Recently the North American corrugated industry has experienced two price increases that have caused a rise in cost for corrugated packaging. Many businesses are wondering why this is happening, and what they can do to control their packaging spend. In today’s blog, we examine the state of the industry closer and offer suggestions to help companies to adopt a best-practices packaging strategy.
What causes corrugated price increases?
Corrugated packaging converters such as The BoxMaker rely on purchasing their supply of corrugated material from paper mills. The price set by the mills for their product is determined by the pulp and paper price index. Increases historically happen because of supply and demand. When inventory falls below four weeks of supply and mill operating rates are high, as is the case in today’s market, prices see upward pressure.
What other industry factors impact price?
The major trend that has impacted the price of corrugated goods is industry-wide consolidation. According to Business Wire, “most large players have been following the inorganic growth path, as they believe it an easy way to grow faster.” From 2012-2015, almost 68% of the market was dominated by the top four vendors of corrugated paper products. These vendors have been disciplined in matching supply to demand.
Are further price increases expected?
In short - yes. The cost and regulation of adding supply in the form of new mills to the market are significant, meaning it is unlikely that we will see added supply any time soon.
What can businesses do to manage rising costs?
When facing a price increase from your corrugated packaging vendor, you have several options to help cope with rising costs. From ensuring your packaging is designed to be as efficient and effective as possible to streamlining your supply chain and consolidating SKU’s, often times working hand-in-hand with a packaging partner who can optimize a complete packaging program for you eliminates waste and can offset price increases in a particular product.
Companies who provide comprehensive services that include not only the manufactured product but also services such as structural design, inventory management, and fulfillment can provide solutions that consider the big picture and take into account the total program management of your packaging needs.
Recently The BoxMaker worked with a client to streamline their packaging program during a price increase. Our team of professionals reviewed this client's quarterly usages to produce more efficient run quantities that better aligned with their forecast. Additionally, we reviewed the client's current purchases to make suggestions for SKU consolidation, which in turn reduced their warehousing costs by saving space and resulted in offsetting the corrugated price increase.
If you are concerned that you may be missing out on cost savings with your packaging program, The BoxMaker is available to consult your business and provide creative solutions.
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