We expect to see price increases across our corrugated packaging products over the coming months. These increases are happening industry-wide. Given the sheer size of the box industry this is big news, but not unprecedented. Price changes in the corrugate industry happen regularly due to growing demand, changes in the supply chain, and general economic inflation.
When you buy boxes, you're dealing with a product that is very close to a raw resource — paper pulp. That's why box prices can behave similarly to other products like gasoline which are close to the raw material.
The basics of corrugated
Most corrugated boxes are made out of recycled material. In fact, 47% of the average corrugate box is recycled material. In 2015, an impressive 92.9% of corrugated cardboard produced was recovered for recycling.
The paper industry calls these collected boxes Old Corrugated Containers, or OCC for short. OCC are broken down and turned into linerboard — the paper used to make corrugated board, which is then turned into boxes. The downside of such a sustainable process is that each piece is wholly dependent on the others. When something throws off the status quo, everything shifts.
Rising demand
The first trigger for increasing OCC costs is higher demand for boxes. The use of e-commerce boxes alone is predicted to increase at least 10% per year through 2020. This growth puts pressure on the OCC market because the same amount of recycled material has to support increased production until the cycle can catch up. This will continue until more OCC becomes available via higher production, or incentivized recovery and recycle rates.
Exports to China are growing
The second factor driving price increases is the export of OCC to countries with paper demands that exceed their natural and domestic recycled resources. China specifically has seen a marked increase in OCC imports from the US as their paper and linerboard industry has been growing an average of 10% year over year, with 95% of that production supported by recycled material.
For strong boxes, the best paper pulp is made from softwood trees such as pine, spruce and fir which have long, strong fibers. These trees grow well in the US where they are planted for paper, but are not as common in China.
This increase in exports has been particularly strong over the last 6 months as manufacturing has recovered from anti-pollution restrictions enacted for the G20 summit of 2016, and ramped up for the holiday season.
Compounding factors
In January 2017, there was an explosion at an International Paper factory in Florida. The paper mill has been shut down since then, cutting US paper production by 5%, and International Paper’s production by 20%. In the forest, paper, and packaging industry segment, the top five US companies account for over two thirds of industry revenue.
These companies are integrated, meaning they own the entire manufacturing flow — from tree farms and OCC recycling facilities through pulping, paper making, corrugating, and sometimes even box manufacturing. The ripples from incidents like the one in Florida are magnified by the concentration and integration of the industry, and compound price increase
How this affects pricing at Lumi
As a member of Lumi, we help you stay abreast of these changes, so that when increases come, you can plan for them. Due to our large purchasing power we often buffer the cost increases so that your pricing doesn't fluctuate or increase wildly. However, you can expect your packaging prices to fluctuate slightly over time as we respond to market dynamics.
After 130 years, you might think the box industry would be stable and predictable, but it’s actually full of excitement! At least for us. We invite you to explore the corrugated rabbit hole, but if you have other things to do, don’t worry. That’s our job.
Check the Lumi Corrugate Price Tracker for continued pricing updates.
