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Boxes on roll as Americans keep ordering

Cardboard industry meetingthe test of pandemic crush by HANNAH DENHAM THE WASHINGTON POST | January 3, 2021 at 2:09 a.m.
Boxes sit on trash cans in front of a home in Washington D.C.'s Georgetown neighborhood on Nov. 27, 2020. MUST CREDIT: photo for The Washington Post by Amanda Andrade-Rhoades.

For families stuck indoors and desperate for entertainment, a cardboard box can transform into a makeshift playground for the kids or a refuge for the cats. Day to day, though, they have been a crucial if often overlooked link in the nation's supply chain.

But now boxes are piling up in homes across the country because of the explosive growth in e-commerce this year. That's left the corrugated-packaging industry dependent on consumers to recycle the products to support its financial and environmental needs.

Corrugated-box shipments grew 9% in March from the year-ago period, industry data shows, despite a brief dip in revenue when the pandemic's initial shock froze up the supply chain. But shipments were again soon boosted by retailers' overstocking of food, cleaning supplies and toilet paper during the panic buying so prevalent in the early days of the coronavirus pandemic. Shipments continued to climb through the fall, peaking in October, and box makers are on pace to end the year with record production to meet this year's skyrocketing demand.

In fact, retail analysts say, e-commerce sales squeezed in more than two years' worth of growth since the pandemic began nine months ago. And the corrugated industry is scrambling to keep up: paper mills are running at full speed and some producers are capping orders and contracting out to smaller companies.

"At some point, yes, there was some pantry loading as people were preparing for what the effect might be of the pandemic, but I think we're past that point and what we're seeing here is new consumer behavior," said George Staphos, a senior analyst covering paper forest and packaging for Bank of America Securities. "Once you establish a new pattern, it's really hard for it to change."

The cardboard box and container manufacturing industry, which employs 139,000 in the United States, took in $67.3 billion in revenue from January through October, according to an IBIS World report. Even as the broader economy slid into recession and industries took a hit, e-commerce sales stayed afloat.

"Industry operators have largely been buoyed by the movement of consumers to shop online," according to the report. And demand will continue to rise as consumers increasingly choose e-commerce over stores.

Georgia-Pacific, one of the world's largest manufacturers of pulp and paper products, already is running its mills at full capacity, its chief executive, Brian Smith, said in a Marketplace interview. He said the Atlanta company has had to buy from smaller producers to keep pace.

"It's certainly been a challenge, because we're taking extraordinary steps to keep all of our employees safe, which can slow production down considerably," Smith said. "So sometimes it involves running extra hours and into weekends to keep up with demand."

Memphis-based International Paper, the nation's largest forest products company, produced more than 2.7 million short tons of corrugated packaging, up 2% year over year, according to its third-quarter earnings report. Chairman and Chief Executive Officer Mark Sutton said during an Oct. 29 conference call that it continues to see "very strong double-digit growth in e-commerce, with increased consumer reliance on e-commerce as a spending channel."

WestRock Co. produces 1 out of every 5 cardboard boxes in the United States. The Atlanta manufacturer of corrugated packaging, paperboard and containerboard employs 50,000 workers.

Box demand typically peaks in September, then tapers off through the end of the year as merchandise arrives in stores. But this year, between June and October, box shipments met 34 billion square feet -- an industry record -- each month. Demand swelled as retailers and shoppers alike adapted to the pandemic, according to Rachel Kenyon, vice president of Fibre Box Association, an industry tracker. Well-documented backlogs at the U.S. Postal Service also motivated consumers to start online shopping earlier.

"Based on data that we have dating back to 1999 (from the Fibre Box Association), this is a record," Staphos, the Bank of America analyst, said. "Two months in a row would be a lot, five months is unheard of."

Staphos said the containerboard industry is now raising prices -- a $50-per-ton hike on shipments in November -- and putting caps on client orders amid the tightest market since 1994. According to his research team's most recent survey of box producers released Dec. 13, growth in production was still up -- 5.1% in November and 4.5% so far in December, which doesn't account for much of the holiday season and last-minute shoppers ordering shipments.

Most of the companies surveyed expect another price increase in the first half of 2021, anticipating even more demand, including from vaccine shipments.

On the flip side of the industry's growth is the environmental impact. Cardboard is more biodegradable than plastic packaging, but its production is linked to deforestation and heavy chemical use by paperboard mills. Industry experts say ensuring most of those boxes don't end up in landfills needs to start at the beginning of their life cycles.

Global consumption of paper and paper products goes through 15 billion trees each year, according to the Environmental Paper Network. The industry relies on recycling virgin fiber -- the basis of cardboard boxes -- five to seven times, saving trees and improving the bottom line.

Kevin Hudson, WestRock's senior vice president of forestry and recycled fiber, described how this "circular economy" works: Fibers produced in its paper mills are sent to production facilities, which make and ship boxes to clients such as Amazon. The boxes that make their way to WestRock's 18 recycling plants are then turned into fibers again to start the process all over again.

WestRock invested $2 million in an upgrade to its Marietta, Ga., recycling facility in October -- which Hudson was critical to handling this year's high demand for online shopping.

"It's absolutely critical that the investments in single-stream sorting technology continues to occur so that the industry as a whole can match with the change in how recyclable material comes available," he said.

Hudson said WestRock works with private landowners to ensure the fibers it uses come from sustainably managed forests. He said his team also works with nonprofits to expand community recycling and make curbside programs more efficient and municipalities to educate residents on what can be recycled.

"As the e-commerce has grown, so has that ability for the resident to recycle cardboard, and how that has evolved where it is easy and more knowledgeable for us to catch more and more of that product," Hudson said.

And as packaging changes, the more that retailers and corrugated producers learn about consumer needs. Several years ago, it was common for an Amazon order to arrive in a huge cardboard box, with several smaller cardboard boxes inside wrapped in plastic air bubbles. But WestRock now uses its box-sizer machine for customers to right-size the package and reduce waste.

"We've optimized the box size to the product, so we're reducing the amount of fiber that box requires. We're also reducing the amount of fill product that box requires," Hudson said, as bubble wrap and similar fillings are hard to recycle.

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