Increased containerboard output not enough to keep prices down
According to Supply Chain Dive:
- Recent data from the American Forest and Paper Association suggests the containerboard industry is producing close to full capacity, as the operating rate for containerboard companies was 98.4% in March (up 2.8% YoY), according to a statement from Terry Webber, the association's executive director of packaging.
- As production ramps up, corrugated packaging manufacturers, such as WestRock, are raising prices. During the company's Q2 earnings call, Ward Dickson, WestRock's executive vice president and CFO, said the "implementation of these price increases and improved business mix drove $88 million in year-over-year earnings improvement."
- The index measuring cardboard prices increased to 369.4 in May, compared to 342.1 for the same month in 2020, according to the Bureau of Labor Statistics' Producer Price Index for corrugated and solid fiber box manufacturing. Prices shot up during the first half of 2021, after remaining fairly flat in 2020 despite an uptick in demand.
The PPI for for corrugated and solid box manufacturing shot up
The Producer Price Index for primary products related to corrugated and solid fiber box manufacturing, since Jan. 2019.
Chart: Edwin Lopez / Supply Chain Dive Source: U.S. Bureau of Labor Statistics Get the data Created with Datawrapper
Although American Forest and Paper Association found that containerboard production increased 9% in March compared to March 2020, the boost in supply was not enough to keep prices from going up this month.
Rising containerboard prices could be a threat to companies that rely on packaging to deliver goods ordered online to their customers. If prices continue to shoot up, companies will have to pay even more for shipping boxes and figure a way to balance out the additional cost. That could mean setting higher prices to absorb the increase.
"Boxes are the most widely used packaging for e-commerce shipments," Webber said. And to meet the rising demand, manufacturers have "steadily increased over the last decade" by expanding capacity by 14% between 2010 and 2019, he added.
Manufacturers are now operating at almost full tilt. Many investments are geared toward recovering product fibers for reusable packaging to secure supply.
"Boxes are ... the most recycled packaging in the United States providing a versatile and sustainable packaging solution for retailers and consumers alike," Webber said.
American Forest and Paper Association expects the industry's capacity expansion to continue with billions in investments lined up through 2023.
This story was first published in our weekly newsletter, Supply Chain Dive: Procurement. Sign up here.
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