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Census Report 2007: The Paperboard Industry Is Getting Healthy
June 1, 2007 By: Esther Durkalski Hertzfeld Paperboard PackagingPaperboard packaging's exclusive 2007 census report shows that the corrugated container and the tolding carton industries are finally being seen as 'healthy' compared to previous years.
The view from all three sides (corrugated container plants, folding carton plants, and equipment suppliers) is healthy — most corrugated container plants and more than most folding carton plants say that business in their region is good or better. As support, machinery suppliers are more optimistic about the prospects for board converters. Moreover, in the next few months, all three sides are going to be spending more: Box makers will be buying more equipment than they did a year ago, and suppliers will be investing more in research and development in 2007. New this year, board converters are starting to invest more in labor, which includes training and recruiting.
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The Corrugated Container Industry
The corrugated container industry has gravitated toward a healthy environment. Compared to a year ago, fewer converters are calling their region "depressed," and, as corollary, fewer are using the word "thriving." So it's a 50/50 year for manufacturers — half are busy and growing while the other half report flat sales in a shrinking market.
For some segments, however, the news is almost rosy: Two-thirds of P-O-P/display board converters report a thriving and healthy economy.
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Where a healthy economic environment exists, 61.1 percent of converters are busy. This means that they are experiencing growth (32 percent), constant demand (24 percent), and healthy competition (11 percent). Additionally, 26 percent report profits and 12 percent are securing "new business."
On the other hand, 39.1 percent of corrugated container converters report a "stagnant" region and 11.5 percent say they are working in a "depressed" area. In last year's report, 14 percent of corrugated container converters described their area as depressed. When a stagnant economic climate prevails, 39 percent of manufacturers say there is little or no growth, and 35 percent find they are losing customers. Overcapacity is the contributing factor for a downward corrugated container economy in 23 percent of cases, while cut-throat pricing hurts another 19 percent.
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There's "still too much industry capacity, plus the continued exodus of product manufacturers to overseas locations (China)," is how one U.S. corrugated container converter describes a "depressed" economy. This comment also summarizes the fact that 66 percent of all converters are very concerned about customers moving their manufacturing operations to other parts of the world.
 How would you describe the economic state of the corrugated container industry? |
Four of five converters are very concerned about higher energy prices — this is the top concern for 2007. Other concerns include raw materials prices — 74 percent of converters being very concerned. Those are the same top two concerns from the 2006 report. Two-thirds are concerned about getting customers to pay more for boxes, while "industry overcapacity" keeps 60 percent of converters awake at night.
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Competition from box makers not in their area, mergers, and the impact of other substrates are not big concerns for converters at this time.
Profits
The search for profits must continue — and 60.5 percent of converters are making investments to ensure a positive and, hopefully, large income line in 2007. These investments include quality programs, innovation, printing capabilities, design, specialty boxes, and employee empowerment. Still others are investing in new equipment, recycling, foam, gluing, pallets, new flutes, protective packaging, safety, training, and vertical integration.
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"We are increasing the number of products offered to our customers," says one Italian board converter. "This allows us to know exactly the profit made, and there is no production cost and no risk of mistakes in production."
"We are changing our business culture," says an Ohio-based board converter. "We are partnering with our employees to give them ownership and responsibility of their profit center. It is working."
Another way to profits for 41.2 percent of converters is customer service. This includes just-in-time delivery, fast turnaround, small-quantity runs, inventory management, fulfillment, value-added services, and warehousing.
 Corrugated container plants planning to purchase equipment (new or used) in 2007 |
Efficiencies also can improve the bottom line, in the opinion of 27.2 percent. These include process efficiencies, cost cutting, waste reduction, alliances, purchasing controls, labor controls, lean manufacturing, and productivity improvements. Twelve percent hope to find new customers through marketing efforts.
Efficiencies through technology — specifically, online purchasing — is on the rise. The incidence of online purchasing went from 53.0 percent in 2005 to 57.1 in 2006. Those clicking their orders say online buying accounts for 22 percent of their total supplies.
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For others (42.9 percent), human contact, local vendors, phones, and faxes remain the preferred ways of ordering supplies. Some manufacturers say that their vendors do not offer online purchasing.
Strategies
Corrugated container converters were asked about their strategies in this competitive business environment, and efficiency is the dominant reaction for almost 70 percent. This includes lean manufacturing (35.8 percent) and cost cutting (32.1 percent). Other efforts include process efficiencies, purchasing consolidation, increasing automation, and vertical integration.
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"Digital graphics, fulfillment, lean enterprise (manufacturing and administration), new converting and corrugating equipment, and investment in new information technology" are among the strategies being implemented by a board converter in Missouri.
"Our plans are to enter non-traditional markets, such as miniflute laminating, offset printing and flatbed diecutting, and to continue with our high banana box production on flexo folder gluers," explains a manufacturer in South America.
 Equipment spending at corrugated container plants this year (2007) compared to last |
But not all converters are following the promise of efficiency. One in three says their key strategy is marketing. Also, 22.3 percent are focusing on customer service, such as value-added services, just-in-time delivery, innovation, design, fulfillment, warehousing, and inventory management. Others are buying new equipment, implementing Six Sigma or 5S, and supply chain management.
New this year was the 14.5 percent of plants investing in labor as a competitive strategy. This includes training, empowerment, cross-training, and hiring.
 Supplier Satisfaction: What Suppliers Think |
"We have cross-trained employees to achieve higher productivity, and increased the number of days per week we make deliveries to certain strategic markets," says a Wisconsin board converter.
What's Important?
This year, almost 61 percent of corrugated container converters say that inventory control and warehousing are very important to their customers. Supply chain management is very important to 45.2 percent. Other services are less important. The data suggest that one-third of plants offer fulfillment services and 20 percent are contract packaging (this is suggested by the percentage of manufacturers considering these services very important to their customers).
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Commercial printing is very important to 40.5 percent of P-O-P manufacturers. RFID is not at all important for 68.6 percent of board converters' direct customers.
Equipment Spending
Overall, spending on corrugated container equipment has remained constant over the last 12 months. This year, 35.6 percent will spend more; 39.6 percent will keep spending at 2006 levels; and 24.8 percent will be cutting back.
For the lucky converters (and suppliers) operating in a healthy economic environment, 41.6 percent will be increasing equipment spending in 2007.
 Corrugated container plants production spending (other than equipment) this year (2007) compared to last |
Two of three plants spending more on equipment this year see it as an opportunity for investment. Thirty-seven percent report growth, and need the new machinery for expansion, new markets, and new products. Also, 13.4 percent look for new equipment to improve efficiencies and productivity.
Many plants (58.8 percent) that are cutting back on equipment spending this year say that they made sufficient purchases in 2006. Cash flow problems are forcing 22 percent to close their purses, and 14.7 percent say low demand is the reverse driver.
Whether the amount they are spending is more, less or the same, almost 58 percent of plants will purchase equipment in 2007. Some manufacturers will be buying multiple pieces of equipment, which is why the percentages add up to more than 100. Most board converters said they would order machinery orders during the second quarter.
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One-third will buy some sort of material handling equipment; 26 percent will buy diecutters; and 20.5 percent will buy converting equipment. Flexo folder-gluers will be bought by 18.5 percent; 17.8 percent will add adhesive/gluing equipment; and 11.6 percent will purchase stackers. Other equipment purchases this year include inks, safety equipment, printing press, folder-gluer, prefeeders, slitters-scorers-splicers, and corrugators.
Corrugated container plants were asked for the main reason they were choosing to purchase equipment from a particular supplier in 2007. The most frequently mentioned driver is technology. This includes the machine's quality, reliability, flexibility, capacity, performance, and setup. Also, 36.1 percent say the purchasing motivator is the supplier's reputation — many times, plants that have had a good experience with a particular supplier will wish to continue with that brand. Service is an important driver for 24.6 percent, while 23 percent say cost is the main factor.
 How would you describe the economic state of the folding carton industry? |
Manufacturers were asked to name the last piece of equipment they purchased. These answers provide a snapshot of actual equipment purchasing activity (rather than intentions). In this case, manufacturers gave only one answer. The most popular recent equipment purchases include material handling equipment (14.4 percent), diecutters (13.7 percent), flexo folder-gluers (12 percent), and adhesive/gluing equipment (9.9 percent).
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Two-thirds of recent purchases were for new equipment; 34.2 percent bought used machines. Impressively, 68.5 percent bought additional equipment; 31.5 percent bought a replacement machine. One of five converters made their most recent equipment purchase to open up a new market, while the rest, 80 percent, bought to serve an existing market. In terms of packaging type, new markets include specialty/protective packaging, bins, P-O-P, and heavy-duty boxes. The most popular new industry for converters is food and beverage.
Existing industries for which equipment was purchased include food and beverages, consumer goods, pharmaceuticals, automotive, personal care, and electronics. Existing packaging types for which equipment was bought include corrugated, folding cartons, specialty packaging, rigid boxes, heavy-duty boxes, P-O-P, and trays.
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Production Spending
One-third of converters will spend more on production (other than equipment) in 2007 compared to 2006, and 58.3 percent will keep spending at last year's level. Seven percent say they will spend less on production this year.
The additional money will be spent on employees, including training, higher wages, health care, and recruiting, according to 38.8 percent. One in four will be spending more on raw materials, and 17.5 percent will invest in maintenance, software updates, and energy needs. Other production spending will be aimed at efficiencies — such as lean manufacturing and process improvements — and growth.
 Folding carton plants planning to purchase equipment (new or used) in 2007 |
New Products
The data show that one in four converters are manufacturing products other than corrugated. The most popular: foam (24.4 percent), P-O-P display (20.9 percent), pallets (12.8 percent), plastic (11.6 percent), and wood (10.5 percent).
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The Folding Carton Industry
The folding carton industry is much better this year. A year ago, 39.2 percent said their industry was "thriving" or "healthy." This year, 50 percent report a happy economy — 7.6 percent say it is "thriving" and 42.4 percent say it is "healthy." Obviously, that leaves 50 percent saying the economy is "stagnant" (35.6 percent) or "depressed" (14.4 percent).
Where a healthy environment exists, 66.7 percent of folding carton plants are busy — some even have a backlog. Profits and growth flow to 28.6 percent and 19 percent report new business, which includes industries moving into a region and a trend-preference for paper (green) packaging products.
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Where the economy is stagnant or depressed, 54.8 percent of folding carton plants report no growth and declining sales. Overcapacity affects 31 percent; price cutting and higher prices for materials cut into the profits of 21 percent of converters.
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The increasing price of raw materials makes 80.4 percent of folding carton plants very concerned. Higher energy costs are a real worry to 70.5 percent. Two-thirds are very concerned about getting customers to pay more for boxes.
Most folding carton plants, 56.8 percent, are very concerned about competition from box makers not in their area, and 56 percent worry about overcapacity. Almost half of folding carton plants are concerned about customers moving their manufacturing operations. Consolidation/ mergers and other substrates are not a concern for folding carton plants at this time.
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Profits
This year, 45 percent of folding carton plants are hoping to manufacture profits through innovation, design, and technology. Customer service is the key for 40 percent, and this includes small runs, co-packing, short lead times, and volume discounts. Efficiency is the way to profits for 30 percent, who are practicing lean manufacturing, cost containment, productivity increases, and waste reduction.
Online purchasing is becoming more popular at folding carton plants. In 2005, 51 percent were buying online; in 2006, 59.1 percent. On average, these buyers purchase 24 percent of their total orders via the Internet.
 Equipment spending at folding carton plants this year (2007) compared to last year |
Strategies
When faced with a competitive business climate, 69 percent of folding carton plants hope efficiency programs — such as lean manufacturing and cost cutting — will keep them ahead of the pack. In addition, marketing is the new strategy for 31 percent and 28.6 percent are investing in quality, which includes Six Sigma and 5S, waste reduction, and quality controls. Customer service is a strategy for 14.3 percent.
What's Important?
Most folding carton plants consider inventory control/warehousing and supply chain management very important. On the other hand, RFID is not at all important for 61.3 percent of folding carton plants.
The data suggest that 35.2 percent of folding carton plants offer fulfillment services, 33.9 percent are commercial printers, and 24.2 percent are contract packaging.
 Methodology |
Equipment Spending
This year, slightly more folding carton plants have money to spend on equipment. In the months ahead, 40.5 percent will increase their equipment spending compared to last year. Spending will stay at last year's level for 32.8 percent, and 26.7 percent will cut back.
A folding carton plant president in Omaha, Neb., explains that the company is "expanding our operations through acquisition and moving into a new facility. We are also changing formats from 40-in. equipment to 56-in. equipment."
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A folding carton converter in Thailand must respond to demand: "We need to get new machines to support sales volume," he says.
It's the same in New York, where a plant is spending more on equipment "to increase capacity for new customers."
Even in a dull economic environment, folding carton plants are still finding solutions. Despite a New Jersey plant experiencing "a lot of manufacturers shutting down in this area," the owner "has shifted services to commercial printing and packaging." Moreover, this business is investing in new equipment to have "faster, more efficient machinery and easier set-ups."
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Sixty percent of folding carton plants plan to purchase new equipment in 2007 — that's slightly more enthusiasm than in 2006.
Printing presses will be the most popular equipment purchase this year, with 35.8 percent of plants making this investment. Adhesive/gluing equipment and material handling equipment will each be purchased by 28.4 percent. One in four will buy diecutters; 19.4 percent will add control systems; 19.4 percent will buy folder-gluers; and 17.9 percent will invest in converting equipment.
Why do folding carton plants buy machinery from a particular supplier? Fifty percent said the supplier's reputation was the main reason. Others say they are influenced by the machine's quality and performance, which impacts 42.9 percent of sales. The service and support is a plus for 28.6 percent of buyers. Cost is purchasing driver for a mere seven percent.
Folding carton plants were asked to identify the last piece of equipment they purchased. This provides a snapshot of actual equipment purchasing activity. In this case, manufacturers gave only one answer (answers add up to 100 percent). The most popular recent equipment purchase was a printing press (27.4 percent), adhesive/gluing equipment (14.5 percent), diecutters (14.5 percent), and folder gluers (8.9 percent).
 Folding carton production spending (other than equipment) this year (2007) compared to last |
Three of four most recent purchases were for new equipment; 26.4 percent bought used machines. Also, 66 percent bought additional equipment; 35 percent bought a replacement machine.
Four of five folding carton plants bought their most recent machine for an existing market; 16.2 percent hope to open up a new market — most are adding graphics.
Production Spending
In 2007, 32.3 percent of folding carton plants will spend more on production, and 50.8 percent will keep spending at 2006 levels. The data show that 16.9 percent of plants are cutting back on production spending.
New Products
Forty percent of plants are manufacturing products other than folding cartons at their plants. The most popular extracurricular activity is commercial printing, mentioned by 23.5 percent. Other products include paper, plastic, rigid boxes, diecutting, blister cards, fiberboard, labels, laminated products, litho, and vinyl boxes.
For the suppliers' perspective on the how corrugated container and folding carton converters are doing, visit the complete Census Report article online at www.packaging-online.com/CensusReport2007. You also will find out how suppliers are economically surviving and what they are investing in.
