The Rubber Industry Outlook: Markets, COVID and 2021

Published in Inside Rubber Magazine, The Official Publication of the Association of Rubber Products Manufacturers
Dianna Brodine, Managing Editor, Inside Rubber // 2020 Issue 4

 

 

I struggled to write an introduction to this article because whew, it’s been a year. The pendulum has swung from the highs of an optimistic forecast for a strong continuation of the economic successes of 2019 to the lows of mid-March when the economy… the country… the world… came to a full stop.

 

As we get closer to the end of 2020 and begin looking at 2021, the global pandemic still looms large. Glimmers of hope are on the horizon as we get closer to an approved COVID-19 vaccine and headway is being made with new treatment protocols. In addition, I recently heard encouraging news from a somewhat unlikely source – an economist.

 

Chris Kuehl is the managing director of Armada Corporate Intelligence. Occasionally featured in this magazine and many others, Kuehl recently presented at the Benchmarking & Best Practices Conference I (virtually) attended. Among the nuggets he shared: If we look ahead to the end of 2021, a conservative economic analytical group is predicting 4% growth: That 4% would be almost a point and a half faster than what we experienced in 2019. To get us there, some economists now are predicting a “K” shaped recovery, where some sectors (such as manufacturing) recover more quickly, and a secondary recovery will happen for service sectors a little later. Kuehl also tackled the reshoring issue, predicting that we will see increased reshoring in North America, due to factors such as a desire to diversify supply bases, unreliability of ocean cargo and increased transportation costs. All of this is good news for companies with capacity here in the US.

 

While Kuehl spends a significant amount of time studying the manufacturing industry, it was important that this article also go straight to the source – rubber processors – to understand where their companies are now, what the opportunities are for growth and how they’re planning to tackle the year ahead.

 

James P. Wirtz II, president, REP Corporation; Dennis Askew, business development director, Rahco Rubber, Inc.; and Christian Buhlmann, vice president, global product line, industrial power transmission, Gates Corporation, offered their insights.

 

Current Business Situation

Wirtz: Business has been fairly steady throughout the pandemic. We didn’t have much downtime – maybe a few days when everything first hit – but as soon as our customers needed support on their machines, our engineers were there. The impact we’ve seen in the US – at least for REP Corporation – was minor. The sales team wasn’t in the field for a time, but the company did a great job supporting our customers with research and studies, ultimately helping to prepare for the return of business, which we’ve already seen. In the last 30 or 40 days, our sales teams have been inundated with RFQs, and sales numbers have returned to a strong level following the aggressive start-up of our customers’ locations. Our engineering team remained busy throughout, training the next generation of engineers and focusing on new hires. Expanding our engineering team and sales team are a high priority. Currently, we have about 20 employees at REP Corporation, including six engineers, and we’re looking to hire a number of engineers in the upcoming months.

 

Askew: All here at Rahco are feeling very positive as we close out 2020 and move into 2021. We serve the consumer electronic, food service, power equipment, transportation, agriculture, municipal, plumbing, safety and marine industries currently and are growing into new markets.

Serving a myriad of industries has kept us from the large “dips” some have realized. For instance, we’ve never been deeply entrenched in automotive. Every product we make is custom and, while every product has a life cycle, the life cycle of products within the industries Rahco is working with far exceeds an automotive life cycle.

Some of the components we manufacture have been around for 20 or even 40 years. This allows us to find and capture efficiencies through the design of the part to benefit both our production operations and our customer. During the last few months, some of our customers did make changes to their products to respond to changing market demands, but our components didn’t change – so, although there were ripples and some customers did push orders off for a time, everything has since gone back to production.

Our staff is composed of approximately 100 team members, and we’re certainly planning to maintain that number – although we’re always looking for new impact players. Our president, Steve Anton, continues to support and develop internal personnel for more strategic roles while also looking for high-quality people externally.

 

Buhlmann: Gates has been based in Denver, Colorado, for 109 years, and we’ve always had a pioneering spirit and an ability to evolve and adapt. With that type of history, the company has been through challenges like this before. Given the global nature of our business, many of our large markets were essentially shut down for a period of time by shelter-in-place requirements earlier in the year. Although the vast majority of our facilities continued to operate, we certainly were impacted. However, we supply critical products into a wide range of applications, which contributed to demand beginning to snap back nicely in the third quarter. Throughout the pandemic, we’ve continued to manage the business for the long term and have kept the focus on where we are trying to drive strategically, and we haven’t really pulled back on investing in our key initiatives. We’ve continued to innovate and anticipate what’s next, and we’re always using materials science to come up solutions to what our customers are demanding of us.

 

Responding to the Challenges of Coronavirus

Wirtz: Because our customer base is so diverse – automotive, medical, defense – many were deemed essential, so they weren’t shutting down at the beginning of the pandemic. The biggest struggle we saw from our customers was more focused on our competitors not being able to support them. I believe we have the largest engineering and field team here in the US, but even so, it was a challenge for us to support customers not only for our own machines, but also for anything the customers needed. Companies in the industry were laying employees off, and we were hiring people.

 

Askew: COVID-19 has challenged all of us, yet through this pandemic we have been able to support our business partners effectively and keep our team members as safe as possible.

As an essential manufacturer, our leadership quickly adapted to the reality of the pandemic to ensure the sustainability of our supply chains, production demands and safe working environment. Safety protocols included temperature checks, hand sanitizing, social distancing, staggering of lunch hours and breaks, and constant sanitizing of the facility. We doubled our efforts in terms of janitorial and cleaning, and wore masks, of course. We abided by every intention and letter of the law to make sure we were compliant in giving our team members the safest environment possible. And, one of the first things we did was ensure our supply chain was prepared. We worked to provide forecasts of our needs from our supply chain partners to ensure the end items could be produced.

 

Buhlmann: We immediately had a core emergency response team that first focused on our employees in China as those facilities were affected and temporarily closed down. We were able to learn a lot of lessons about disinfection and quarantines that allowed us to create guidelines and protocols around the ways to do business as safely as possible. Throughout the pandemic, there have been three tenets we’ve followed: Focus on the health, safety and wellbeing of each employee; comply with and ideally exceed government requirements related to minimizing the spread of COVID-19; and continue to support our customers, many of whom are in essential industries across the world. Gates has an in-region, for-region manufacturing strategy, meaning we generally sell and service what we make in that particular region. That has served us very well and allowed us to maintain continuity of supply. At this point, no one’s let their guard down, but I think we’ve learned to adapt and operate at full capability even though we are working differently compared to what we were doing earlier in the year.

 

Keys to Success in 2021

Wirtz: I think it always comes down to the same thing – finding and hiring the right people who have the knowledge we need and can support our customers with professionalism. Because we’ve worked with our local industrial education school and have created programs specifically for what we need, we have a deep well to draw from. Still, hiring the right people is always the challenge, and I’d like to expand over the next few months.

 

Askew: Rahco’s ongoing mission to prioritize lean manufacturing principles and Six Sigma projects has positioned us to feel less of an impact than many of our competitors. Lean manufacturing and Six Sigma are all about mitigating waste, which is helpful from an environmental perspective. But waste also costs money – whether time, processing or material – which ultimately gets added onto the piece price.

We’ve avoided a lot of the price moves that other companies have to make because of their inefficiencies. We are aggressively moving forward with initiatives that will protect our customers, solidify our future and drive an overall value into our business.

 

Buhlmann: For 2021, it’s pretty straightforward for us. In addition to keeping our employees and communities safe, our focus will continue to be on supporting our customers, developing innovative new products and bringing them to market and executing on our key growth initiatives. We feel good about the resilience our business showed and the encouraging trends we saw in the third quarter, and we like the way our business currently is positioned.

 

Opportunities in the Year Ahead

Wirtz: REP has been around for 114 years, and we’re not going anywhere. We have a number of very large opportunities yet for this year and 2021, and I think it’s not fair to label one as our “biggest” opportunity. Our business and client base are diverse, so even though we saw a slowdown, production came back quickly. And, REP International is still working. It gives them the opportunity to work on development and new technologies because the workload is down from last year, giving them just enough room to do those research development projects.

 

Askew: The onshoring efforts by many OEMs and Tiered suppliers – looking for higher quality, the “Made in America” advantage and secure sourcing – which began prior to the pandemic are now amplified by the disruptions they realized. Larger companies that 10 years ago said offshore was the key to their success have been challenged by supply chain issues, especially as raw materials become obsolete and formulations change. The reality is that quality suffered from a material standpoint and there were field failures, which began the initial requests to come back to the US.

Now with the added pandemic-related supply chain disruptions, Rahco has an opportunity. New business is the lifeblood of any company, and we are constantly seeking out businesses where we can add value into current products with our experience, our vertical integration and our chemical development resources.

 

Buhlmann: Our opportunities all start from our materials science expertise. We’ve been a global leader in bringing forth a new generation of elastomer-based polymers, and that is technology we intend to further leverage. It provides us a number of improvements that our customers are looking for, streamlines our operational ability and also gives us a product that takes less chemistry to manufacture, including chemicals that weren’t as easy to handle. We see that as an opportunity to evolve our platforms to have less environmental impact at the point of manufacture. We also have an initiative aimed to replace chains with belts, which are cleaner, last longer and have other environmental advantages.

When we look at our markets – in particular, the transmission belt market – one of the biggest opportunities is targeting a technology that’s been around since the 1890s, which is roller chains. That’s a very large market, and we’re one of a handful of companies with the technology to make those replacements. It’s a tremendous opportunity to help companies become more efficient and quieter. And, as we look at motive industries, from bicycles and ATVs to motorcycles and cars, only around 2% are electric now, but we see the electrification change as a huge opportunity for us going forward. If you look around any building or any vehicle, there are very few places where Gates doesn’t have an opportunity to be involved and grow.