Corrugated and linerboard markets are soaring
A pandemic-driven rise in e-commerce has put substantial upward price pressure on corrugated boxes (a $190B market*), and additional price surges are expected between Q2 and Q3 21.
In 2020, the cardboard box industry not only saw double-digit growth, but suppliers of linerboard and corrugating medium — the two grades of paperboard used to make boxes — are also dealing with rising raw material costs and labor shortages. According to ResearchAndMarkets.com, the global corrugated boxes market reached a value of $189.8 Billion in 2020 with steady market growth expected over the next five years.
Large companies and PE portfolio companies who purchase any kind of corrugated packaging have felt these swings acutely. In 2021, buyers WITHOUT contract protection experienced increases around 9%. Those WITH contracts or pricing indexes only had around a 7% increase.
Significant e-commerce growth due to the COVID-19 pandemic has put significant upward price pressure on corrugated boxes (a $190B market) and additional price surges are expected between Q2 21 and for Q3 21. To date, for buyers of corrugated and pulp/paper WITHOUT a pricing mechanism, ACC noted increases around 9%. For those WITH pricing indexes prices went up appx.7%.
What’s driving the price pressure on corrugated boxes?
The cardboard box industry saw double-digit growth that coincided with the beginning of the pandemic. In addition to increased demand, suppliers of linerboard and corrugating medium (the two grades of paperboard used to make the boxes) are also dealing with the rising costs of raw materials and unpredictable labor shortages, also due to COVID-19.
What’s happening now?
Paperboard producers announced price increases of $50 – $70/ton in Q1 and corresponding increases were put forth by corrugated suppliers. It’s worth noting that most buyers do not accept corrugated price increases until the paperboard increases are recognized in the industry publication, Pulp & Paper.
Paperboard increases of $20/ton posted in mid-March, and an additional increase of $40/ton was recognized in Pulp & Paper on April 16th. This cumulative paperboard increase of $60/ton is driving a current corrugated price increase in the range of 10 – 12% for buyers without a pricing mechanism and around 8 – 9% for those with pricing indexes. The effective date varies depending on buyer’s price protection language in their agreements.
What about costs?
Paperboard producers announced price increases of $50 – $70/ton in Q1 21 and corresponding increases were put forth by corrugated suppliers. It is worth noting that most contract buyers do not accept corrugated price increases until the paperboard increases are recognized in the industry publication, Pulp & Paper.
A cumulative paperboard increase of $60/ton originally posted in Q1 21 is continuing to drive up corrugated prices 10 – 12% for buyers without price protection and 8 – 9% for those with pricing protection or indexes. The effective date for this increase is happening already with most going into effect between mid-May and mid-June, depending on language in a buyer’s agreement.
When the price turns down, advocate for lower costs. If your procurement team needs auxiliary support, the ACC team can protect and negotiate your existing pricing to make sure you only pay fair market value.
What’s the forecast?
Pulp & Paper is forecasting additional price pressure for Q3 2021, and then a potential of modest price decreases in Q4, dependent on if the new paperboard capacity being built is ready for production.
What can your company do to mitigate this volatile market?
- Monitor pricing
- Establish an index to mitigate increases
- Negotiate best pricing that is representative of the market
How to reduce costs for corrugated boxes:
- Monitor for price increases
- Be aware of market decreases
- Stay in touch with your buyer (consistently)
- Understand the in’s and out’s of your corrugated packaging agreement
- Do not take a price increase unless it is legitimate!