Apprehensive Optimism

The folding carton market has been slowly recovering since it hit a low in 2002. However, market projections for 2005 are a mixed bag.

IT'S EASY FOR the folding carton market to be optimistic about the future if it bases its outlook on 2004's end-of-the-year numbers. According to the Paperboard Packaging Council (PPC), last year saw a 4.4 percent increase in folding carton shipments by dollar value, and a 4.3 percent rise by volume, reaching a total of $9 billion on the year.

However, things aren't as golden as the statistics make it appear. Recent information from the large, integrated companies reports a $50 per ton material increase, due to take effect within the next month or so, said Pete Reiber, vice president of Columbus Paperbox and chairman of the National Paperbox Association (NPA). "When they start to feel the pinch, [smaller folding carton companies] will feel it a month or so later," Reiber said.

Reiber's worries are substantiated by the PPC's annual "Trends: Industry Outlook and Market Data Report" for 2004, which was released in August. In the report, Resource Information Systems Inc. (RISI)—a forecasting arm of Paperloop that prepared the outlook and forecast sections of the report—projected rising boxboard costs. RISI forecast real prices for bleached folding boxboard to rise 5 percent in 2005 from their 2002 average. In addition, real prices for unbleached board were projected to increase more than 8 percent during the same time frame. The report also predicted these rising costs would force converters to increase the price of their folding cartons.

Passing rising costs onto customers isn't going to be an easy feat, Reiber said. "Customers are already looking for ways to cut costs," he said. "For example, if we're printing 24 pt. SBS for a customer and they come to us saying they have to save money here some how, we tell them not to change from SBS—it's a great surface with great print quality. We suggest maybe using a 22-caliper or 20-caliper board—bring down the caliper and it saves customers money."

Still, there's a certain amount of optimism that folding carton market leaders can't seem to let go of. "We expect 2005 to be another strong year with a growth rate in excess of 5 percent," said Melissa Teates, PPC director of Industry Information and Research. "The strong performance of paperboard packaging can be attributed to success in the pharmaceuticals, retail carry-out, beverages, frozen foods, and cosmetics and toiletries end-use segments. Over the next five years, we expect the market to continue to grow overall, however, there may be some dips."

Green qualities contribute to growth

Growth rates over the next few years are expected to be slow. According to Ben Markens, president of Converter's Resource, "Growth is slow and low. Projected growth is slow and low. And real growth is almost non-existent."

That's simply put, but in more specific terms, consumption of paperboard in folding paperboard boxes is expected to grow by 2.7 percent per year to 7.6 million tons in 2007, according to a study called "Corrugated & Paperboard Boxes" produced by The Freedonia Group, Inc. Of that increase, recycled board will remain the leader, volume-wise, due to consumer demand for environmentally-friendly packaging, the study reports.

In late 2003, the 100% Recycled Paperboard Alliance (100% RPA) released a study conducted by Priority Media Group which said that nearly 55 percent of packaged good companies feel "an environmentally-positive image is important. Of that total, an overwhelming majority—70 percent—recognize the consumer appeal, value, and importance of the recycled paperboard 'chasing arrows' symbol to the marketing of their products."

In addition to the green appeal for consumers, recycled paperboard has overcome myths associated with its strength and printability to attract the eyes of consumer product companies as well. The 100% RPA study found that one-third of heavy users of 100 percent recycled paperboard view the substrate as superior to other types of packaging regarding consumer preference and shelf impact.

Other types of paperboard will also see increases in consumption through 2007, according to The Freedonia Group study. Unbleached kraft board's advances will be fueled by opportunities in an expanding beverage carrier market. Bleached kraft board consumption will grow at the slowest rate due to its cost disadvantages compared to the availability of unbleached kraft grades offering high-quality graphic appearance, according to the study.

Competitive pressures

Growth will not come easy as folding carton converters have to combat the pressures from overseas paperboard manufacturers and converters, and flexible packaging. "Our members would agree that they are the two largest threats," Teates said. "Plastics in general are a threat. The fluctuations in oil prices, therefore resin, may assist paperboard in holding on to its share of the snack markets, but converters will need to be proactive in developing packaging solutions, not just new graphics."

Innovation and science will be the key to the future of the folding carton market, as converters try to compete with such flexible packaging innovations as pouches, Markens added. "Pouches are still problematic. We need a good way to fight back," he said. "They cost the same as folding cartons to make, but cost per unit is much higher. [Products packaged in] pouches are generally more expensive than folding cartons. And generally they have less volume of product in the pouch than the carton at a similar price point. Therefore the unit cost of the pouches is higher."

In addition to plastics, folding carton converters face pressure from imports. According to "Corrugated and Paperboard Boxes," "The increasing level of offshore manufacturing in important markets like toys, sporting goods, and hardware will also limit advances as these goods are generally imported with packaging. … Inroads by less costly imports will lead to continuing shipment declines."

Battle strategies

While folding carton converters can't necessarily combat the pressure from plastics directly, they can do a better job of promoting their substrate. Many millions of dollars were spent by the plastics market last year in self-promotion and marketing, Markens said. The paperboard market spent only a few hundred thousand dollars on similar efforts. "We have to do a better job of promoting ourself, especially with younger people. We need to do more, need to have more of a concerted effort to try to get students at design schools to look at paperboard," he said.

In addition, converters have to think beyond selling packaging, alone, Teates said. "Converters need to sell packaging solutions not just packaging—good customer service and quality packaging is often not enough any more," she said. "Converters need to be proactive and develop new packaging that will 'wow' consumers with convenience, and present it to current accounts. Marketing is important, especially face-to-face opportunities like trade shows."

Diversifying company capabilities and adapting to new demands is also a way for folding carton converters to stay competitive in the package-printing marketplace. Reiber said Columbus Paperbox did just that and took on some corrugated board work, creating alliances with corrugated companies to bring in extra revenue.

Another means to a brighter future, Reiber said, is to take a close look at U.S. free-trade policies and lobby elected representatives to try to change them. "Right now, free-trade policies are only working one way and it's not for American manufacturers. I think some of the government's free-trade policies have to be changed, but lobbying takes a lot of money and time to be successful. Seeing industries go by the wayside like the textile and shoe industries, the government should learn lessons from that."

Keys to a happy future

Besides innovations in coatings and better paperboard-making procedures, folding cartons are finding new avenues to new markets. Markens noted that R&D departments are working overtime, creating new and unique ways to increase consumer convenience with value-added features, and finding new inventive uses of folding cartons in medical devices, such as alternatives to plastics for tubes.

Furthermore, as the age of RFID settles upon the package-printing industry, folding cartons are finding a way into the technology. "RFID and security will continue to play a role for the next few years," Teates said. "We are seeing board developed where the chip is manufactured in the substrate or part of the chip can be printed onto the board."

By Kate Sharon

Associate Editor