The familiar swoop of the Amazon arrow floods doorsteps and mailrooms around the country. Once emptied, the boxes that bore purchases are tossed or shoved into recycling bins to do it all over again.
As e-commerce sales have shot up in recent years, so too has demand for corrugated boxes. But while box makers are enjoying a surge of business, it is nowhere near the scale of growth that their customers — online commerce companies — are seeing.
Ironically, beyond a temporary bump, the box industry may not benefit as much in the long term from this huge shift in retail. For one, the surge in demand also has pushed up prices manufacturers pay for raw materials, which eat away at the gains from e-commerce. Meanwhile, they risk losing business outright as online commerce companies explore packaging alternatives to keep their shipping costs under control.
“This is really, really a tough business,” said David Strauss, president of Rhode Island-based Key Container Corp., which makes corrugated boxes. He likened the business from e-commerce to a “double-edged sword,” as it bumps up demand but also prices for his raw materials.
Prices for the raw materials used to make most boxes, known in the industry as old corrugated containers, or OCC, have surged. Prices during the second quarter of 2017 averaged $149 a ton, compared to $85 a ton a year ago, according to a report from BMO Capital Markets. One reason is that supplies of the material in the United States has dropped, down 2.3 percent this year through May, while demand for boxes has gone up.
“It’s forced some of my paper suppliers to increase prices which I will not be able to pass along,” said David Urquhart, president of New England Wooden Ware Corp., a box manufacturer.
At Attleboro-based manufacturer Abbott-Action Inc., digital print director Chuck Slingerland attributes the company’s double-digit growth over the past year not to e-commerce sales, but to success in its digital printing technology.
Soaring costs also threaten the place the familiar brown linerboard with its zig-zag core has in e-commerce. Within the past year, UPS and FedEx implemented new billing formulas that more heavily take into account the size of a package in addition to its weight. So a light but bulky box may now end up costing retailers more to ship.
Mark Wilde, a managing director at BMO Capital Markets who is known within the industry as “Dr. Paper” for his longtime expertise, said the boom in e-commerce could actually lead to lower box demand, as retailers look for alternatives to ever more expensive corrugated containers.
“The supply chain for boxes might actually shrink,” Wilde said.
Indeed, customers may force the hand of e-tailers if the cost of boxes threatens that Holy Grail of online commerce: free shipping. Jeff Potts, a marketing director at Sealed Air Corp., a global maker of packaging materials, noted that consumers often abandon purchases in their online shopping carts when they realize they don’t qualify for free shipping. With larger packages now costing more to ship, retailers are likely to look to other options.
“People are going to be paying for these boxes until suddenly they can’t afford it any longer,” Potts said.
His company recently introduced a product called StealthWrap, a plastic encasing that can fit snugly around a product like a shoebox. The idea is to cut down on packaging size so e-commerce companies spend less on shipping.
And Wilde said wholesalers could explore options such as shipping bulk items to e-commerce warehouses in alternative packaging like reusable bins.
Another way to relieve the pressure on prices is higher recycling rates of boxes, which would increase the supply of material to make OCC. While retailers recycle at extremely high rates, individual consumers are much more erratic. Nearly all Americans have access to curbside recycling programs, but KeyBanc Capital Markets estimates that fewer than half actually use them.
Making sure consumers recycle their boxes is “probably as an industry our biggest concern with this move toward e-commerce,” said Rachel Kenyon, vice president of the Fibre Box Association.
Recycling companies say they’ve seen more boxes show up outside homes, but that’s still not enough to satisfy the demand for more OCC material.
“Even though cardboard is in high demand, it’s still only 20 percent of the stream,” said Bob Cappadona, vice president of Casella Recycling, which services communities in the region.
At those levels, Casella doesn’t always collect enough corrugated box material to make up for the cost of other recyclables, such as glass, which is high in volume but not in value.
Still, the multi-billion dollar corrugated box business isn’t going to dry up overnight. Though far from the growth projections for e-commerce, the corrugated industry is still expected to see sales increase by around 20 percent over a six-year period through 2021, according to Smithers Pira, which provides testing and analysis to the paper and packaging industry.
Daniel Kraft, chief executive of the Kraft family’s International Forest Products company, predicted the ubiquitous brown box will survive the current climate just fine.
“Corrugated boxes have been around a long time and there’s always threats,” Kraft said, “and it always kind of endures.”