The triple-play of corrugated packaging supply backlogs, increased demand, and the surge in corrugated prices has stunned many businesses and industries. Companies that set 2021 packaging budgets have seen an adverse impact on both their overall supply chain and their bottom line. How has this come about, and what can we do about it?
Supply and Demand Continues to Drive Prices Higher
E-commerce sales boomed in 2020, and there are no signs of it slowing down, having reached 14% of total retail sales in the U.S. in the fourth quarter of 2020. Retail sales analysts expected e-commerce to slow down as the country started to re-open, but that hasn’t been the case. People have gotten comfortable shopping at home, leading many experts to believe the vast majority of e-commerce is permanent.
Pet food and supply online retailer Chewy is an excellent example of a company that has a growing need for corrugated as its business continues to grow. In the fourth quarter of 2020, Chewy recorded its first-ever $2 billion-plus quarter. The company added 1.4 million customers in the fourth quarter, ending the year with 19.2 million active customers, up 5.7 million from a year earlier. As their customer base continues to grow, Chewy’s need for corrugated is rising accordingly.
Chewy is just one example of growing companies needing more and more cardboard. Because of the housing boom, sellers of home appliances, like refrigerators, washers and dryers, and home entertainment systems are also taxing the existing inventory of corrugated and contributing to price increases as their need for big boxes rises.
No single industry is to blame – it’s the cumulative effect of overall demand that is driving corrugated prices skyward for the past six months. And, it’s also suppliers that are struggling to keep up with record demand levels.
Demand Isn’t the Only Driver of Price Increases
Other factors than unprecedented demand are contributing to painfully high prices. Freight increases, the trade war with China, and demands on labor are also factors.
With freight rates expected to climb another 2 to 5%, companies that ship tens of thousands of packages every month are prepared to take another hit. Many of the goods they’re shipping that used to go through a distribution channel are now dependent on freight carriers to get the goods directly to consumers, which equals higher freight expenses.
For example, Bluetooth speakers, which were once shipped in bulk to retailers such as Best Buy and picked up by consumers in-store, are now being shipped individually through online distributors like Amazon. This equals many more trips by truck, which has created a driver shortage, further contributing to increased shipping costs as existing drivers are charging more as they’re demanded to do more.
Another factor in the surge in prices is the trade war with China. With China not accepting scrap material anymore, corrugated manufacturers have now had this revenue stream blocked, putting pressure on them financially and necessitating a need for increased corrugated revenue for them and their shareholders.
Lastly, not only are manufacturers at capacity, so is their labor force. Companies were forced to downsize their labor this past year for social distancing purposes, resulting in slower production and increased wait times for cardboard container delivery. Automation has helped, but people are still needed to run and maintain machinery.
What Can You Do to Weather the Storm?
At Korpack, we continue to do our utmost best to help our customers adapt. In March, we published a blog post that offered recommendations on six ways to keep your costs low to battle corrugated price increases. It was very well received and helpful to our customers.
We’ve also done our level best to share in price increases from corrugated manufacturers. We’ve always seen our relationship with our customers not only as a provider of goods and services, but also as a partner.
In a recent communication we provided to our customers concerning price increases, we extended an offer to put our heads together and look at steps you can take to mitigate rising corrugated costs. Take advantage of our packaging consulting services, and we’ll help you find ways to increase the operational efficiency of your packaging operations and reduce your labor and material costs.
Speed, technology, and trust are what set us apart and are invaluable to our customers as we adjust to changing market conditions. Contact your Korpack representative, our customer service team, or a member of our management team today, and let’s see what can be done.
