In this episode, Vanessa Lopez joins the podcast to discuss the latest Packaging State of the Industry report. She explains why the packaging machinery market continues to grow despite tariffs, high borrowing costs, and economic uncertainty, and how manufacturers are becoming more strategic about where they invest. Hear how trade uncertainty is shaping supply chain decisions, why parts, service, and AI-powered predictive maintenance are gaining ground, and how GLP-1s and viral food trends are pushing flexibility up the list of what matters in machinery.
Sean Riley:
So with all the fancy introductions out of the way, welcome back to the podcast, Vanessa.
Vanessa Lopez:
Yeah. Thank you for having me. Happy to be here.
Sean Riley:
Oh, the pleasure is all ours. So let's dive right in. And the report shows that US packaging machinery market hit $11.7 billion in shipments in '25, which is awesome. And you're forecasting continued growth through 2031. The macro picture that you're kind of painting is that it's a little bit messy. There's unfavorable borrowing conditions, there's geopolitical uncertainty. So I guess, could you kind of make that square with me? How is there going to be growth if we're dealing with all these problems? What's actually driving the investment?
Vanessa Lopez:
Yeah, I think that's a really important question to be asking right now. The one thing that I think is worth noting here is when you take a look back at manufacturing sector, packaging has historically outpaced what we've seen in manufacturing. And the majority of packaging revenue is largely focused in food and beverage, and something that you always hear is people will always need to eat, and this food is always going to be packaged, right? So I think the one thing that we're feeling right now in the market, with all of this uncertainty and factors at play, is that the growth now that we're seeing feels much more slower than the initial bounce up that we had coming out of the pandemic. We've heard in our interviews, and we're seeing that companies do want to invest, but the economic policy at play right now, the bag that we were given or the cards that we were dealt, I should say, make it harder to make those investments.
So the desire's there, we've seen a little bit of some delays in projects, but we're still seeing growth and companies are just starting to be more strategic with where they're making their purchases. There's a lot more focus on ROI, focusing on improving existing facilities, but it's not a slowdown. And the desire is there, the need is there, it just feels a lot slower than what we've seen in the past.
A little bit more to add here is that in addition to this, we'll be doing a midyear update for the state of the industry report in packaging machinery. So we're going to go back to people, and we're going to double check that we are projecting what we're seeing, and making sure that we are in alignment with what the industry is seeing. So in a few months, we'll have an update to the numbers, and we'll be able to give you some more hard evidence of what we've seen and what we're feeling. But it's not a slowdown, it just feels a lot slower than what we saw in the past, and companies are really being more strategic on where they're spending their money.
Sean Riley:
That's a great way of explaining it because as someone like myself who's followed this for a long time, I can see exactly what you're saying. It's always usually growing, but the growth is just leveled off. It's not growing as much as it did in the past. But if someone's jumping in for the first time, and this is the first time they've paid attention to a report like this for, say, three, four, five years. So I really understand what you're saying from a, it's been a steady growth, and it's going to continue to grow. It's just like you said, it's a little bit slower than it was before. So I like that a lot.
The thing that I guess is also a red flag that pops up in my brain, that I want you to explain, is the North American trade picture. So much of Canadian packaging imports, exports go into the US, and the US is Canada's biggest import source. We're huge trade partners. With all the tariff uncertainty, how much of what you're seeing in capital investment decisions right now is a restructuring of the supply chain, which I guess is one of the goals of the tariffs? And how much is people waiting hands off, waiting to see how things shake out?
Vanessa Lopez:
Yeah. I would say, right now, it's a little bit hard to tell what companies are going to decide. We touched on the annual meeting. We've entered this state in the United States where every new administration, there's a set of policies that come into place. And it's difficult to set new standards when, in four years, they might change. And in this case, in less than that. So we are in this phase where companies are faced with some really big decisions on whether or not to decide to make these big adjustments to their own internal supply chains.
This is similar to what we saw in the pandemic. This was unprecedented times, where we saw a number of issues occur in supply chains, and people were having to make decisions to reshore or try and find other ways to getting their products. And I think we're in a very similar situation now, where new factors are at play that we probably could not have anticipated a few years ago.
And so I think there will definitely be some companies who are capable of making a quick turnaround to have this more close to home. I think it's fair to say that Canada is likely to look at more domestic offerings and looking elsewhere, where they can, to make some of these sales, or even purchasing themselves internally from other domestic vendors, rather than seeking those that are outside where possible. But I think it's really difficult for companies to just take a new path, and look to build stuff here when, in a few years, things are likely to change, and making big changes to your supply chain can take a few years in itself to get done.
Sean Riley:
Yeah. I think that's the uncertainty is the word of the day. Everybody seems to be kind of holding back and waiting, but you can only wait for so long. And eventually, you have to make a move, right?
Vanessa Lopez:
Yeah. I think the wait-and-see mentality is playing out a little bit here as well, where possible.
Sean Riley:
Yeah. One thing that you talked about as a kind of a new strategic focus that I thought was interesting was the forecast shows that the parts and services aspect of the market is growing. It's going to go up to $5.4 billion in parts alone by 2027. What are you seeing that's kind of driving that? What's changing? Are machines lasting longer? Are they trying to make machines last longer? What do you have there?
Vanessa Lopez:
Yeah, I think there's a few factors at play here. For parts we are seeing, there is definitely a desire to extend the lifespan of these machines. Some of these machines are operating on the floor for over 30 years, some are nearly 40 years. And so there definitely is room to make improvements to get a new machine. Uncertainty is the big word here and economic conditions are unfavorable. So we definitely are seeing people look to extend the lifespan of these machines as much as they can. And part of that for parts at least is making small changes here and there, doing what you can.
On the other side, there's services. We're seeing services grow, and this is largely due to workforce constraints that the customer, the machine user is facing, with high turnover and having workers that are less experienced with these machines, less familiar with these machines. We're looking now to the machine OEM to help them bridge this gap as having their own in-house team that knows the machines, that builds the machines. We're really seeing them look to the machine OEMs to help in the servicing department with their lacking and not having the ability to bring that in-house in a way that they have before.
Sean Riley:
The interesting thing that I thought you noted, you said AI might play a role in helping that from a service standpoint?
Vanessa Lopez:
Yeah. I think for AI and inclusion here is a little bit of the predictive maintenance. So there's preventative maintenance, where you regularly go in and check the machine, which is very often part of the service model. Predictive maintenance is growing a little bit, I would say, with the ability of having all this data from the machine, and being able to identify ahead of time, what are some issues that the machine is having that the worker might not catch, but a sensor on a motor might be able to detect that it's operating out of its realm of functionality? It's a simple level of AI, but we're hearing more talks about AI being added to this to help more easily explain this to the machine operators or the workers of what are some of the issues.
In the past, we've heard some reluctance on predictive maintenance as a result of just having a bunch of data, and not really knowing what you're looking at. And with the inclusion of AI, you now have a system that can take this sophisticated level of data, and simplify it in a way that really makes it easier to help the machine run smoother and help identify potential issues.
Sean Riley:
Absolutely. So it's interesting that something like AI is viewed as replacing the workforce, but here it's actually aiding the workforce that's in a situation where we don't have enough.
Vanessa Lopez:
Yes, definitely.
Sean Riley:
Yeah. Yeah. So I wanted to finish with two specific kind of consumer behaviors that you talked about during your presentation. The first was GLP-1s and their impact on packaging and processing machinery. How quickly does a consumer health trend like that translate into actual machine investment? Is it something that can turn around that fast, is it something that needs to take years, or are we seeing that change now with things like GLP-1s?
Vanessa Lopez:
Yeah, I think that's a really important question right now. Like we've touched on in the annual meeting, we're in this new age where some level of virality or desire from the consumers can completely change what companies are looking to put out.
On the GLP-1 side, the result is a shift in the recipe. So adding more protein, making changes to what the product is looking like, and also in the realm of advertising. As it relates to the machinery changes itself, I would say it's more slight modifications that come into play. If, for whatever reason, there was a product that entered virality that we've not seen before, we would see more demand for machine spikes. So unfortunately, it's like looking into a crystal ball to see what is the next thing that consumers are going to want.
[Inaudible 00:10:11] from the example before of, let's say for instance, there's a new dog treat that everybody wants, and it's made out of a product or an animal, if you will, that is not typically used widely. The virality of this and the desire of consumers to want to purchase these treats could lead to an increase in new machineries. If we were to be processing, let's say alligators, we don't normally have machines that we are advertising to process alligators. It could be creating a new machine that is made to help with this. It could be being aware that you have a machine available that can be used to process alligator, and promoting that, and helping get this machine out to your customers who might be looking for this. In the occurrence of a new product that comes into play that we otherwise are not widely using, I can see the demand for a machine to grow.
With small changes to recipes, it unfortunately does not create the same level of demand, especially as companies are looking to do more with what they already have. So maybe one new facility may get put into place or maybe we're looking to outsource that to some contract manufacturing, but it's not as likely to create new demand for a specific machine to the same level that some other things might do.
Sean Riley:
Interesting. And I guess that goes along with the other thing you mentioned, which was interesting, were trends that blow up on TikTok or on social media. Like you referenced cottage cheese was something that blew up on TikTok, the demand went through the roof, and suddenly the plant needs more SKUs, faster changeovers, smaller runs, things like that. How is manufacturers supposed to build these strategies around things that change kind of on a whim when they're so used to being in an industry where things were incremental in change? Is it just an age where they have to be more flexible?
Vanessa Lopez:
Yeah, I think this is a really good point. I feel that we are entering an age where creating machines that are more flexible might be the best way forward. If you're able to be a little bit creative on your machine design and have the ability to adapt to different products, I think you set yourself up for a good way to enter the market when change does occur.
So if you're able to change the size of your product, for instance, in a cartoning machine, if we're looking to load in smaller cartons, I think shrinkflation is an example here, being able to not have to make big changes to the machine, and being able to have the machine manually adjust or make it easier to adjust. If you can sell this to people, that they can run multiple product sizes, for instance, on this machine, you're in a much better space than offering a machine that is less malleable, if you will. I think it's the reality, as we're starting to see so much change enters, being able to make small modifications to your machine or even more modifications to your machine as a result of this unknowing of what's going to come next will definitely put you in a better position.
Sean Riley:
We always heard speed was the most important thing, like being able to be the fastest and get things out. And I really feel like, especially coming out of the annual meeting, other people talked about it as well, flexibility might be moving up the list of the most important things that machinery and manufacturers can offer out there.
Vanessa Lopez:
Yeah, I definitely would agree with that.
Sean Riley:
This has been great, Vanessa. We really appreciate you kind of adding on to your talk at the annual meeting, and coming on our podcast, and sort of clearing up some things for us, and giving some additional insights. So thanks again for coming on.
Vanessa Lopez:
Thank you so much for having me.
