State of the Industry: Folding Cartons — Doing Well and Getting Better

Observing current trends in the folding carton market, it would be easy to consider this a market in trouble. True, mills in North America are closing. Capacity is declining or flat. Also true is that offshore producers are encroaching on territories traditionally dominated by North American packaging producers. Energy prices affect everyone, and consolidation is a continuing issue. But is it a market in trouble? Not for Joe -Elphick, president and CEO at Colonial Carton (Clayton, N.C.). His business has grown 20 percent this year. And, sales are up 30 percent at Mid-York Press, according to Robert Tenney, president and CEO. Ben Markens, president of the Paperboard Packaging Council (PPC) says, “We think the state of the folding carton market is strong. While it’s a very competitive situation for a lot of reasons, we’re optimistic about the state of the folding carton market.”

Annual capacity statistics

The American Forest & Paper -Association (AF&PA) conducts its “Annual Survey of Paper, Paperboard, and Pulp Capacity” in which it analyzes the U.S.’s capacity to produce paper and paperboard. According to its 48th Annual Capacity Survey Synopsis, U.S. capacity to produce paper and paperboard was down 0.6 percent in 2007. Paper and paperboard capacity had declined 1.6 percent in 2006 and at an average annual rate of 0.7 percent for the period of 2000 through 2007. These declines, according to the survey, reflect weak demand for some paper and paperboard grades. “However, U.S. exports of paper and paperboard have increased briskly during the past year or so, while imports have eased, helping to support domestic production,” the survey states.

The survey shows paper and paperboard capacity declining 0.7 percent in 2008, but subsequently rebounding 0.2 percent in 2009 and 0.3 percent in 2010. For the entire three-year period, capacity is projected to contract at an average annual rate of 0.1 percent.

Unbleached Kraft paper capacity rose 2.3 percent in 2007 to 1.6 million tons following a 5.3 percent decline in 2006. This increase, according to the survey, is mainly due to reclassifying capacity from specialty papers to unbleached Kraft paper. U.S. capacity to produce this grade of paper is projected to rise 0.1 percent in 2008 and 0.6 percent in 2009, with no projected change for 2010.

Bleached packaging and industrial converting paper rose 4.4 percent in 2007, but, according to the Survey, is expected to contract 22.1 percent this year and 3.6 percent in 2009, again with no change indicated for 2010. The survey notes that bleached Kraft paper is mostly made on machines that also produce other paper and paperboard grades, so its capacity is subject to swings based on a mix of grades for any given year.

Linerboard capacity increased 1.9 percent in 2007 to 25.98 million tons and is projected to rise an additional 2.4 percent in 2008. Linerboard capacity is projected to climb 0.5 percent in 2009 and 0.1 percent for 2010. Overall, the survey says, linerboard capacity is projected to rise at an average annual rate of 1.0 percent between 2008 and 2010.

Within the linerboard category are several paperboard grades:

• Corrugated medium capacity declined 2.8 percent and is expected to decrease an additional 3.1 percent this year before rising 1.4 percent in 2009 and an additional 1.0 percent in 2010.

• Bleached paperboard capacity rose 3.2 percent in 2007 to 6.0 million tons. Bleached folding boxboard capacity increased 4.5 percent, while milk carton stock increased 1.0 percent.

• Total recycled paperboard capacity declined 3.5 percent in 2007. This year’s survey predicts a modest re-expansion of recycled paperboard capacity during the next three years: 1.2 percent in 2008, 0.5 percent in 2009, and 0.1 percent in 2010.

• Unbleached Kraft folding boxboard capacity rose 2.1 percent in 2007, following a 3.0 percent expansion in 2006. Capacity to produce this grade is projected to edge down 0.3 percent in 2008 and then expand 1.2 percent in 2009, with no change indicated for 2010.

Report from the field

As important as capacity statistics are, there is no better gauge of the market than what the soldiers in the trenches are saying. Folding carton package printers face many of the same challenges printers using other processes face: increased foreign competition, consolidation, increased materials costs, and increased energy costs, to name a few. What is important to remember is that these are challenges package printers face industry-wide. According to -Elphick, material costs are an issue, “but we’re all in the same boat so we won’t be able to escape them.”

Markens cites consolidation as a challenge, but also sees this as an opportunity. “Once consolidation happens, there will be fewer plants, therefore supply and demand will be rationalized a little more,” he says. “So I think it’s an opportunity for independents. As that shakes out, there’s plenty of space for everybody.” He notes, however, that consolidation does make it tougher and more complicated to do work.

Tenney says capital expenditures are one of the most significant challenges for folding carton converters during the next five years, along with staying ahead of technology changes, but that the state of the industry is excellent. “We have never been busier, backlogs are strong, and margins are maintaining,” he says. Of the market itself, Tenney asserts, “It is without a doubt the healthiest of the printing industries.”

To help package printers, the PPC offers its members various tools to help converters from a productivity standpoint. “We give them benchmarking data and a whole host of things from a productivity point of view and an operating cost point of view so they’re able to understand how their facilities fit into the overall structure,” Markens says.

Sustainability’s impact

The Paper Industry Association -Council states that paper and paperboard accounted for 75 percent of all packaging material recovered in 2006, making paper the most recovered packaging material. According to the Paperboard Packaging Alliance, a joint venture between the AF&PA and PPC, “Paperboard packaging’s familiar list of customer benefits—versatility, stackability, billboard effect—includes one additional attribute that speaks right to the core concerns of the environmental consumer: sustainability.” It states that the U.S. forest products industry plants an average of 1.7 million trees every day. Furthermore, during 2007, an all-time high 56 percent of the paper consumed by the United States was recovered for recycling. Elphick is hoping sustainability will increase his business. “We’re banking on paperboard getting increased demand,” he says.

Markens comments, “We ought to be riding that horse all the way to town because we have the best story to tell. Sure there are some challenges. We need to [make our boxes more light-weight], but sustainability in the long run is our friend.”

Telling the paperboard story is key. “It takes about a million years and a couple thousand dinosaurs to produce oil,” Markens says. “Resin-based products like plastic are oil-based. We can grow a tree to make paper in 12 years. They’re not making anymore dinosaurs. We are absolutely the only renewable resource. So that’s the main thing we can do as a council—tell that story better.”

Not to worry

Despite capacity challenges, energy costs, consolidation, and offshore competition, the folding carton market, like all areas of packaging, soldiers on and continues to thrive. Everyone needs to eat, and there is no shortage of folding cartons on supermarket shelves. These challenges form a storm the entire packaging market will weather.

Ultimately, it all comes down to serving customers. According to Elphick, today’s customers are demanding more ink on paper, UV and matte varnishes, and more from the graphics end of things. Tenney adds, “We have always offered [customers] in-house design and more are taking advantage because of the cost differential versus traditional agencies or design houses.”

Serve customers well, use the tools that are available through organizations like the PPC, and continue to tell the sustainability story better, and the folding carton market will continue to ride the waves of packaging trends. pP