times that, in some cases, may be over a year, it is vital that you purchase the packaging machinery, you will need for 2023 as soon as possible.
By using your year-end capital to buy the packaging machinery you will need in the coming months, you will be able to avoid the severe sting of increasing lead times which are only growing bigger the longer you wait.
Buy Packaging Machinery Now To Navigate Unanticipated Headwinds
While extended lead times are, at this point, old news, there are other problems you will face if you do not purchase the packaging equipment you will need for next year sooner than later.
As we enter the next recession, various elements of business will slow down all over the globe. As we enter the recession, a packaging machinery lead time that is currently six weeks may very well turn into a ten-week (or longer) lead time.
To be perfectly clear and to reiterate, it is likely that lead times for any packaging machinery you want to buy will only increase as time goes on.
Therefore, you will want to make sure that you ask your packaging machinery vendor what the anticipated lead times are for the equipment you will need in the next six months to a year and buy sooner than later to negate the negative impact of said lead times.
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What Could Happen If You Do Not Buy The Packaging Machinery You Need Next Year Now?
Suppose you ignore the information and advice presented above. In that case, you can expect to deal with a series of unwanted problems, of which excessive lead times are only one.
First, should you wait till next year to place a packaging machinery order, there is a very real chance the order will be denied.
Many packaging machinery vendors are currently focused exclusively on serving their current customer base. And some are struggling to fill the backlog of orders for even those clients.
Suppose you are to fall into this trap, but you still need to purchase the packaging machinery your company requires to survive. In that case, you may be forced into the highly uncomfortable scenario of having to buy alternative equipment of questionable quality.
Or, you will have to continue with the statuesque, your current aging packaging machinery, which may be nearing the end of life depending on its age.
In the latter situation, you are setting yourself up for potentially significant downtime. Downtime that may not have a remedy if parts are no longer available for your outdated equipment.
Finally, should your equipment break down, and you cannot upgrade to new equipment due to the lack of availability based on the dynamics of the recession, you may have to turn down business that you would otherwise have taken on.
In light of the last statement, it is essential to note that some packaging machinery manufacturers are already not taking any new orders outside their current customer base.
Essentially, failing to purchase the packaging equipment you need within the next few months now may result in your business losing major revenue streams because you wanted to save a few dollars in the short term.
But is that really worth sacrificing significant revenue and growth in the near future? Think about it.
Packaging Machinery Micro Chip Shortages
Another item you will want to keep in mind when trying to figure out if you should upgrade your old packaging equipment with end-of-year capital is the ongoing microchip shortage.
This particular shortage is continuing to plague computer manufacturers. Still, they are not the only ones having problems meeting their client's demands.
Many new packaging machines have computers built into them which means they feature microchips. As the microchip shortage continues to be a problem, it is something you need to think about.
Suppose you wait too long to buy new computerized replacements for your old packaging machinery. In that case, this ongoing shortage may prevent the manufacturers you want to buy from getting the chips they need and thus be unable to fulfill your order.
This is just another reason you will want to find out if the packaging machinery you want is currently available and when that will end.
Failing to purchase available machinery may prevent you from getting the equipment you need in the future if the microchip shortage continues to worsen.
Packaging Machinery Warning: Winter Is Coming
If you are a game of thrones fan, you will undoubtedly be aware of the phrase above, and for some of you, it might just send a chill of fear down your spine.
Suppose you are not a fan of the show. In that case, regardless, this is a warning you will have to take very seriously, especially if you are planning on getting machinery made in Europe.
Case in point, it will be a brutal winter for our friends in that neck of the woods. This is because the majority of home heating oil for Europe comes in from Russia.
Many European businesses are on strict oil allocations from Russia. These allocations are expected to become more prevalent and limiting as we get closer to winter. And this is true not only for European businesses but for individual households as well.
With these strict allocations, many European packaging machinery manufacturing companies will slow down significantly.
This is due to the simple fact that they simply will not have enough fuel to support doing business as usual. So, the availability of equipment from these manufacturers may become scarce if not altogether impossible to source for an unknown period.
Suppose the packaging machinery you are running is made in this area of the world. In that case, you will want to place orders for this equipment as soon as possible.
With a bit of luck, you just may be able to acquire the equipment you need by ordering today.
Addressing Reasons Why You Might Choose Not To Buy Packaging Machinery Now
Depending on the year-end capital you have and your business's current conditions, you may be hesitant to make such a packaging machinery purchase now.
But, failing to do so may very well manifest the problems you are trying to avoid by not making that investment at this time.
Below, we will address some common concerns buyers have about using their year-end capital to buy packaging machinery today. Those concerns will be the questions in the bold black text, which we will answer.
The world is in a precarious position at this time; why should I buy packaging machinery now?
There is a lot of uncertainty in the air around the economy at this time. And the war in Ukraine is only making the general anxiety we are all feeling about recent events more intense.
So while it is certainly understandable that you may have cold feet about updating your aging packaging equipment with new machinery in this atmosphere, choosing not to do it could be problematic.
One reason you will want to think about pulling the trigger sooner than later is that while many of your competitors will be too scared to move forward with such a decision, you have the opportunity to do what needs to be done to keep running.
So while they struggle with unexpected downtime and the inability to get the equipment they need because they waited until it is too late, you will be running entire shifts at max capacity with brand new packaging machinery.
This will allow you to bring in new revenue streams and acquire new business while your competitors struggle to meet their current customers demands.
Are there any opportunities to capitalize on during the coming months that would justify buying packaging machinery now?
Yes. There will be multiple opportunities during the next ten to twelve months where companies will slow down or completely shut down for periods.
During these times, those companies' customers will still need to have their orders filled to keep their business afloat.
With brand-new packaging machinery running at peak efficiency, you may be able to capitalize on your competitor's downtime by taking business away from them while they are shut down.
In short, new packaging machinery for you = new revenue for your business.
Now VS Then: A Note On The Quality Of Packaging Machinery
As an aside, it is essential to bring up the concept of quality and how it may be affected by the items mentioned above.
With all of the material shortages that have been going on, including steel, it is crucial to consider that any material deficiencies could affect the quality of the equipment you buy.
Suppose there was another significant steel shortage as there was earlier this year. In that case, that might lead to packaging machinery manufacturers switching from steel to thick aluminum.
Seemingly minor changes like this can affect the overall quality of the equipment you are buying and may result in lower quality equipment.
This is one more reason you will want to seriously consider buying packaging machinery now rather than later so that you can secure the best quality packaging machinery for your needs.
Leasing VS Buying Packaging Machinery
This brings us to the age-old question, should you lease or buy your packaging machinery? And which is the best option for your business?
For many companies, defaulting to leasing the equipment is standard practice. This option makes sense to some buyers because, one, you can capitalize on the investment, and two, when financing, only 10 to 20% of the total cost is coming out of the business.
However, suppose you are in the position to buy outright. In that case, this may make more sense for you if you have a customer base that has a high demand for what you are packaging with your equipment, you have multiple contracts in place, and you feel good about your projected sales to the point that you know you will pay off the investment sooner than later.
On the other hand, if you are leasing pieces of packaging equipment, this may be a better fit for seasonal products or if you are unsure of the market and the growth opportunity for the products you are packaging.
At the end of the day, when you are thinking about your plant, property, and equipment, you generally want to be in a position where you own the equipment.
It is crucial to remember that when you own packaging machinery, that is an asset that you can always resell regardless of where you are in the buying cycle of the equipment, as it will always have value.
Looking To Buy Packaging Machinery?
After reading this article, we hope we have painted a crystal clear image of why you should purchase the packaging machinery you will need in the next six to twelve months, today.
If you are ready to purchase packaging machinery, please consider speaking with one of our packaging machinery specialists.
They can answer any questions about availability, lead times, makes and models, and any other questions about buying packaging equipment that you may have.
