Spend Matters welcomes this guest post from Rajiv Joarder, of Mintec.
The development of online retail platforms has seen more and more consumers ordering goods online and having them delivered to their doorstep. Consumers, with their hectic lifestyles, don’t want to spend hours shopping around from store to store for the cheapest possible price. And why would you when you can do all that from the comfort of your own living room? Not only can you get instant access to all store catalogues, but you can also hunt for the best deals with a single click of a button.
Realizing this shift in consumer habits, major retailers have started investing more in their online platforms, and to encourage sales through this new medium they are also providing attractive discounts as well. Online seasonal sales in the U.S. for retailers in 2015 accounted for almost one-sixth of total sales volume and that figure is expected to increase by 7% year-over-year.
So, what does all this have to do with paper boxes? As more consumers buy online, the demand for extra packaging material is on the rise, especially for paper boxes. To ensure that goods bought online arrive on your doorstep in the same condition as you would find them in the shops, retailers package them in brown boxes. It is estimated that around 60% of all online sales are packaged with corrugated boxes.
In 2015, after food and beverages, the consumer goods industry had the highest demand for brown paper box.
With all this demand for the brown boxes, one would assume that the price would increase and our deliveries would cost more. But actually, prices have remained the same and there are even talks of prices falling as more production capacity goes live.
Cartonboard manufacturing is a very energy intensive process where the pulp or recovered paper has to be processed several times, dried and then pressed into sheets or fluting. In the U.S., other than waste from saw mills, fossil fuel is used in the manufacturing process. It is estimated that energy cost is around 7%–8 % of the total cost of cartonboard manufacturing. With the fall in price of crude oil and natural gas throughout 2015, the price of carton board was expected to fall as well, but in fact it remained the same due to the increased demand.
The prices for cartonboard feedstock, northern bleached softwood kraft (NBSK) pulp, will decrease in the first quarter of 2016, due to increased production, but then settle as both capacity and demand are unlikely to change significantly. OCC prices may reduce slightly, due to the ongoing weak demand from the Chinese market which will lead to increased availability in the U.S. domestic market.
So procurement managers can rest easy — prices of containerboard are likely to stay stable for most of 2016 off the back of the increase in demand, even though there is downward pressure with an increase in production. Exports of unbleached Kraftliner might also be lower due to the strong U.S. dollar and weakness in demand from global markets the result of the slowing of the global economy.