The containerboard market slowdown and what’s driving it

The story of the containerboard market this year has been one of consolidation and closures as North America, in particular, has seen persistent weak box demand.

Multiple reports from analysts across the paper and packaging industry suggest nearly 10 percent of North American containerboard capacity has been shuttered this year, equal to about 3.9 million tons.

“I’m unaware of a year in recent decades in which this much capacity was shut on an absolute and percentage basis, which is indicative of the state of industry conditions,” industry analyst Adam Josephson writes in his newsletter, “As the Consumer Turns,” in August.

“When you start to see box shipments slip, we probably need to be looking at grocery stores and CPG [consumer packaged goods] companies to see what’s going on there, and we have seen a very challenged consumer environment over the last two years,” Fox said on Bloomberg’s “Odd Lots” podcast in mid-September.

According to Fox, there was a big ramp-up during the COVID-19 pandemic, as box shipments grew about 2.4 percent the first year of the pandemic and 3.5 percent the following year.

However, in the first half of this year, he said, box shipments were down about 12 percent compared with the height of the e-commerce boom brought on by the pandemic.

“That’s a massive falloff,” he said.

Tariffs, while arguably the most notable factor impacting North American box demand, are not the only factor. The packaging landscape continues to evolve with right-sizing and alternative packaging, like reusable containers or flexible mailers.

Notably, Fox said, mill operating rates have “barely been at 90 percent” and inventories at the end of the first quarter averaged around five weeks. For context, he noted that historical averages for mill inventories are around four weeks.

“Corrugated packaging does have some known tradeoffs—one of those things is a returnable plastic container,” he said. “That is mainly being pushed toward produce. … It reduces waste. They’re building supply chains around these things, so that is one of the things we’ve seen cut into box consumption. We don’t know that it’s a big thing yet, but it is out there and it is a thing.

“The other thing we’ve seen is a move toward larger-format boxes—some that are the size of a pallet.”

As far as the outlook for the rest of the year, Fox expects box shipments to continue to be “very challenged,” estimating total box shipments in the U.S. will be down 2.5 percent this year and possibly down as much as 3 percent as the industry faces continued uncertainty over tariffs and other trade policies.

“It really depends on how much confidence some of these companies have as they look forward,” he said. “We’ve seen the number of containers coming into the U.S. … was frontloaded, and now that the tariffs are here or not here, they’ve been tapering off a bit. It will be very curious to see what happens.

“To think about it another way, most Americans buy stuff when they have money, and when they don’t have money, they put it on credit cards, and we’re seeing record amounts of credit card debt, and that’s not a great sign for if people are going to spend money. So, we don’t really think it’s a hot outlook for even the holidays. Are Americans going to spend money? Probably. Is it going to look exactly like it did in prior years? Probably not.”