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Shake-Up Down Under
March 1, 2007 By: Tom Andel Paperboard PackagingThe markets for paperboard packaging in Australia and New Zealand have been controlled by a few major players. However, a new day of innovation may be about to dawn.
Considering it serves a market made up of only about 24 million consumers, the Australian box making industry is being shaped by powerful forces. Two of those forces have laid claim to the corrugated side of this market for many years: Visy Industries and Amcor Ltd., which together have captured more than 90 percent of it.
 Market Characteristics |
A third force, however, threatens to upset the teeter-totter these two competitors have been riding with each other: Carter Holt Harvey (CHH) made its presence known while accusations were flying over an alleged packaging cartel operated by Visy and Amcor between 2000 and late 2004. CHH has been pushing to grow its single-digit market share in the corrugated packaging sector, and that effort was given a boost when the Australian Competition and Consumer Commission (ACCC) took its cartel charges to court. Australian food and drinks packagers soon followed, suing Amcor Ltd. for $147 million in damages.
Amcor, based in Melbourne, Australia, has appointed investment bankers to advise on its restructuring and asset sales process, and New Zealand investor Graeme Hart is said to want Amcor's $513 million packaging business to strengthen the linerboard mill he purchased.
The Australian surmises that if Hart can't leverage the packaging group of Amcor, he may launch a hostile takeover of Amcor and break up the packaging group.
The CHH plant has been struggling against low-cost Asian competition; however, the scale gained through joining with Amcor's resources could bring $300 million or more in "synergy gains" in value-added corrugated-box product, enough to turn the business around, The Australian notes.
Dynamics
All of this activity could lead to a level of box design innovation this market hasn't seen in years. But because it's in such an isolated part of the world, why should box makers care about what goes on here?
Why should you care that Visy built a new kraft linerboard plant in Tumut, Australia, that produces 820 tons/day when there's an adequate supply of containerboard in that marketplace, given a consumption of less than a million tons of boxes? CHH alone in that market makes about 1,400 tons a day of kraft liner.
"The reason we opened that plant is because we're opening markets in Southeast Asia," says Michael Harwood, chief executive of Pratt Industries (USA), the North American subsidiary of Melbourne-based Pratt Industries.
And why would they do that when China's Nine Dragons is bringing on 2 million tons?
"They're bringing on testliner, not kraftliner, and they need 100 percent virgin material in a lot of cases," he says.
As for what accounts for Australian consumption, industry represents about 20 percent of the region's GDP and within that, manufacturing has an 11 percent share, according to ICCA. Total output of corrugated board in 2004 was a little more than 20 billion sq ft. Corrugated production grew during 2005 by about 1.5 percent. Growth in the industrial sector was offset by a decline for fruit and vegetable packaging, due to a move to RPCs. ICCA forecasts that this trend, plus more private label products being sourced offshore, will result in a slower annual rate of growth in the next five years — around 1 percent. In the beverage sector, however, corrugated board use will grow as a result of domestic growth and increasing exports.
New Zealand corrugated board output grew by just under 3 percent in 2004, and an annual 2.5 percent growth is forecast for the next five years — much of it driven by growth in produce export.
These slow growth rates haven't stopped box makers from setting up shop in this region. Three new independent corrugators have announced themselves in the last two years, and Visy has a new $60 million plant in Yatala, outside Brisbane. The company says this plant will have an initial capacity of 50,000 metric tons per year and will complement Visy Board's existing facility at Carole Park, west of Brisbane. This is Visy's fourth box plant in Australasia.
Add to that the two Amcor plants in Queensland that have consolidated into one and a potential new CHH plant in Queensland, and the Australia/New Zealand markets are in for exciting times, from a box maker's perspective.
New Opportunities
With CHH investing more in new product developments, it's more likely that specialty taping advances such as tear tape, reinforcement tape, and closure tapes for boxes will become more widespread. Spot laminating is another technology that has been exploited very well in the United States, but has yet to be seen much in the land down under. Yet with this region's big wine market, it's an opportunity that could eventually be seized by an innovative new local competitor.
"The only spot labeled boxes you see in stores here were spot labeled in Europe or the U.S.," says an expert source contacted for this story who preferred to remain anonymous. "They don't have this huge flow across the border as you would if we were closer to the other markets."
Retail Growth
Another force destined to shape the Australian box market is retail. For example, Aldi, the international discount retailer, has established a strong presence in Australia and New Zealand, and according to ACNielsen, the marketing information company, Aldi is a prime mover in the growth of private label products on store shelves.
ACNielsen's bi-annual Private Label Report shows that the vast majority of all Australian households (99 percent) consistently purchase private label, and spent an average of $123 on these products every quarter over the last two years. In comparison, Aldi shoppers spent an average of $142 in the 2005 December quarter — an increase of 9 percent versus the same period in 2004.
"Aldi has certainly been the driving force behind growth in Private Label over the last year," says Aaron Cross, director, retail client service, ACNielsen Australia. "It must be noted, however, that with new branding strategies for major retailer private label brands rolling out in coming months, it is expected that these will have a more pronounced impact throughout the course of 2007."
And although Wal-Mart has yet to establish outlets in this region, when it does, its packaging requirements for its own brands, and its supply chain practices, are bound to affect the way boxes are made for the retail sector. That will mean boxes that will be easier for distribution center and store employees to handle when packing and unpacking boxes. It will also mean packaging that is "right-sized," reusable and recyclable, per Wal-Mart's environmental sustainability mandates.
The converting technology applied in Australian/New Zealand markets is as advanced as that used in North America or Europe. Eventually, with the market changes that will come from increased competition among independents and integrateds rushing in to serve new market players, the packaging in this part of the world will also become world-class.
