Ecommerce Is Causing Exponential Rise In Cardboard Demand - And Prices

All that shipped merchandise has to come wrapped in cardboard - and given the number of refrigerators, big TVs and other household items, that has driven demand to the highest amounts ever. JL 

Ryan Dezember reports in the Wall Street Journal:

Americans consumed more corrugated cardboard boxes than ever last year. Stay-at-home orders and stimulus checks fueled a banner year for e-commerce and a run on shipping boxes. The demand prompted producers to raise prices to new highs. The pandemic housing boom and a surge in remodeling necessitated a lot of corrugated board to wrap big items like appliances and cabinets. “There is more demand for cardboard through an Amazon model than there is through a Best Buy store model.” (On the plus side) E-commerce could boost recycling. 

It wasn’t just you. Americans consumed more corrugated cardboard boxes than ever last year.

Stay-at-home orders and stimulus checks fueled a banner year for e-commerce and a run on shipping boxes.

U.S. producers in 2020 churned out nearly 407 billion square feet of corrugated product, from dot.com delivery boxes to watermelon crates, according to the Fibre Box Association. The year-over-year rise was 3.4%, equivalent to about 477 square miles of additional corrugated board. Enough to cover New York City and then some.

The demand prompted producers to raise prices to new highs in autumn and again recently, adding to the supply-chain woes piling up on businesses as the economy reopens.

Already contending with record wood prices, scarce shipping containers and fast-rising freight, cabinetmaker John K. Morgan now faces more costly corrugated board. His Green Forest Cabinetry is paying 22% more for boxes than a year ago. Bales of corrugated board, which are folded into custom packaging at the company’s Chesapeake, Va., factory, cost nearly 10% more and he has been warned by his supplier that prices are headed higher.

Mr. Morgan ships cabinets across the eastern U.S. and is tinkering with box designs and using more straps to save cardboard.

“I might build wooden boxes, but cardboard is a significant expense,” he said.

Box pricing is usually based on the price of containerboard, specifically 42-pound unbleached kraft linerboard. That is an often-used variety of the thick paper that sandwiches the fluted layer inside box walls and serves as the basis of many box contracts.

Producers battened down for recession at the start of the pandemic, unsuspecting of the box boom to come. In May, WestRock Co. , the second-largest containerboard producer, cut its dividend by more than half as a precaution.

“Box demand fell off a cliff for two months, but starting in June it came roaring back as you had the economy reopen and economic stimulus,” said Adam Josephson, a paper and packaging analyst at KeyBanc Capital Markets. “People had money to spend.”

The pandemic housing boom and a surge in remodeling necessitated a lot of corrugated board to wrap big items like appliances and cabinets. Spending shifted from services, like dining out, traveling and live entertainment, to goods.

At a recent investor conference, Waste Management Inc. Chief Executive Jim Fish said more e-commerce could boost the waste hauler’s recycling business, which collects cardboard curbside and sells it to be pulped anew for more boxes. When a store like Best Buy orders 25 Bluetooth speakers, they arrive in one big box. Sold through Amazon.com, each is shipped in its own box.

“There is more cardboard and demand for that cardboard through an Amazon model than there is through a Best Buy store model,” Mr. Fish said.

Containerboard supplies tightened and prices rose for box makers’ raw materials, such as pulp, chemicals, fuel and even recycled material like junk mail and boxes. Producers initiated a $50-a-ton increase for containerboard in the fall, raising the benchmark grade to an average of about $765 a ton.

Producers announced additional increases earlier this year. Some said they wanted $60 more, others $70. Fastmarkets RISI’s PPI Pulp & Paper Week, a trade publication that surveys buyers and sellers, pegged the March price at an average of $785 a ton.

Greg Rudder, the publication’s managing editor, said the proximity to the fall price increase as well as ransomware attacks that fouled up billing systems at big producers have forced the latest increase to be phased in. “There will probably be additional price gain in April,” he said.

WestRock executives say the Atlanta company’s mills are back to normal operating levels following disruptions from a Jan. 23 ransomware attack that forced it to shut down information systems, delayed shipments to customers and cost it about 125,000 tons of output in February and late January.

Producers expect demand to grow, albeit at a slower pace than in 2020. They are adding millions of tons of manufacturing capacity, often at the expense of their paper output.

Such is the shift that International Paper Co. said in December that it was spinning off its paper business to focus on containerboard, of which it is North America’s largest producer.

“The overwhelming demand for containerboard far outweighs the opportunities for paper,” Packaging Corp. of America CEO Mark Kowlzan said.

The company said in February that it would spend $440 million to convert a paper machine at its Jackson, Ala., mill to churn out linerboard, which is the outer layer of corrugated board. Canada’s Cascades Inc. is converting an idled newsprint plant in Virginia. Pulp maker Domtar Corp. said it would turn a paper mill in Kingsport, Tenn., into the country’s second-largest containerboard plant.

Domtar was once a big name in Canadian packaging, but the modern iteration of the company, based in South Carolina, has never made containerboard. That didn’t matter to investors. Domtar’s shares shot up 27% the day it announced it was moving into boxes.