OAKLAND, CA, June 14, 2019 (PPI Pulp & Paper Week) -Amazon's positive financial performance over the last few quarters â€“ ongoing revenue expansion at a high rate and finally an increase in profit -- and its commitment to sustainability and its so-called "frustration free" packaging (FFP) will benefit corrugated box consumption in North America, US producers and analysts have said recently.
In the first quarter, Amazon's net sales increased 17% to $59.7 billion over a year ago and its operating profit of $4.4 billion for a 7.4% margin was a major improvement from the prior year quarter's margin of 3.8%. In 2018, Amazon's full-year net sales increased 31% to $232.9 billion.
Related to corrugated, the company is expected to continue to drive more consumer product traffic and also at the same time is indoctrinating box makers to make certain they provide improved packaging.
In Brampton, ON, one of Amazon's most modern fulfillment centers and the only robotized facility in Canada, all orders are shipped in corrugated â€“ the unit uses about 10 different sizes of corrugated boxes,PPI Pulp & Paper Weeklearned during a tour at the Brampton center.
All products are taken to the Brampton packaging stations by robots using Bluetooth technology and bar codes. Each packaging station has a label printer, a tape machine, bubbling filling, and corrugated boxes, which are handled by human workers.
The emphasis at the Brampton center and for Amazon overall is on speed.
That same thesis affects box makers.
One of them, referring primarily to e-commerce, toldP&PWin March that "companies that can turn the wheel quicker with phenomenal turnaround will win the game. Customers are requiring more defined service. With the younger generation, it's a very fast market. That's the real market today."
In another example, a contact told of one of nine new corrugated plants in the USA in the next year that will be primed with the capability to produce high-graphic recycled packaging for e-commerce. How many others of the remaining eight that may mostly focus on e-commerce is unclear.
Even last year, CEO Steve Voorhees, the leader of WestRock, which is the third largest containerboard producer in the world, envisioned a day where a US box plant might be located next door to an Amazon fulfillment center.
Challenges.Smurfit Kappa Group's dir of innovation German Pulido toldP&PWthat sustainable and recycled-content packaging will be keys for e-commerce.
"The FFP initiative seeks to certify Frustration-Free Packaging (suppliers) by making it all recyclable and guarantees it does not have excess packaging materials. This is obviously a huge opportunity for a hero product such as paper-based packaging," Pulido said.
He said end-users also seek efficiency of the supply chain, which means packaging that optimizes speed and productivity in any possible e-commerce supply chain.
"Right-sized packaging will reduce dimensional weight and/or cube size in freight, resulting in sustainable packaging solutions," Pulido said.
Pulido identified three challenges that corrugated box industry players face when it comes to e-commerce. The first one is planning for peaks and managing growth in the e-retail process, then managing shipping costs in the supply chain, and finally dealing with a seamless customized consumer experience.
E-commerce impact.Particularly in the USA, where Amazon leads the e-commerce sector, accounting for 40% of its sales, corrugated board producers are putting efforts to develop new packaging solutions for e-retailers.
This now also includes making certain that incoming boxes to Amazon fulfillment centers such as Brampton are boxed strongly, so as not to need to be boxed a second time, as has occurred in the past. Amazon started this effort and its FFP program about a year ago to eliminate double boxing and to be able to more efficiently move an incoming corrugated box out the door of its fulfillment to a customer, contacts said. The FFP also includes a process for corrugated firms to be certified as a supplier with Amazon. Companies have until Aug. 1 to become certified. Amazon also wants box sizes to be more appropriate to the size of the product being delivered. There have been complaints to the company about small products shipped in a box much larger than the product. During the holidays, some claimed that some Amazon packages were in polyethylene rather than corrugated for small items.
At an investor meeting in late February, a former Walmart packaging executive said e-commerce business including with Amazon would in a next step see North American customers more actively buying consumer goods, such as bathroom tissue, food, cereal, and beverages, via online and delivered the next day to their homes -- much more than they do today.
The US Census Bureau estimates that e-commerce sales in the fourth quarter of 2018 accounted for 11.2% of US total retail sales. Vertical Research Partners analyst Chip Dillon stated on a webinar in April that the 11.2% is very positive for the corrugated box industry.
E-commerce is evolving and growing rapidly driven by an increase in the level of consumer convenience expectation, Smurfit Kappa's Pulido said. Smurfit Kappa is the fourth largest containerboard producer in the world, according to RISI capacity figures.
"Consumers look for convenience in the way they shop (easier and faster), consume products (deliveries), and engage (consumers buy products first researching about them on social media). This is a result of many factors like the rapid urbanization in the cities, long commutes, and technological advances," Pulido said.
International Paper (IP) is identified by some US market players as possibly the largest US supplier to Amazon. IP is the largest containerboard producer in the world.
CFO Tim Nicholls stated on the company's 1Q19 conference call in April that e-commerce continues to grow, "not only from our largest e-commerce customer, but from a lot of others that are growing rapidly, too."
"E-commerce will continue to disrupt the way people buy groceries. Convenience is key and we believe the food and beverage industry is expected to be the biggest growth market," Pulido said, similar to what the former Walmart packaging leader said.
Packaging Corp of America Exec VP of corrugated products Tom Hassfurther said that the food/produce sector had some difficulty to penetrate the e-commerce market, but there is opportunity.
"When it comes to fresh food, people like to touch it and feel it, and pick their own, but I think there's going to be a large segment of the market that's going to go for it and they will continue to develop that," Hassfurther said.
Right into the refrigerator.Walmart recently reported that it would test a service in some Midwest cities where its employees would deliver food ordered online right into the refrigerator at a customer's house. It's unclear if corrugated or how much corrugated might be used in such a home delivery operation.