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Washington Value Destruction - What does it mean for you (and us)?

CHICAGO, March 19, 2013 () – With our entry into the Sequester (with a capital S), a primary focus is how it will affect you and me as individuals. I hope we are also asking the bigger question of what it means for the many “us’s” to which we belong.

Most of us at some time(s) in our careers have been affected by across the board budget cuts in which all (or at least most) departments or functions are hit with some formulaic amount of budget reduction. As frustrating as those may have been to deal with, in almost all cases managers were given some degree of latitude to use their knowledge and creativity to minimize the impact of the cuts facing their function on its contribution to the overall objectives of the organization.

Not so for the Sequester, where prioritization of activities is apparently not allowed and all the activities of an affected function or department must absorb equal reductions. There are still a lot of details to be revealed, and the timing and actual impacts will become clearer in the coming weeks.

With what we know today, let’s take a short look at what it might mean to the “us” that is the packaging industry. Some of the impacts are obvious, particularly as the FAA becomes more specific about what April 1 implementation by them will bring - what furloughs of flight controllers will be required and which airports will close and which won’t have overnight shifts, and the location and length of likely flight delays.

Whether or not their predictions are totally accurate, air transport will suffer and at the margin, business trips will be curtailed, as inconvenience from long delays would make day trips impractical and reduced flights will eliminate today’s relatively few available seats. And the list of potentially closed airports includes many where corporate aircraft are hangered, which have served until now as sanctuaries from the hassles of the big commercial airports. While we keep saying that we can do business remotely and electronically, there continue to be essential activities that must be done face-to-face or at a specific site. What will be the impact on your sales or new package development projects, plant/customer problem solving or trade show attendance? Or closing the deal?

The bigger issues, and the real unknowns relate to the impact on the economy. We are already seeing the impact of the reversal of the employment tax holiday on consumer spending. Sequester impacts are heavily skewed towards people costs, and less income translates to reduced total spending and changed spending habits. In addition to government job reductions, trickle down job losses will originate from the industry’s customers, and there are plenty of pertinent lessons from the past 4+ years of what a return to higher unemployment rates will mean.

Packaging has sometimes been called a relatively recession-proof industry; after all, people need to eat, take medications, etc. But again, at the margin, tipping points are reached that change the fortunes of individual products, companies, market segments, etc. Those able to see early signs and smartly adapt will do a bit better; as is generally the case, the oblivious will be surprised and the over-reactors will miss the opportunities.

Whatever happens in the short term as a result of the start of Sequester implementation on March 1st, don’t expect it to settle things completely, we’ve got a bunch of tough questions to deal with, and major differences of opinion on how to deal with them. About the only thing we can count on is excessive rhetoric and insufficiently wise action. In the meantime, we must keep at least a part of our vision on the longer term, and keep delivering increased value to consumers; all parts of the packaging value chain have a role in that, and it’s the long-term strategy proven to work.

Hoping to not being stuck with you in an airport on a clear sky day….

Timothy Bohrer is the owner of Pac Advantage Consulting:

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