Revived box market has a paper problem

The corrugated box industry has seen a significant turnaround in business after the initial shock of the pandemic, but now they face a new dilemma: the world’s paper mills are not churning out paper fast enough.

Demand, partly driven by the upswing in e-commerce activity, is affecting the cost of raw materials for box makers.

Logistics companies have been ordering more cardboard boxes to ship or deliver goods to online shoppers, putting pressure on the world paper market and sending up the cost of imports for Jamaican packaging companies, who, in turn, have increased prices by at least 10 per cent since the start of the year.

Checks with industry players indicate that corrugated box manufacturers like Jamaica Packaging Industries Limited (JPI) and AMG Paper & Packaging Limited have had to fork out on average 25 per cent more to pay for raw materials since the start of the year while cardboard importer Sterling Packaging says its import bill has risen by around 15 per cent.

The operators are not only pointing to the exponential growth in e-commerce activities, but also the switch from plastic to paper bags globally and demand for packaging for shipment of COVID-19 vaccines as the primary reasons for a shortage in supply on the global market.

“A spike in e-commerce transactions influenced by stay-at-home orders resulted in companies such as Amazon demanding unprecedented volumes of corrugated boxes. Amazon controls 50 per cent of the e-commerce sales in the USA and uses cardboard heavily for protective and shipping purposes,” said Sterling Packaging CEO Edgar Stone.

Joy Roberts-Williams, the CEO of JPI, adds restaurant service to the factors having an impact on demand for cardboard boxes as more people opt to have their meals delivered to their doorsteps.

“It’s not just an issue in Jamaica. Our sister company in Trinidad has been facing the same problem. Some SKUs [stock-keeping units] we don’t have in stock, and it does impact our customers, but we have been working with our suppliers so we can speed up the process,” Roberts-Williams said.

“We have passed on some price increases to our consumers, but we have also absorbed some it,” she added.

Jamaica’s importation of paper and cardboard totalled US$350,000 in 2019, the most recent data available. That was up 27 per cent relative to 2018. The majority of the paper rolls, 89 per cent, comes from companies in the United States and Europe such as International Paper and West Rock. Some 95 per cent of imports is testliner or recycled paper and the other 5 per cent is virgin or kraft paper.

Box makers are dependent on paper mills, but that sector is said to have been hit by the pandemic, leading to staff shortages due to both COVID-related illnesses and stay-at-home orders.

“The paper market has been very unstable since September of last year, resulting in price increases on corrugated paper products upwards of 15 per cent. This is unprecedented, considering that the market has been soft for the past five years,” said Stone.

“It is a sensitive time to issue price increases, however, the situation is very unpredictable, and suppliers are not open to negotiating based on the scarcity of paper,” he said.

The packaging companies say they are working with partners to bring in paper supplies in a timely manner in order to align with the needs of clients, but they don’t expect the paper market to normalise until the first quarter of 2022.

For some businesses whose service is dependent on packaging material, they had previously stocked up on supplies of paper bags and cardboard boxes, and so the paper shortage, while worrisome, is not seen as a crisis for many, especially since supply chains, though somewhat slow, are still intact.

“Since March of 2021, it has become very difficult to meet customers’ requirements on time due to availability of materials,” said Stone.

“In some cases, we are behind by two weeks, but it isn’t a major issue for many of our customers now because they were already buying in excess of what they needed to maintain supplies after the outbreak of COVID-19,” he said.

karena.bennett@gleanerjm.com