As is our annual tradition, Board Converting News solicits a representative sample of the continent’s independent converters for a glimpse into their minds as they embark on another year in the ever-dynamic corrugated, folding carton and rigid box making industries. The coronavirus pandemic has affected all facets of life, both globally and here in North America and it’s never been clearer that boxes and packaging absolutely fit the description of an “essential business.” The converters here have shared their business strategies, political views and industry forecasts. They have also raised some questions – and provided some expert analysis – for the year that will be 2021:
ACME CORRUGATED BOX CO.
Hatboro, Pennsylvania: Bob Cohen reports, “As I write this article, we are experiencing an almost surreal box demand surge. The pandemic of 2020 has added a sense of uncertainty to a once predictable way consumers traditionally source and then purchase personal requirements. With retail being out of the question for many consumers, the obvious default position has been the internet. Simply put, the change in buying habits has dramatically impacted the demand for containerboard and for the boxes produced as a by-product.
“As most converters in the market, we are a main beneficiary in this ever-changing way consumers buy products. The question is, with a coronavirus vaccine now here and a possible return to normalcy on the horizon, what will demand look like in six months? Well for one thing, we know there will be some movement back to retail. We also know that companies like Amazon are intent on reducing their packaging excesses. Most of us will experience the change in demand as consumer buying trends increase the likelihood of other competing materials. We also know that a new administration will focus on climate change. How our industry will factor into that “sustainability” equation is unknown at this point. It would be silly not to think that we will not be affected.
“Our industry has a story to tell about recyclability but is it an old one? The other issue is the rush to find value out of old assets. We see that as the white paper industry is in decline there is a rush to repurpose paper machines both here and in Europe. It has been calculated that by 2023, we will have over 2.2 million tons of new production domestically, adding about 5.9 percent to the total annual mill production. That doesn’t include unannounced conversions and doesn’t take into account capacity creep. In Europe, which is a far more fragmented market, there will be an additional 4.5-5 million tons of both Kraft and recycled capacity (a 17 percent increase) by the end of 2023. Also added will be another one million tons from Klabin in Brazil. So, the question is, how will this capacity be absorbed?
“Sometimes, I think I am watching a train wreck in slow motion. While I was amazed that the market was ripe for a late fourth quarter price increase, I do wonder what the effect rising prices will have in the future. Is the pricing power once held by the four majors eroding even as pricing elevates? It would seem that attaining higher prices is just an invitation for new entrants. We see the result as companies like Pratt, Smurfit Kappa, DS Smith, ND Paper and now SAICA find their way into the domestic market. What are the opportunities they see that domestic producers might not? The question arises as containerboard producers try to position themselves for the future. While everyone spins in their own orbit, do the producers take into account how the market will absorb this new capacity? Where will the integration come from? The independent converter segment is stagnant and sits at about 9-10 percent of the market. How does new capacity find a home? It should be quite interesting. Frankly, I would rather be us than the companies faced with this demand dilemma. “As I mentioned earlier, we enter into the New Year with an overwhelming backlog. We know this can’t last forever, but like all of you reading this, we will ride it out as long as possible. The downside is that we have disappointed clients but probably no more than other raw material suppliers in the supply chain. Paper supply has been tight – some of the tightness manufactured but some caused by uncontrolled circumstances. It didn’t help that Mills were producing in the low 90s as the demand surged dramatically in the fall. In the month of October, we scrambled like most other Independents for supply. Fortunately, we have come out of what I describe as a “once in a decade” demand surge not met by open market capacity.
“I expect the Acme Corrugated Box Co. to continue to find new products, introduce innovative use of flutes and substrates in our efforts to meet market requirements for 2021. We have always viewed ourselves as a “structural” box company. Our approach has always been, “What can we bring to clients that is not readily available” but has demonstrated value? We search globally for those answers and I would say we have done so successfully. We are focused on the performance of the packaging. Does it work? All other criteria seem superfluous to us.
“We, like most independents, compete on competency, innovation and service. To prove value, you must find ways to differentiate yourself in a market that is too often based on ”me too!” value, is established by introducing the best material available, utilizing the best equipment available and then being led by an executive group that truly understands that success is dependent on finding new products and new ways to service our clients. It’s a simple formula but one that has worked extremely well for us.
“As a sign of our overall optimism, we have embarked on a multi-million dollar expansion of our present facility. We do this fully aware that even now there is uncertainty coming out of a worldwide pandemic. Still, the signs we see tell us that we have a duty to meet the future with confidence and forbearance. Our plans have been three years in the making. I do believe that when we complete our expansion our facility will be the envy of other converters. It’s something I am personally very proud to be a part of. Let’s all hope that when this article appears, we are on the road to blotting out this horrific period in our lives. Best wishes to all for a successful 2021!”
BAY CITIES
Pico Rivera, California: Greg Tucker reports, “What’s to come in our next world at retail? We know that retail has been shuttered during the pandemic and e-commerce has grown leap years inside of a few months. Retail shifted to e-commerce, order on-line pick up at store, groceries were delivered by delivery services and everything shifted into a different world of buying goods and services.
“Travel stopped, airlines were decimated and things like jewelry, apparel and accessories (except masks) were not the place to be invested in. Restaurants were shut down and opened up and shut down again. We bought more toilet paper, disinfectant and paper towels than anyone could ever imagine. We bought more vitamins and immunity solutions than ever before. All of the cold and flu remedies flew off the shelves. The auto industry stopped, and the used car market exploded. The strangest things happened: We learned how to cook, we learned how to read and play instruments, we learned how to work out at home, and the hardest thing of all is that we had kids to care for instead of sending them off to school. Moms took the brunt of this while working at home, cooking, cleaning and teaching their children. Many moms will never return to work. All of this changed the retail market.
“So, what’s next for 2021? E-commerce will roar on for the next six months. The pandemic will filter out and we will crawl out from underneath the rocks and come into the light of a new and different world. I believe we will take our streets back from the Amazon, UPS and FedEx delivery employees who have cluttered up our doorsteps with boxes of stuff. One cannot even drive down my street because of all the deliveries being made. And who are those imposter-like delivery people lurking around the neighborhood stealing things off our doorsteps? This too will change as we come out and begin a new normal.
“David Calhoun, the CEO of Boeing, and Michael O’Leary, the CEO of Ryanair, are banking on big changes coming in travel this summer. Ryanair bought 75 737 Max jets. International Airlines Corp. (Air Lingus, British Airways, Iberia) bought 200 737 Max jets for the boom in travel coming soon. Travel will explode this summer. We want to get out!
“People will return to retail in the second half of the year. Restaurants (what’s left of them) will jump in summer. The basic goods we all bought will remain in our pantries, closets and attics for the next two years as we will begin to shop for things we haven’t been able to for a year or more. We will return to a different normal after the first quarter of retail bliss. The “Ugly American” will come crawling out of the rocks into the light after a hard January and February.
“Although some of us will remain in hiding and some of us will refuse the vaccines for whatever reason. Some could see a self-demise. Things like jewelry, cosmetics, anti-aging products and accessories will be hunted down because we will be “going out” again. Outdoor essentials for travel will be sought after. Even cocktail dresses and shoes for style (not slumpy comfort) will be bought. We will again be poised for that “night on the town.”
“Retail will come back with a vengeance in the second half of the year, albeit different, as it will be complemented with scaled-down offerings, but those that are cherished and sought after. We love to shop! We love to eat out and be served! We love to travel! We are so thirsty for that night out of bonding with other humans!
“Theaters, concert halls, ballets, operas, and sports venues will all come back. Culture will be reintroduced into our lives again. So, what does this mean? Online purchases will tail off as we begin to shop. 70 percent of Americans will hit the stores in search of that lost feeling of “the treasure hunt” What will be different is SKU reduction and inventory in stores. We can try things on again and have that item delivered same day or next. Retail employees will actually be helpful as they invite us into a different environment, one mixed with the warm human aspect and a technological self-serve system that helps us understand what we are purchasing We will not be left alone as retail MUST create a new and inviting experience for us to feel safe, secure and welcomed to the new experience.
“Our new shopper will actually have more time to shop. The kids will be back in school and she will no longer be commuting hours to and from work and thus, the retail environment will become a thirst-quenching destination for her. Gone will be the blocky structures of displays and fixtures needed to get us in and out of stores as we foraged for essentials. What will take their place will be soft and inviting shapes of fixturing and displays to help create a “wow” factor in the new retail environment. More use of experiential technology will be needed for those who refuse help from the inviting retail store employees. QR codes will come back in vogue as beacons for information and product demonstration. Vibrant and tasteful signage will be abundant and needed to guide the new shopper though the hunt and assure her that she is safe and secure as she hunts for her fill.
“We will once again get to enjoy the brave new world!”
CAL BOX
Santa Fe, Springs, California: John Widera and Chris Widera report, “Despite changing the way regulated work gets done, liberal leaning California is like a home with a fresh coat of paint but a crumbling foundation. It may look pretty, but underneath the glitz, the structural problems are sobering. Liberty is withering in this serfdom.
“As in previous tech-led Silicon Valley recoveries, the state of California depended largely on the innovation and start-ups from the interconnected venture capital community. Now the black swan event of COVID-19 has taken the economy hostage, along with manufacturing speeding up its migration out of California. According to the Associated Press, ‘Gripped by the accelerating viral outbreak, the U.S. economy is also under pressure from persistent layoffs, diminished income and nervous consumers, whose spending is needed to drive a recovery from the pandemic.’
“There is a gulf between social justice warriors’ perceptions and spending reality on mega-projects. California can’t pay for things such as hundreds of billions in unfunded government pension obligations; $100-billion on a train; a half-trillion for coronavirus health costs, high public union wages with lifetime benefits, climate change sanctions, etc. Until 2020, businesses were hollering “iceberg straight ahead!” but few listened. Their market sort of felt like Dorothy coming to the crossroad and has yet to meet the scarecrow to tell her which way to go.
“California, with its 40 million people, has four million small businesses that employed more than seven million people. Half are on the precipice of bankruptcy. Business start-ups, the job growth engine that drives change, has come to a screeching halt, like an automatic car transmission that suddenly get thrown in reverse. ‘Hopeful dream surfers’ should consider that the SoCal economy is composed of a hundred of diverse cities with especially high leveraged debts exceeding the recession peaks of 2007 and 2020.
“Public officials insulted by a sense of power would much prefer that citizens burdened with regulations never ask why utility bills and our lagging public education are so expensive or how other states provide better services at a lower cost. Voters prefer law-makers who don’t use bailouts (crony capitalism) like a rigged carnival game.
“President Biden and his liberal elite policy-makers intend to be more connected with the help of higher tax decrees, which are rapidly closing in on a confiscatory level. And like the predatory or exclusionary big tech and media giants, enamored with promises of doing the right thing, we will need a nose test with clothespins to justify the content they don’t like or want to sell us. These firms use algorithms to suppress anything they find mildly disturbing. It seems the business of America is not business. Its monetizing what is in our creative heads such as trends. Hopefully, internet apps provide scrutiny.
“All this buzz isn’t mere chatter, because like a large boulder crashing into a lake, the crisis is akin to waves and will widen. Yet, as the elections are over, there will be a lot more emphasis on socialism, back-to-work and consumer spending in 2021.
“Strategically as an ‘essential’ manufacturer, we continue to invest. A few friendly competitors who have read my books for entrepreneurs are trying to follow our M.O. Some forget Cal Box culture requires shifts in new responses. In the last five months, we have purchased about $7 million dollars of new machinery for our five plants. Why buy now? Simply put, our business plan says we buy advanced technology when competition is dormant and we sell when everybody buys. These new entrepreneurial advantages compared to other offerings is like racing a horse and buggy against our car. If so, can you whip a horse faster to make it go as fast as an automobile? Our balance sheet can handle the investment risk, even though the iron in the fire is of an undetermined temperature, so we expect the best and prepare for the worst.
“Recessions come and recessions go and inevitably things get better. The fed punch bowl will be taken away in due time, too. Whether the shape of recovery is a “V” or a check mark is not the real concern. Federal deficits and total U.S. debt have been a deluded version of reality for some time, but have now reached critical mass. There are no easy answers, only too many seductive quick fixes to the 2021 dilemmas.
