Profitable opportunities in safety and technical markets

An IFAI survey shows increasing profit potential in the safety and technical markets

The safety and technical clothing industry plays a crucial role in the protection of firemen, police officers, military personnel, construction workers, miners and industrial workers. Concerns for general worker safety, including protection from death and disabling injuries and illnesses, threats of chemical agents and splashes, fire and bullets, have resulted in an entire industry devoted to safety and personal protective equipment. Equipment includes chemical protective garments and suits, firefighter turnout gear, industrial fire retardant garments, bullet-resistant vests and respirators. It’s a mature business that is less cyclical than many other industries, and generally achieves 5–7 percent annual growth.

In 2011, there were cost increases in most raw materials and transportation fuel costs, driven by higher feedstock costs, including petroleum-based materials, metals and minerals. Key market suppliers and end product manufacturers (EPMs) have avoided disruption to their manufacturing operations through careful management of existing raw material inventories and the development and qualification of additional supply sources.

Some successful safety and technical product suppliers manage price risks through negotiated supply contracts, price protection agreements and forward contracts, as well as improving efficiencies in their own processes through internal programs such as lean manufacturing and just-in-time production techniques.

Major market segments

In the United States, there are approximately 10–20 principal suppliers and 80–100 EPMs with numerous distributors who operate mostly over the Internet, working primarily in the industrial market’s four significant segments:

• Ancillary garments and equipment, including cut-and-slash protection, such as gloves in industrial settings, head and eye protection, non-FR high visibility garments, and respirators.
• Thermal wear or heat- and flame-resistant clothing, including firefighters’ turnout gear for structural, proximity and wildland fire service; industrial fire-resistant garments for use in electric and gas utilities or industrial applications where electric arc and flash fire may be hazards; and FR high-visibility garments.
• Ballistic clothing, which includes body armor, and bullet-resistant garments used in law enforcement and the military.
• Chemical/Biological/Nuclear protective garments and equipment, including chemical-resistant clothing, chemical warfare and protective suits used in industrial, medical and nuclear plant applications.

In the past year, the Industrial Fabrics Association International (IFAI) has added medical textiles to safety and technical products—formerly termed safety and protective products. Active barrier fabrics protect health care workers, who are often exposed to blood and bodily fluids. The value for medical textiles worldwide in 2008 was about $8 billion; 66 percent of this amount was in the U.S. and Europe. Nonwovens represent approximately 75 percent of the market, wovens 20 percent and knits 5 percent.

$4 billion U.S. protective gear and armor market (2010)

Gloves, head, eye, respirators, hi-visibility: $2.3 billion

Thermal (fire retardant): $566 million

Ballistics/armor: $500 million

Chemical/bio-nuclear: $500 million

Other: $134 million

The global safety and technical market was estimated to be about $20 billion in 2011. Growth worldwide is about 5–7 percent annually, although the worldwide economic slowdown in 2009 tempered growth. The safety and technical market bounced back in 2010.

Demand for equipment, such as protective glasses and fall-protection harnesses, is growing twice as fast as the global economy, as regulators worldwide seek to cut a toll of 321,000 on-the-job fatalities each year. Regulations are moving fast and advancing quickly. (Asian factories, for example, where employees once wore traditional street attire, are moving from slippers to protective footwear.)

What’s driving growth

The impetus for growth in the U.S. is the gradual increase in the workforce, changing attitudes by employers toward worker safety and protection, and tougher compliance for workers in industrial and construction settings, requiring them to wear American National Standards Institute (ANSI) compliant garments. In fact, in early 2012, a new federal regulation requires that workers near public roadways must wear ANSI 107-compliant garments.

The U.S. and Europe account for more than half of the global market in industrial protective clothing. Worldwide, thermal clothing in the Asia-Pacific region is forecast to grow the fastest, expected to reach about $409 million in 2012. Growth in Asia will be driven by new manufacturing and construction projects underway in the Middle East and Asia, particularly India, China, and Vietnam. Apart from being the world’s most populous countries, China and India have large numbers of unprotected industrial workers, offering untapped potential for future growth. With Asian countries becoming the hub of global manufacturing operations, the need for worker protection products will only get stronger.

The U.S. safety and technical market was worth about $4 billion dollars in 2010. Growth in this market is generally 5–7 percent annually. In 2011, it grew 5 percent over 2010. Profit margins for suppliers in the U.S. safety and technical products market are roughly 17 percent.

Potential markets exist in Africa, low-income countries in the Americas, the Eastern Mediterranean and Southeast Asia, the regions identified in an International Labour Organization (ILO, a United Nations Agency) report as having the most workplace deaths. Global participants in the safety and technical market benefit from efforts such as an ILO initiative for countries to form regulators like the U.S. Occupational Safety and Health Administration (OSHA).

Who’s in the business

Because safety and technical market segments operate on a global scale, suppliers are generally large and have a global presence. Because of the large economies of scale required to serve global markets, 10–20 mid-to-large-sized companies dominate in each market segment.

Selling directly to the military requires meeting specifications, and sales are executed on a contract basis. Suppliers, distributors and EPMs who sell to the military must pass thorough evaluations by the Defense Logistics Agency (DLA) and be listed on the DLA’s Qualified Suppliers List (QSL) in order to bid on military contracts.

Suppliers and EPMs often sell their law enforcement, firefighter, EMS and industrial personal protection products directly to large municipalities in the U.S., but many also sell through distributors.

The market for U.S. EPMs selling traditional safety and protective products has slowed in recent years due to an influx of less expensive products imported from China. Most distributors sell over the Internet, purchasing thousands of units to sell to customers worldwide, so EPMs in traditional applications, such as for non-FR high visibility, construction, or industrial areas, tend not to export their products overseas. In recent years, EPMs have tried to pass along rising raw material costs to the customers, but that carries the risk of losing customers.

EPMs serving higher end markets, such as military, aerospace and energy, command higher prices for their products because these often incorporate high-performance fabrics, such as para-aramids used to make Kevlar®, a key fabric used in bullet-resistant vests. These markets enjoy annual growth rates of 7–10 percent per year. Balanced against traditional safety and technical markets that grow about 2–5 percent per year, the overall growth rate for EPMs is about 5–7 percent.

Clear trends

Wearer comfort and regulation compliance are driving developments in the safety and technical market.

1. Increasing innovation in comfort. Better engineered fabrics and products are addressing the need for lighter weight, more functional and more fashionable garments. Law enforcement personnel and soldiers may choose not to wear bullet-resistant vests because they are bulky and hot. New fabrics are lighter and more breathable. An online survey conducted by Kimberly-Clark found that 89 percent of safety professionals polled had observed working people failing to wear proper work wear and/or personal protective equipment (PPE), and almost 30 percent said they had observed it on multiple occasions. Despite seeing co-workers get hurt in preventable accidents, continued safety training, reminders and policies—and common sense—workers still put themselves at risk. The survey showed that comfort is the number-one reason workers don’t wear PPEs: it’s too hot; it fits poorly; it’s unattractive.
2. Growing compliance by companies to adhere to regulations. Key players are focusing on compliance with safety legislation and product development. All workers on public roads must now wear Class 2 or Class 3 ANSI/ISEA 107-2004 safety apparel.
3. Increasing adoption of personal safety in emerging markets. This is particularly true in China and India, where the workforce is becoming more organized and labor is challenging employers to provide safety and protection equipment.
4. Employment increases in developing economies. Major efforts are underway in China, for example, to develop infrastructure and more advanced markets, such as automobiles and construction, which require safety and protective clothing and equipment for workers.
5. Consolidation. Larger, global suppliers are buying competitors to shore up their market portfolios. Honeywell International Inc. is poised to overtake 3M as the world’s biggest maker of protective gear, buoyed by $3 billion in acquisitions since 2008 and stronger workplace-safety rules in developing countries.

Outlook for the future

In IFAI’s 2011 safety and technical products supplier/manufacturer climate survey, 62 percent of respondents reported favorable sales growth in 2011, and 9 percent reported unfavorable sales growth in 2011. Sixty-four percent of suppliers/manufacturers reported they expect favorable sales in 2012, the same percentage that was reported in 2010. Only 12 percent reported they expect unfavorable sales in 2012—again, the same percentage reported in 2010.

Safety and technical product suppliers and manufacturers reported they expect sales will increase 5–6 percent in 2012 compared to 2011. Going forward, suppliers and manufacturers in the market should experience a stable, somewhat improved performance in sales in 2012. Key markets such as military clothing, construction, and industrial uses—especially the automobile market—will maintain a strong influence in 2012.

Jeffrey Rasmussen is IFAI market research manager; +1 651 225 6967, jcrasmussen@ifai.com.