US box shipments mostly flat as players plan for seasonal pickup, new Aug. 1 rule from Amazon

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US box shipments mostly flat as players plan for seasonal pickup, new Aug. 1 rule from Amazon

July 19, 2019 - 18:49

OAKLAND, CA, July 19, 2019 (PPI Pulp & Paper Week) -Another month of flat US box shipments was reported for June this week, but the bigger topic was Amazon.

Boxmakers must by Aug. 1 provide packaging to Amazon that meets a new Amazon rule or be fined $1.99/unit. Vendors likely to face fines have already been alerted, a boxmaker in Chicago said. Amazon is "serious about it," the contact said.

"It'll probably take six months to understand the full impact, especially during the holidays, but I think some of (the Amazon business) will go away," the boxmaker said.

Amazon was said to manage 40% of the growing US e-commerce business last year that was valued at $517 billion -- and corrugated boxmakers benefited at least the last four years from a pickup in online orders of goods delivered in their boxes to US homes.

In the last year, Amazon alerted suppliers along with its Frustration Free Packaging program to eliminate double boxing, and Amazon, most importantly, wants the corrugated-carried product that reaches its fulfillment center to now be ready to be immediately labeled and sent out the door to customers, contacts said. The packaging must also be right-sized and lightweight, contacts said.

What this exactly means is unclear to packagers, but they did agree this week that Amazon volume may be reduced or changed, in terms of the over-packaging, and they noted that Amazon certainly has been shipping smaller products already in polyethylene bags and even kraft paper in place of boxes.

A CNN report this week said Amazon has so far reduced the packaging material it uses by 19% from in 2016.

"My goal would be zero packaging of any type over the next couple years," Amazon packaging leader Kim Houchens was quoted as saying, "by working with the manufacturers to think through product design and their primary package, to make sure that it serves the needs of transportation all the way to your door so that we don't have redundant packaging added during the process."

In India, Amazon is testing the delivery of products in plastic totes and, in China, Suning.com is using reusable plastic delivery boxes. In the USA, there is talk of postage lockers for delivering product without a box.

That said, however, reports from the box market tell of Amazon meeting with at least one US boxmaker and wanting to buy part of the business, and also some of the new corrugated plants that will start up in the next six months will highly focus on selling to Amazon.

"Amazon is not a concern for us," said one US integrated producer this week. "It's an opportunity."

The Chicago boxmaker called the Amazon moves efficient and smart as Amazon seeks cost savings from reduced labor with fulfillment center robots moving packages and to create "fully automated warehouses."

"That is a concern," said a veteran US containerboard seller. "The 'Amazon Effect' catapulted this business the last four years. If (Amazon) takes out boatloads of packaging, it's going to be interesting to see what will happen – and how we will respond."

However, contacts also toldPPI Pulp & Paper Weekthis week that a next phase of e-commerce should increase corrugated packaging. They anticipate tightly-packaged and generally larger-sized boxes for transporting consumer staples such as cereal, bathroom tissue, and canned goods that now are not actively ordered online. One contact said Big Box stores like Walmart and Costco support selling more food and retail products online. Walmart is the largest grocery and retail in the world, with annual sales of $500 billion/yr.

The extra interest about Amazon this week was part and parcel of a surprisingly soft market this year that comes on the heels of hyper 9% growth or 1.8%/yr on average in the last five years in US actual box shipments. It's statistically unclear of the impact e-commerce had on the totals so far this year. But boxmakers have noted toP&PWweaker US factory output in second quarter, a deceleration in global economic growth, still-heightened trade tension involving the US and China, and Amazon's drive ahead on its effort to be more efficient in packaging.

June shipments.June US box shipments increased 1.1% on an average-week basis yet remained down year-to-date on both an average-week and actual basis, according Fibre Box Association (FBA) figures. Actual shipments dropped 3.7% in June, with one more shipping day in June 2019 than in June 2018, and totaled 31.832 billion ft2. The year-to-date first-half total was 193.345 billion ft2, down 1.0% on an actual basis vs 2018's first-half total of 195.391 billion ft2. The first-half average-week total was down 0.3%.

US containerboard mills also reduced operating rates in June to 89.1% from 91.8% in May and reduced inventory, especially at box plants. Box plant inventory dropped by 127,500 tons to 2.125 million tons. Total inventory was 2.489 million tons, according to FBA and American Forest & Paper Association figures.

The 2.489 million was the lowest inventory since October when a global linerboard oversupply startled the supply-side of the market, causing mill downtime and lower operating rates, and reduced pricing on both the export, first, and then the US domestic markets. In the first half of this year, US containerboard mills operated at 90% -- dramatically down from 96.3% in first half last year.

"We're a bit concerned about customers cutting down their inventory on boxes" especially as a seasonal market pickup was expected to be near, an integrated producer said.

"September could be a big test," the contact said, if demand increases greater than expected.

Boxmakers have called the year so far "sluggish" and "flattish" demand-wise, but some noted this week their expectations for the seasonal second-half pickup.

After $10/ton declines on the benchmark 42-lb unbleached kraft linerboard in March, May, and June, pricing for the grade on the open market in the USA was unchanged this month. Contacts told of some spot discounting on containerboard. There also was a report of some minimal sheet discounting in the East, but, in Southern California, reports said that sheet prices held despite the linerboard declines. Corrugated competition remained intense.

"People are definitely jumping after each other's stuff," a large boxmaker in Southern California said, citing that the competition usually led to lower box prices.

"It's so different now from a year ago," said another Chicago boxmaker. "It's like mind-boggling. It's not terrible. I'm hopefully optimistic."

"Customers aren't ordering much -- as much as last year," added a Northeast boxmaker. "I don't see any significant strength in the market."

One veteran seller of containerboard believed that the US box market of the last three years, which grew 2.16%/yr on average, may not exist this year. The contact suggested that "maybe we are back into the old syndrome" of a mid-August start to the busiest boxmaking season. This "old syndrome" market was replaced the last three years by one that a major integrated CEO recently toldP&PWwas growing the entire second half of the year, due to the e-commerce influence.

China.On the export market, US kraft linerboard continued to decline in key world markets – with July declines of $10-$20/tonne for China, $20/ton for South and Central America, and 10 Euros for southern Europe (Italy and Spain). US pricing to Mexico held, although one buyer in Mexico called linerboard supply "plentiful."

Contacts reported continued oversupply, heated competition, and low demand. They see the market possibly stabilizing in August and September behind produce seasons in the Americas and Europe.

Still, one exporter thought the stabilization would not necessarily mean higher pricing.

"It's too much supply affecting the market and it's coming from all over the world," a contact said.

For China, no trade deal between China and the USA did not surpriseP&PWcontacts in China who expected nothing from talks at the end of last month that President Trump had with President Xi in Osaka.

Contacts told of small converters in China struggling with lack of demand and, despite lower linerboard prices, looking to expand their business, "into different kinds of converting," according to one, including into "value-added" packaging.

"The small converters are not surviving very well. They're really seeing the slowdown in demand," said one exporter.

 Leading theCrossroads Papermill project in Utah are the Sasine brothers, John and Ron. Ron brings packaging experience fromWalmartwhere he was Sr dir of packaging from 2009 to 2015. He was responsible for packaging design, execution, and sourcing, and implementing shelf-ready packaging at Walmart stores. He now also does presentations at investor events about e-commerce packaging as well as consulting. He is the principal ofHudson Windsor, a boutique consultancy. Before Walmart, Ron was a marketing and manufacturing executive withMeadWestvaco, including seven years leading M&A for MeadWestvaco's packaging operations in Brazil and Latin America. "He has a good network of industry contacts and knows the box/containerboard sector," explained one contact this week.

 WestRockeliminated 16 management positions from the formerKapStonemill in Longview, WA, reports said. "When we acquired KapStone, there were some duplicate functions," WestRock official John Pensec told local media. Pensec said relocation jobs were offered and "a number" of the former KapStone workers took jobs in Atlanta.

 Sonocosince last month has been making some brown recycled pulp on its 193,000 tons/yr corrugating medium machine No. 10 at the Hartsville, SC, mill. A company official said this week that the PM No. 10 has continued to mainly make corrugating medium while also making a "relatively small volume" of recycled pulp, which has been shipped to China.

--bygrudder@fastmarkets.com