Corrugated: Small boxes an e-commerce staple, with solid demand, speed/design focus expected

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Corrugated: Small boxes an e-commerce staple, with solid demand, speed/design focus expected

March 08, 2019 - 17:25
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OAKLAND, CA, March 8, 2019 (PPI Pulp & Paper Week) -Top US containerboard/corrugated leaders at a recent investor conference saw ongoing positive demand growth including from e-commerce.

WestRock CEO Steve Voorhees showedPPI Pulp and Paper Weekexamples. One was a corrugated container firmly carrying three large tubes of Colgate toothpaste ready for transport to customer. The tubes were in coated recycled paperboard cartons, also made by WestRock. No re-boxing of these containers will be required at any of Amazon's 75 US fulfillment centers -- only a shipping label. No void fill was in the container.

Voorhees told of the emergence of box-making performance "data," similar to how Oakland Athletics general manager Billy Beane used statistics to find high-value players chronicled in the "Moneyball" movie. Voorhees called customers "more insightful," which helps WestRock design top-quality boxes that can speed through the supply chain. He noted technology and communication additions that are now on corrugated and folding cartons.

For example, when 19 Crimes recently launched a new beer line, it included a WestRock coated natural kraft box with an image recognition and augmented reality software label. Customers could use their mobile device to see a 16-second "living" tale about the criminal "in their own words" who's pictured on the front of the bottle.

The leaders acknowledged Amazon's right-size packaging program that began last year. They see the Amazon program as one that will not reduce e-commerce overall in terms of corrugated demand. Instead, they noted Amazon's drive to not double box as well as the growing use of automatic box making machinery and a beginning and what is expected to be a slow push toward digital print on corrugated for high-speed customized packaging. They noted infinite corrugated possibility with high-tech communications and marketing that principally cross-sell and offer information to customers.

Voorhees added that, mainly because of e-commerce, the busiest US corrugated business season is virtually all of the second half of the year. Twenty years ago, the busiest US box making season ran from mid- to late-August to mid-November. Even so, the so-called "surges" driven by e-commerce in 2016 and 2017 were less intensive last year. US actual box shipments grew sequentially in the surge years by 2.1% and 2.5%. In 2018, US actual shipments increased 1.7%. Box makers throughout the country pointed to the slight downshift in demand, yet also reported overall business growth. For 2019, the Fibre Box Association estimated that 10% of US boxes or about 39 billion ft2were being used for e-commerce.

Looking forward in the next few years, Hudson Windsor LLC principal Ron Sasine, who formerly worked at MeadWestvaco and also with Walmart's packaging unit from 2009 to 2015, said he expects that e-commerce firms will use less void fill, which is typically kraft paper. He said that there will be less over packaging and growing use of flexible/semi-rigid packaging with paperboard. For corrugated, he added an ongoing demand benefit from apparel purchased online and noted thatWiredrecently reported that up to 40% of apparel deliveries included additional packaging from clothing returns.

Low-density, low-cost.Sasine said electronics and apparel were the top two e-commerce products. He expected smaller products to expand in e-commerce. He gave as an example the coming of more deliveries of basic food staples and consumer household items that he called "low density, low-cost" product shipments to customers.

WestRock's Voorhees said the main difference for box makers producing e-commerce corrugated is that the boxes must be smaller. In North America, WestRock is the second largest US box maker behind International Paper (IP). Voorhees said e-commerce boxes from WestRock were growing at 15%/yr. IP, has indicated a large position in e-commerce.

Asked by DA Davidson analyst Steven Chercover at the end of January if IP makes one of every two boxes used by Amazon, IP CFO Tim Nicholls said: "Yes I'd say your figures are directionally correct."

'Optimizing flow through.'Nicholls said IP's design team works with e-commerce customers and "it's not just optimizing box size, it's optimizing flow through fulfillment centers … (for) getting [the product] to the customers."

IP CEO Mark Sutton added that "every e-commerce major player has a slightly different value proposition to customers and this velocity through their supply chain is more important to some than others. And so for the ones that it's not as important, you might actually be able to get to the perfect box even if it slows you down because that's their value proposition. But for others, there's a physics issue here that you've got to be able to load the product through the value chain."

"We're at the table with all the major people who sell direct and helping them to figure out not how to make a box smaller, [but] how to make their business model work better," Sutton said.

WestRock buys Linkx.Toward that end this week, WestRock acquired UK-based Linkx Packaging Systems, which "specializes in automated packaging machinery ranging from single-order dispatch systems to fully integrated automation." The Linkx BoxSizer technology platform can "right-size multiple sizes of cartons on the same machine without stopping for changeovers," WestRock said.

"Linkx further differentiates our paper and packaging machinery offerings, and helps us address the growing need for on-demand packaging, especially for e-commerce applications," said WestRock chief commercial officer and pres of its corrugated packaging business Jeff Chalovich, in a release.

The BoxSizer is to complement WestRock's automated packaging systems including its Box on Demand system.

"Where Box on Demand creates custom-sized boxes, BoxSizer reduces the height dimension of multiple-sized boxes with no changeover to reduce empty space, void fill, materials, labor, and shipping costs. By removing excess packaging material, BoxSizer and WestRock's other right-size technology solutions help customers reduce their shipping, warehousing, and environmental costs," WestRock said this week.

--Bygrudder@fastmarkets.com