Measures to Combat Corrugate Price Increases

Abstract

Considering the current situation in the paper market and the lack of opportunities in the global corrugates market, there has been a lot of emphasis in the recent past on using alternatives for corrugates. Containerboard prices have been increasing rapidly over the recent months owing to high demand and tight supply and are further expected to increase in the coming months. To offset the increasing corrugate costs, large-scale buyers have resorted to replacing Kraftliner with Testliner and recycled containerboard with virgin containerboard.

Compared to unbleached Kraftliner, Testliner is around 20-25 percent cheaper, making it a preferred substitute for Kraftliner. Additionally, owing to an increasing popularity of sustainable sourcing coupled with comparatively cheaper prices, recycled containerboard is used instead of virgin containerboard.Major players are also resorting to decrease weighting to reduce the overall material use and thereby achieve cost savings.

Increasing sustainability demands and the improved quality of recycled grades have made a slow shift among buyers towards recycled, which is leading to recycled grade containerboard expansions globally.

This article will provide insights on the demand, supply, and price dynamics in the North American containerboard market by addressing the following points:

• Trends in corrugate pricing
• Alternatives to corrugates
• Crates
• Shrink wraps
• Measures to combat corrugated price increase

Trends in Corrugate Pricing

Containerboard prices have been increasing rapidly over the recent months owing to high demand and tight supply and are further expected to increase in the coming months. To offset the increasing corrugate costs, large-scale buyers have started to replace Kraftliner with Testliner and recycled containerboard with virgin containerboard.

Compared to unbleached Kraftliner, Testliner is around 20-25 percent cheaper, making it a preferred substitute for Kraftliner. Additionally, owing to the increasing popularity of sustainable sourcing coupled with comparatively cheaper prices, recycled containerboard is used in the place of virgin containerboard. Major players are also resorting to decrease the weighting to reduce overall material use and thereby achieve cost savings.

Year	Unbleached Kraftliner - Europe – 125g	Testliner – Europe – 140g	Percent Diff (Kraftliner Vs. Testliner)
2016	EUR 584/MT	EUR 481/MT	21
2018	EUR 663/MT	EUR 527/MT	26

Shift Towards Recycled Grades From Virgin Grades

Increasing sustainability demands and the improved quality of recycled grades have made a slow shift among buyers towards recycled leading to a recycled grade containerboard expansion globally.In regions like the North American market, which is currently fully supplied with virgin containerboard, the share of recycled capacity has been growing in the current decade. The production of virgin containerboard has shrunk by 7.5 percent, while its recycled counterpart has grown by 37.9 percent

With growing commitment to sustainability, consumers are preferring sustainable products and, therefore, large brands are increasingly looking for packaging solutions that are perceived as more sustainable. Packaging suppliers are also increasingly committing to focus more on recycling and committed to achieve around 70 percent rate of paper recovery from recycling by 2020. With its comparatively lower costs, recycled grades are preferred among corrugate buyers

Containerboard Production (2007-2017) – North America
Virgin Grades	7.5%
Recycled Grades	38%

Alternatives to Corrugates

1.Pallets:

Pallets are a form of tertiary packaging. A pallet is a flat structure used as a base for unitization of goods in the supply chain. Pallets are mostly used for stacking, storing, protecting, and transporting materials by materials handling equipment. Pallets are largely used alongside shrink wraps.

2.Crates:

Crates are large boxes, usually constructed with wood, plastic, or metal that are used to protect large and bulky items during transportation. The increase in returnable transit solutions has increased the use of crates in developed countries.

3.Shrink Wraps:

Shrink wrap is used in primary packaging when it is applied directly to the product, in secondary packaging when it is used to combine smaller packages, and in tertiary packaging when it is used to facilitate distribution purposes.

Sustainability in Shrink Wraps:

Sustainability remains the key focus area of using Shrink-wraps along with increasing the product shelf-life. The industry trends are centered around improving these factors. Increasing demand for multipacks and demand from high-growth segments in food and beverage industry, such as bottled water and packaged food is expected to continue to drive the growth in shrink wraps.

Material: Shrink wrap is made of polymer plastic film. When heat is applied, it shrinks tightly over the product acting as a durable tertiary packaging material.

Process: Shrink wrapping is an easy process that only requires the right kind of plastic wrap to seal the product and heat, and acts as a waterproof, weather proof, and tamperproof packaging.

Applications: Shrink wrap is commonly used as an overwrap on many types of packaging, including pallets and beverage cans.

Recyclability: Shrink wrap is considered environment-friendly as shrink wrap plastic is recyclable after use and can be remade for future uses.

Shrink Film and Paper–Environmental Impact

Raw Material

Most corrugated boards are made from pine or birch tree pulp and a high percentage of recycled content. These types of trees are easy to grow in a wide range of conditions and are fast-growing in comparison to hardwood trees. Hence, these trees can be harvested sustainably from properly managed forests. Recycled corrugated board can contain up to 100 percent recovered material.

Shrink wraps are made of LDPE, which is made from petroleum, a limited non-renewable resource.

Recyclability

Corrugated board packaging is among the most widely recycled materials on earth. Some cardboard is made from 100 percent recycled materials, while the average 70 to 90 percent recycled manufacturing board is said to be one of the most ‘green’ packaging solutions available.

Often recyclable wrap ends up in garbage containers that goes to landfills or the contents end up in the plastic wrap recycling bin, making it non-recyclable. Shrink wraps have a lower recycling rate as only around 4-5 percent of plastic shrink wrap and other LDPE and linear low-density polyethylene (LLDPE) is recovered in the U.S. However, with effective recycling programs, shrink wraps can be recycled to a greater extent.

Reusability

Most of the corrugated boxes and similar packaging are made with flexible corners, and hence, can be collapsed and used multiple times before being recycled. Cost-conscious companies are actively reusing these boxes as it saves money by reducing the number of new boxes to be purchased. Reusing also reduces waste and hence, there are no disposal costs incurred.

Shrink wraps are not reusable unlike corrugated boxes. Once shrink film is deformed, it either goes for recycling or ends up in landfills.

Disposability

Corrugated packaging materials can be disposed of more easily and sustainably than many other materials because they are biodegradable.

Stretch film is generally made with LLDPE, which is denoted as category four in recycling programs. Hence, with an effective recycling program it can be disposed of easily. However, if Shrink wraps are not recycled, it takes up disposal capacity in landfills or is used as trash in energy plants.

Conclusion

• To offset costs, most of the big players in FMCG, F&B, and retail sector are starting to use the alternative methods mentioned below.

Use of Substitutes

Most of the big players in the market are starting to the use of Testliner in place of Kraftliner to save costs. Increase in use of recycled containerboard Prices of Kraftliner are about 20-25 percent higher than Kraftliner in Europe.

Re-engineering and Re-design

A reduction of overall material consumption can be achieved through specification harmonization, selection of the right board combination, consolidation of SKUs, and identification of efficient run quantities. A few FMCG companies have set up internal teams to review the above especially after the recent price increases while some others have engaged with third-party packaging consultants/designers.

Light weighting

Light weighting, which has been around for some time in the market, has gained traction after recent price increases. FMCG players are working closely with board producers to identify opportunities for light weighting.

Use of Alternative Products

There is an increasing interest in use of wooden/plastic crates in Europe as they can be recovered and reused. FMCG companies in Europe have been exploring the opportunity of using returnable wooden/plastic crates for some of their downstream distribution. RB can explore this opportunity.

Shrink wraps are seen mostly in the beverage industry. It more common in Asia Pacific than in Europe and North America. It has a lower ability to withstand damage and hence, is preferred only for certain types of product packaging.

Pallets as stand-alone packaging/transit material is not common. It is used alongside corrugates and largely when shrink wraps are used.

Several sectors are resorting to the usage of Testliner in the place of Kraftliner to save costs. Increase in use of recycled containerboard Prices of Kraftliner is about 20-25% higher than Kraftliner in Europe.

References

Industry News –   Risi, Supplier Websites, Secondary Sources