Strong End-User Demand and Rising Carton Costs Push Experts to Offer New Packaging Strategies

Consumers keep buying, e-commerce is booming... All these factors are driving up the cost of corrugated packaging, and shippers need to reconsider the way they package their goods. As the economic recovery continues, pandemic-induced e-commerce purchasing behavior remains strong and packaging costs are rising; these factors are pressuring shippers to find better ways to package and deliver the orders flowing through their facilities.

Throughout the spring, prices for corrugated products kept rising, with some of the largest US containerboard producers announcing increases of $50–70 per ton. According to government data and industry organizations that track packaging demand, the cost of packaging supplies is also rising overall, in many cases by double digits. John Blake, Senior Director Analyst at consulting and research firm Gartner, said that the shift in packaging demand throughout the pandemic, combined with last year's volatile supply chain activity, is driving this growth and focusing attention on the need for shippers to better manage procurement strategies and packaging processes.

"The pandemic caused unexpected shifts in the use of various materials, and we saw some peaks in the use of corrugated and different materials as a result. In many ways, this is really one aspect of adapting to the pandemic recovery," Blake explained. "I think the best practice or opportunity for companies to mitigate this is to identify where they have single sources of packaging that create supply chain risk."

According to Gartner's late-2020 research, the surge in direct-to-consumer sales and related last-mile delivery demand is also to blame. When asked to rank their strategies for controlling last-mile delivery costs, more than 400 surveyed supply chain executives said "packaging optimization" ranked in the top three.

"People realize that the way we have always used packaging is inefficient and that there is an opportunity to reduce costs," he explained. "And over the past year, some have certainly emphasized this." Blake and others suggest taking small steps, such as re-evaluating the types of packaging a company uses and considering more advanced strategies (such as packaging on demand) to solve the problem.

1. Strong demand drives new strategies

According to data from the Fibre Box Association (FBA), the trade group representing corrugated product manufacturers, corrugated material shipments hit a record high in 2020, reaching 407 billion square feet, up 3.5% from 405 billion square feet in 2019 (also the previous record). Rachel Kenyon, Senior Vice President of the FBA, said that when the global recession hit in 2009, shipments fell to 345 billion square feet, but the industry has grown steadily since then.

She explained: "There are several reasons for the record growth in 2020. Among them, the steady growth of e-commerce activity over the past few years is a contributing factor, but that alone was not enough to drive corrugated packaging. Last year, when the pandemic broke out, you saw even stronger e-commerce growth, and that was when you really saw the industry begin to recover."

Strong e-commerce sales eliminated the volume decline that the industry usually experiences at the end of the year. After a slight decline in January, corrugated packaging shipments resumed climbing and reached a record high by this spring. Blake said that all of this has prompted greater attention to packaging. The shift from physical stores to online sales has already forced companies to examine their packaging protocols, especially at the last mile. But Blake said the past year has created an opportunity for them to continuously step up efforts in this area and develop the packaging processes best suited to the application.

"One of the biggest challenges is the wide variety of logistics options. We have multi-channel retail, from traditional physical stores to the growth of discount stores to e-commerce," he explained. "All these different paths to market and consumers have different packaging requirements, which creates supply chain complexity."

Product protection is at the heart of the issue. In traditional retail, products are shipped on pallets and protected on the pallet until the pallet is damaged at the store and the items are placed on shelves, with consumers responsible for safe delivery. E-commerce and direct-to-consumer shipping changed all that, making brands responsible for packaging individual items so they can be safely delivered from a warehouse, distribution center or retail store to the last mile at the customer's door. Most brands' answer to this problem was to add extra packaging to protect items in transit. But given rising costs and environmental concerns, these strategies are changing.

"For e-commerce, there has always been a tendency to use more packaging to help protect goods in transit. But companies are under increasing pressure to reduce the amount of packaging they use, or to strive to ensure that the products they use are recyclable," Blake explained. "In many areas, optimizing packaging brings economic benefits."

1. The right size to meet demand

Strategies to reduce parcel waste include using padded envelopes, plastic mailers or more appropriately sized cartons, thereby avoiding the need to place items in oversized cartons that must be filled with void fill — any approach of this kind. Such adjustments help reduce the amount of paper and board companies use and free up space in warehouses and delivery trucks; these factors can also address cost and environmental issues.

More advanced solutions include adopting on-demand, right-sized packaging systems that enable shippers to produce right-sized parcels for on-site operations. Blake said such solutions are best suited to high-volume operations, but they represent "an interesting and exciting market opportunity" in the market.

Packsize, based in Salt Lake City, is a company offering such solutions, using a combination of hardware, software, materials and services for on-site box making. Hanko Kiessner, Executive Chairman of Packsize, said that right-sized packaging directly addresses the capacity tightness and rising costs the market is experiencing, simply because it reduces the total amount of packaging material companies use. As for the scope of the opportunity, Kiessner said his company's research shows that shippers typically use 30% more packaging than needed.

Kiessner explained: "To a large extent, the price increases we are seeing are self-inflicted by the industry, because shippers use large packages that are usually too big. What would happen to the market if every parcel were the right size? We could save 30% of total packaging material demand."

Kiessner and Packsize CEO Rod Galloway said that as the economy fully recovers from the pandemic and online purchasing behavior becomes entrenched, these issues are likely to persist, leading more companies to evaluate their packaging needs and procurement strategies. "I think demand will continue to increase, and therefore supply and the security of supply will be critical. Many companies did not get all the corrugated packaging they needed in 2020, and we expect this to happen again in 2021."

——This article is reproduced from China Packaging Network (pack.cn), original link: http://news.pack.cn/show-377891.html