Folding carton printing and converting in packaging markets

By Patrick Henry

What Keeps Them Up at Night—or at Least During the Daytim

The folding carton printers interviewed for this story face mostly the same agenda of business issues as the managers of other kinds of printing businesses. Two items of special interest in their segment—competition from offshore packaging manufacturers, and paperboard supply—came up in the conversations.

Pitts isn’t troubled by the presence of overseas rivals in his primary markets. In fact, he says, “we’re seeing more of it come back” as customers re-shore their package production because of concerns about quality and delivery delays. Sharply rising labor costs in China means that any economic benefit of producing cartons in that country “starts to fade away very quickly,” says Tsai.

Iannuccillo notes that overseas packaging producers frequently don’t face the kinds of regulatory and quality requirements in their home countries that U.S. printers have to deal with every day. This means, he says, that the complexity of RFQs for domestic packaging tends to eliminate unqualified foreign producers from the bidding process.

As for paperboard, Iannuccillo says that as mills and paper converters have taken some of their less efficient equipment offline, resulting in the lead times for ordering and delivery creeping up. Wright agrees that during the past two months, paper backlogs have become “problematic.”

“We see lead times out to nearly eight weeks on some substrates,” he says. “Every substrate has seen at least one price increase, and a second has been proposed. All I can say is that history indicates that this is another cycle.”

Tsai, who says he has absorbed two paperboard price increases this year, expects the industry to be hit with a third before the year is out. He says that the first two increases, coming just months apart, raised his substrate cost by about 2 percent.

Input costs continue to go up across the board, says Scherger, who adds that “commodity inflation is a very real challenge to the industry.” Also not to be overlooked, he says, is the escalation of labor costs as packaging producers deal with finding “less talent with the skills we need.”

Long after predictions about other kinds of printing have come to pass or failed to materialize, folding cartons will still be doing their time-honored job of bringing consumer products safely, efficiently, and attractively to market. The folding carton manufacturing industry has always benefited from this stability of demand, rising and falling more or less predictably with general trends in the consumer economy.

This doesn't mean, however, that making folding cartons is itself a predictable business or one that isn't subject to continuous pressure for change. In its present state, the folding carton industry is both mature and dynamic—rooted in its traditional role, but driven as never before to improve the value of what it offers to customers and consumers.

In a market of this size, there are plenty of opportunities to add value. Paper and board packaging, the largest segment of the packaging industry, is projected by Smithers Pira to be worth about $250 billion globally in 2016, with the U.S. accounting for better than one-quarter of the total volume. Smithers Pira reports that global folding carton production has grown by about 2.5 percent per year since 2005, and it expects this trend to continue.

Growth not at a gallop

The rate of growth in the U.S. is likely be more restrained, however. The Paperboard Packaging Council's (PPC) Trends: 2012 Industry Outlook and Market Data Report forecasted that total growth in the folding carton market would average just 0.5 percent annually over the next five years, with carton shipments expected to rebound to 1.8 percent in 2012. Ben Markens, president of PPC, says that the actual growth figure for 2012 was one percent and that this pace has remained "pretty flat" through this year.

Markens agrees with market forecasts from RISI that identify food and beverages as the leading growth segments for folding cartons. In contrast, he says, are the two in steepest decline: tobacco and hardware. Tobacco use is diminishing in the U.S., and packaging for hardware—including commodities such as fasteners and nails—saw a drop in demand because of downturns in housing and construction.

If anything can decouple folding carton market performance from strict dependence on consumer segment trends, it probably is technical innovation. According to Smithers Pira, the three key technologies that will add value in the folding carton market between now and 2018 are anti-counterfeiting systems, barrier coating technologies, and retail-ready packs (shipping containers that double as packages for retail display). The need for brand differentiation will spur adoption of QR codes, holographic images, Fresnel lenses, and other visual attention-getters for packages, the research organization says.

Folding carton printers, meanwhile, are pursuing gains in productivity wherever they can find them as a way to counterbalance market realities they can't always control. Sometimes, even nature itself can sway the fortunes of the folding carton business. For example, in a recent earnings call, David Scheibel, CEO of Graphic Packaging Holding Company, reported that his company's volumes in beer and soft-drink cartons had been impacted by cooler and wetter than normal weather from Memorial Day weekend through the end of June.

Clear-eyed assessments

This sense of realism pervades every statement that packaging printers make about the outlook for their businesses and for the folding carton industry as a whole.

"My whole business is based on speed to market," says Murry Pitts, president of Carded Graphics. He adds that after years of rising demand for short runs on short notice, "turnaround times have been virtually eliminated" in some of the markets he serves.

Ed Wiegand, executive vice president of The MATLET Group, similarly notes that the consumer-product market's "insatiable appetite" for design changes has shrunk packaging life cycles. At the same time, he says, an explosion of product varieties—for example, the iconic dandruff shampoo that began as one product but is now available in 13 different formulations—has led to a proliferation of SKUs, each manufactured and packaged in correspondingly smaller quantities.

The complications don't end there. According to Greg Iannuccillo, vice president of sales at Packaging Graphics (a facility of The MATLET Group), packaging customers are a lot less vertically integrated than they used to be. This means that the packaging-related work they used to do in-house now is being contracted out to multiple suppliers—all of whom represent middlemen the printer eventually will have to interface with. As a result, Iannuccillo says, "instead of having to deal with one customer, I have to deal with five."

JIT for you, but not for me

At K-1 Packaging Group, president Mike Tsai is seeing an increasing trend toward just-in-time (JIT) delivery, but he draws a distinction between customers' perceptions of JIT and what it sometimes can mean for suppliers of the packaging.

According to Tsai, even the largest distributors of packaged goods aren't always on top of their forecasting. When demand estimates are poor, the folding carton printer has no choice but to overproduce and hold the excess until the customer calls for discreet quantities that won't crowd retailing space. That may be JIT as far as the stores are concerned, says Tsai, but there's no benefit in the scenario for the printer.

While pipeline transparency may not be a top-of-mind concern for brand owners, shelf appeal always is. Consumer products manufacturers are in continuous pursuit of packaging features that "make us want to buy," says Steve Scherger, senior VP, consumer packaging, at Graphic Packaging.

What brands want to achieve, says Iannuccillo, is "a very high-end look, but driving costs out of it" by economizing on packaging design where they can—for example, by replacing a diecut window with a simple picture of the product inside.

Committed to capital investment

For carton printers facing requirements like these, nothing less than the most advanced production systems will do. Last year, Mark Wright, president of Specialty Finishing, raised the bar by installing a pair of 57˝ KBA Rapida 145 sheetfed litho presses with pallet-handling logistics and inline sheet inspection. The presses can print up to 17,000 sheets per hour, "and we often run at that speed," says Wright.

Pitts wants Carded Graphics to be the most versatile folding carton producer in the business, and he has underwritten that ambition with a $10 million investment that includes the recent installation of an 8-color Heidelberg Speedmaster XL 106. Iannuccillo says Packaging Graphics achieves efficient litho production on a 17-unit, 10-color manroland R700 Ultima perfector with triple coating and inline foiling.

Exotic press iron isn't the only key to optimizing folding carton production. Tsai expects to reduce waste and eliminate mistakes throughout K-1 Packaging's entire operation with the EFI Radius ERP system he is now installing. According to Scherger, Six Sigma productivity management at Graphic Packaging leverages everything that can expedite job changeovers and maximize throughput.

Digital's day dawns

If it is not quite there yet, digital printing soon will be a given for versatility and speed-to-market efficiency in folding carton production. Wiegand says Packaging Graphics is gearing up with a recently installed press system that comprises digital printing in up to seven colors, inline coating, UV, and near-line converting including diecutting, embossing, and foiling. At its heart is one of the 29˝ HP Indigo sheetfed presses introduced at drupa 2012.

Wright is pinning his hopes on another drupa debut, the Fujifilm Jet Press F: a B2-format, folding-carton version of the sheetfed inkjet Fujifilm J-Press 720. He says that when the Jet Press F arrives, Specialty Finishing will be able to expand digital printing to packaging on substrates from 16-pt to 24-pt with UV or aqueous coating.

Carded Graphics broke into digital packaging two years ago by investing in an HP Scitex FB700 UV flatbed inkjet printer and a Gerber Innovations M3000 Sample Maker (a plotter/cutter). Pitts says that with these tools, he can produce prototypes, as well as short runs of up to 500 cartons.

He's conservative, nonetheless, about where digital fits into his service offerings. "Digital is just not ready for folding cartons," he says, citing digital equipment's limitations in speed, substrate thickness, and format size. On the other hand, "prototyping is big business" for printers who have the digital assets to do it, Pitts says.

Can'ts versus won'ts

Optimism tempered by individual circumstances keynotes the outlook among folding carton industry professionals. With a new litho press that lets him run up to eight colors plus coatings on both sides, Pitts is raring to take on the new business that he's sure is out there. At Carded Graphics, he says, there is "no anticipation of a downturn at all." A bit more conservatively, Tsai says that although K-1 Packaging is maintaining a "nice and steady" pace of business today, it stands in "stark contrast" to the faster beat the packaging industry was marching to 10 years ago.

Scherger believes that the demand for folding cartons will continue to mirror broader economic trends, especially in the mature consumer market that the U.S. represents. He's also convinced that folding cartons remain a "powerful value proposition" for product marketers.

"You just have to go after it," says Wright of future business opportunity. "It is our philosophy at Specialty Finishing that there are can'ts and won'ts. There are some things we can't do for our customers, but there is nothing we won't do."

About the author—Patrick Henry is the director of Liberty or Death Communications. pP