Packaging News

Corrugated: Boxes bid to beat the storm

Low demand, spiralling costs: the brown box market has hit choppy waters. Noli Dinkovski reports on the firms attempting to turn the tides

Low margins are the scourge of many a UK manufacturer, but for those with a vested interest in the brown box market, they are pretty much a way of life. In the last couple of years, demand for non-printed corrugated boxes has fallen while raw material prices have soared, creating a perfect storm for producers. And it’s a storm that has left its mark.

At the turn of the year, sheet maker Western Corrugated fell into administration, while, in April, Mondi announced it was leaving the UK corrugated market. Meanwhile, only last month, DS Smith’s new chief executive Miles Roberts announced he wanted to concentrate on high-profit areas of the business such as printed retail-ready packaging.

But while the headlines read doom and gloom for the brown box sector, digging below the surface reveals a more complex market of fluctuation and change. Consolidation has clearly had, and continues to have, a major influence, but, whether large or small, those companies able to add value above and beyond the brown box are best positioned to succeed.

According to CPI data, UK corrugated box production has been in decline every year since 2002: falling by more than 20% from 4,581m2 that year to 3,653m2 in 2009. Despite the drop, CPI’s corrugated sector manager Andrew Barnetson remains resolute that underlying demand for corrugated in the UK is still there.

"There is still just as great a demand for corrugated in this country now as there was 12 months ago," he says. "In fact, as we move out of recession demand is now actually several percentage points up on this time last year. We are back to 2008 levels."

Where there has been a shift, it has been in the strategic thinking of companies, believes Barnetson. "We are seeing a degree of business focusing. Mondi may have left the UK market, but Smurfit Kappa has taken the opportunity to expand its interest by buying the three Mondi sites. SAICA has also demonstrated a very significant interest in the UK market after taking on SCA plants in 2008."

Market recovery
According to SAICA acquisitions controller Joaquín Balet Robinson, the SCA purchase formed part of the group’s growth strategy in Western Europe. "CPI figures show a recovery against 2009 in the industry – this also affects brown boxes," he says.

Interest in the UK corrugated market remains, then. Raw material price increases, however, make it an increasingly perilous environment to operate in. One industry observer claims paper for sheet making has, in some cases, gone up in excess of 50% in the last 18 months, and converters have had little option but to pass on the increases. "On some board grades there have been five increases in the last eight months. For the first couple of increases, you try to share the burden but there comes a point, ultimately, where you can’t do that," he says.

According to the observer, this is where the economies of scale start to matter. If one manufacturer can produce 5,000 boxes an hour while another can produce the same box at a rate of 25,000 an hour, the likelihood is the second manufacturer will be able to sell them far more cheaply.

Given the market conditions, it’s little surprise the big three players – DS Smith, Smurfit Kappa and SAICA – now make up around two-thirds of the overall UK market. With odds stacked against the smaller manufacturers, how are they surviving?

One key strategy has been to move the buyer away from price and make them focus on the cost-effectiveness of a job. According to Barnetson, the conventional way of buying a brown box – specifying the weight of the liners and the flute – is fast dying out. Today’s savvy corrugated manufacturers are starting to ask what the packaging is actually for. By asking questions such as how the job will be stacked in the warehouse, how high it will be stacked in the lorry, what sort of journey it will take, and whether it’s likely to encounter any damp conditions, the manufacturer is able serve the customer far better, he says.

"If a customer has been using the same specification of paper and fluting for 10 years, there’s every chance it will be out of date," says Barnetson. "In that case, the manufacturer could advise lower weights, which would be cheaper and better for the environment, but to do that they need to have a full appreciation of the supply chain in which the packaging will be used."

Another way of adding value to a job is to print on boxes. Most brown boxes have some form of monochrome print added at the converting stage, but increasingly sophisticated colour printing, led by the growth of retail-ready packaging (see box) continues to help grow the corrugated sector.

For smaller producers, specialism remains a buzzword. Eddie Fellows, managing director at CRP Print & Packaging, says his firm’s heavy-duty corrugated business has grown by 30% in the past 12 months, while the pre-print operation has grown by 37%. "In these more specialist sectors we are able to compete toe-to-toe with the likes of DS Smith," says Fellows. "That’s not something we are able to do when it comes to the basic brown box."

But that doesn’t mean there aren’t growth areas within the brown box market itself. The online market is one such example, led by Amazon, which relies on corrugated to shift products.

"Online sales have opened in the last few years and it’s an interesting market, with home delivery of goods requiring boxes," says SAICA’s Balet Robinson. "These boxes require a level of brand recognition, and receiving them at home is a big part of the whole online buying experience."

The green card
Those who operate in the sector will know that more than 80% of corrugated material in the UK is recycled, and this green aspect is another growth area for the sector, says CPI’s Barnetson. "Corrugated has the highest recycling rate of any packaging material and some very significant customers are moving away from plastics," he says. "It’s up to the industry to continue promoting just how environmentally friendly corrugated is."

SAICA’s Balet Robinson concurs that the environmental message plays a key role. He says that boxes "fit for purpose" can assist in reducing carbon footprint; if they’re designed intelligently they can take up less space in transportation. The green angle can also help add value.

Green certification can help get that message across. In July, CRP became the first company in Europe to achieve both FSC and PEFC chain of custody accreditations for its pre-printing business, while, in June, Smurfit Kappa gained both FSC and PEFC for its entire UK network.

So, while it has been tough for the brown box market, there’s still plenty to be positive about. "Of course there is a future for brown boxes," adds Balet Robinson. "In any case, it does not make much difference from a price point of view to have one- or two-colour printing on a box in order to increase brand awareness and to improve recognition throughout the supply chain."

Doug Johnston, co-managing director at consultancy firm Packology, believes there is some "cracking innovation" in the sector – companies just need to make sure their customers are aware it exists. "It’s all about having strong sales teams who are able to understand precisely what their clients need," he says. "It’s this understanding that can make or break a company."

THE RISE OF RRP
Retail-ready packaging (RRP) has long been lauded as the most efficient way for FMCG retailers to get products onto the shop floor as quickly and effectively as possible. According to one industry observer, however, retailers are not always keen to pay the extra cost associated with RRP.

"That cost can sometimes be up to 150% more than a brown box," says the observer. "That’s when the problems start. Retailers try to pass on the cost up the supply chain, manufacturers say they are unable to absorb the increase, and the whole thing comes to a grinding halt."

As a result, versions of RRP are appearing in supermarkets today, rather than RRP in its pure form, says the observer. "Some boxes may have tear-off lids, but they haven’t been branded and are not really designed for shelves," he says.

Despite this, there’s little to dispute the fact RRP is still on the increase and remains a major growth market. "Saving the retailer time and money is one thing, but just as importantly RRP is becoming a vital communication method for brand owners," explains CPI corrugated sector manager Andrew Barnetson. "Every brand owner wants to get their message across on shelf. That’s why RRP is ideal."

THE BROWN BOX: ADDING VALUE
There are a number of ways in which brown boxes can be re-engineered to add value. Macfarlane Group managing director Peter Atkinson has a checklist to help customers specify their packaging requirements:

• Aim to get the right specification for application and onward supply chain
• Consider the size as a way of reducing the use of other consumable items
• Look at design as a way of adding speed to the packing operation
• Consider adding printed branded tape rather than printing the box itself
• Weigh up the benefits of bulk purchasing verses smaller stock ordering, which can keep cash and space impact to a minimum
• Think about accessibility – is a standard stock box or bespoke one better?
• Select from the widest possible range off the shelf
• Look at ways of adding value. Suggestions include a plain box with easy-tear openings, a dual purpose returnable box or self-seal
• Make sure high-value, desirable items are protected from potential losses
• Make ordering easy – whether online, by phone, email or fax