E-commerce in 2020 has Driven Up Demand for Boxes, Challenging Cardboard Manufacturers
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The Philadelphia Inquirer reports that for families stuck indoors and desperate for entertainment, cardboard boxes can transform into a makeshift playground for the kids or a refuge for the cats. Day to day, though, they have been a crucial if often overlooked link in the nation’s supply chain.
But now boxes are piling up in homes across the country because of the explosive growth in e-commerce last year. That’s left the corrugated-packaging industry dependent on consumers to recycle the products to support its financial and environmental needs.
Corrugated-box shipments grew 9% in March from the previous year, industry data show, despite a brief dip in revenue when the pandemic’s initial shock froze the supply chain. But shipments quickly resumed and climbed through the fall, peaking in October, and box makers were on pace to end the year with record production to meet demand.
In fact, retail analysts say, e-commerce sales squeezed in more than two years’ worth of growth since the pandemic began. And the corrugated industry is scrambling to keep up: Paper mills are running at full speed, and some producers are capping orders and contracting out to smaller companies.
"At some point, yes, there was some pantry loading as people were preparing for what the effect might be of the pandemic, but I think we're past that point and what we're seeing here is new consumer behavior," said George Staphos, a senior analyst covering paper forest and packaging for Bank of America Securities. "Once you establish a new pattern, it's really hard for it to change."
The cardboard box and container manufacturing industry, which employs 139,000 in the United States, took in $67.3 billion in revenue from January through October, according to an IBIS World report. Even as the broader economy slid into recession and industries took a hit, e-commerce sales stayed afloat.
And demand will continue to rise as consumers increasingly choose e-commerce over bricks-and-mortar stores.
Georgia-Pacific, one of the world’s largest manufacturers of pulp and paper products, is already running its mills at full capacity, its chief executive, Brian Smith, said in a Marketplace interview. The Atlanta-based company has had to buy from smaller producers to keep pace.
"It's certainly been a challenge, because we're taking extraordinary steps to keep all of our employees safe, which can slow production down considerably," Smith said. "So sometimes it involves running extra hours and into weekends to keep up with demand."
Memphis-based International Paper, the nation’s largest forest-products company, produced more than 2.7 million short tons of corrugated packaging, up 2% year over year, according to its third-quarter earnings report.
WestRock Co. produces 1 out of every 5 cardboard boxes in the United States. The Atlanta-based manufacturer of corrugated packaging, paperboard, and containerboard employs 50,000 workers.
Box demand typically peaks in September, then tapers off through the end of the year as merchandise arrives in stores. But last year, between June and October, box shipments met 34 billion square feet — an industry record — each month. Demand swelled as retailers and shoppers alike adapted to the pandemic, according to Rachel Kenyon, vice president of Fibre Box Association, an industry tracker. Well-documented backlogs at the U.S. Postal Service also motivated consumers to start online shopping earlier.
“Based on data that we have dating back to 1999 [from the Fibre Box Association], this is a record,” Staphos, the Bank of America analyst, said. “Two months in a row would be a lot. Five months is unheard of.”
Staphos said the containerboard industry is now raising prices — a $50-per-ton hike on shipments in November — and putting caps on client orders amid the tightest market since 1994. According to his research team’s most recent survey of box producers released Dec. 13, growth in production was still up — 5.1% in November and 4.5% in mid-December, which doesn’t account for much of the holiday season and last-minute shoppers ordering shipments.
Most of the companies surveyed expect another price hike in the first half of 2021, anticipating even more demand, including from vaccine shipments.
On the flip side of the industry’s growth is the environmental impact. Cardboard is more biodegradable than plastic packaging, but its production is linked to deforestation and heavy chemical use by paperboard mills.
Global consumption of paper and paper products goes through 15 billion trees each year, according to the Environmental Paper Network. The industry relies on recycling virgin fiber — the basis of cardboard boxes — five to seven times, saving trees and improving the bottom line.
Kevin Hudson, WestRock's senior vice president of forestry and recycled fiber, described how this "circular economy" works: Fibers produced in its paper mills are sent to production facilities, which make and ship boxes to clients such as Amazon and Domino's. The boxes that make their way to WestRock's 18 recycling plants are then turned into fibers again to start the process all over again.
WestRock invested $2 million in an upgrade to its Marietta, Ga., recycling facility in October — which Hudson said was critical to handling last year’s high demand for online shopping.
And as packaging changes, the more that retailers and corrugated producers learn about consumer needs. Several years ago, it was common for an Amazon order to arrive in a huge cardboard box, with several smaller cardboard boxes inside wrapped in plastic air bubbles. But WestRock now uses its box-sizer machine for customers to right-size the package and reduce waste.
"We've optimized the box size to the product, so we're reducing the amount of fiber that box requires. We're also reducing the amount of fill product that box requires," Hudson said, as bubble wrap and similar fillings are hard to recycle.
That means the packaging is more protective, ensuring suppliers' quality for its customers, and more efficiency: Smaller packaging means postal and delivery workers can fit more packages on trucks, which reduces carbon emissions from gas and saves time.
Clients play a role in efficiency, too. Amazon now relies on proprietary artificial intelligence to calculate the best fit for orders, which sometimes means using an envelope instead of a box. As a result, Amazon says, it has reduced outbound packaging by 33% in the last five years, eliminating more than 915,000 tons of packaging material — the equivalent of 1.6 billion shipping boxes.
Both Amazon and Target declined to share cardboard usage data. T.J. Maxx declined to comment on this story. Walmart and Gap representatives did not respond to requests for comment.
Now, with the transition to more cardboard boxes showing up on doorsteps rather than in stores, the industry is relying on more consumers to keep up with recycling.
“More paper by weight is recovered for recycling from municipal solid waste streams than glass, plastic, steel, and aluminum combined,” Heidi Brock, president and chief executive of the American Forest and Paper Association, said in an emailed statement. “As more people stay at home, it’s a good reminder that the box at your doorstep is designed to be recycled.”
