Posted on May 11, 2010 by Dennis Salazar

Mills Gone Wild or How to Play Safely in a Fast Rising Market

What may sound like a story about intoxicated college students on Spring Break is really not that at all. It is about a paper and corrugated box industry that has just announced a second, substantial price increase in less than four months. It’s definitely not fun and the only “wild and craziness” involved here is an effort to try to keep up and minimize fast rising product costs, while many of our customers resist increases and are simply working hard to survive.

Are the Paper and Corrugated Increases Justified?

My personal opinion is no, they are probably not but then again who knows. As a non-manufacturing distributor of corrugated products, our largest competitor is but a flea in the overall market and scope of an industry that measure sales in terms of tons and billions of dollars. There is a lot of industry talk about expired government subsidies, a shoot out between two major mills with the rest of us as innocent bystanders caught in the cross fire and of course the ability of the industry to control pricing by controlling output and production.

The week of January 22nd Pulp & Paper reported an increase of $50 per ton on liner board and the end result was an increase on corrugated boxes that ranged from 6 to almost as much as 10% depending on the manufacturer. This most recent increase announced the week of April 23rd of $60 per ton, is likely have a similar impact in terms of increase percentage on box pricing.

Does anyone really need two back to back increases like that? I’m sure most of us would enjoy them but few of us are in a position to force our customers to see it our way.

Reducing Costs in this Market

Having said all this, if I need to buy a box, I will ultimately have to pay the new, higher market price and unfortunately, so will you. We can all complain about rising prices but within reason, price increases can be a good sign. Corrugated box demand increasing usually reflects an overall strengthening of the economy and business. That is good as long as the golden goose can be kept alive and not feasted on.

Even those of us who refused to raise prices on the first round will likely have to pass along this increase because we have no choice. How can you best manage this situation? Here are a few suggestions:

  1. If you need to buy boxes, buy them sooner rather than later. Consider buying more than usual because it may be a long time before you see any significant decrease on this and related products.
  2. Understand this market increase impacts a lot more than boxes since void fill paper, paper tape, corner board, pads, partitions, paper mailers and even envelopes will also rise dramatically.
  3. If you have not gone through a packaging use review by a knowledgeable and trusted source now is the time. By using box design alternatives, right sizing and other methods, we can often help customers reduce their packaging costs by a minimum of 10%. Remember, that is green as well as smart.
  4. If you are a volume user, this is a great time to at least ask for price support, price increase caps or some type of future price protection. And please remember the company most likely to make these concessions to you, is probably NOT your current supplier.
  5. Consider corrugated box alternatives and nothing is hotter right now than reusable packaging.

Reusable Packaging

Option #5 above should not be dismissed as plastic totes or metal drums used in a metal stamping plant. Reusable packaging comes in many forms and can be designed for a wide variety of unique customer applications. The only thing they all have in common is that they reduce the amount of corrugated board that is needed and they all save money!

Keep in mind there are many variables in a cost comparison including quantity ordered, print colors and panels, etc. but a recent analysis we did for a customer showed a plastic reusable box to be eight times more expensive than their current, single use corrugated box. That sound outrageous until they determined the new plastic box would probably be reused a minimum of twenty times before it would have to be recycled and reground into a different plastic product.

That sounds like a great way to minimize the impact of multiple corrugated increases by actually reducing your packaging costs AND make your packaging operation more eco friendly in the process.

Answers can usually be found if you ask the right questions of the right people. Allow us to analyze your packaging usage and help you develop a long term strategy to help minimize the negative impact of a volatile market.
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