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Strong demand, rising costs affect packaging strategies

Strong demand, rising costs affect packaging strategies

Consumers keep buying and e-commerce is humming, leading to higher corrugated costs and the need for shippers to rethink the way they package items for delivery.

Packaging costs are rising as the economic recovery continues and pandemic-induced buying behaviors that favor e-commerce remain strong, factors that are putting pressure on shippers to find better ways to pack and deliver the orders that are streaming through their facilities.

The price of corrugated products was rising through the spring, with some of the country’s largest producers of containerboard—the material used to make corrugated boxes—announcing increases of $50 to $70 per ton. The cost of packaging supplies in general was rising too, increasing by double-digits in many cases,according to government data and industry groups that track packaging demandJohn Blake, senior director analyst with consulting and research firm Gartner, says changes in demand for packaging throughout the pandemic, combined with volatile supply chain activity last year, are driving the increases and shining a spotlight on the need for shippers to better manage sourcing strategies and packaging processes.

“[The pandemic] created an unexpected shift in usage, and we’ve seen some spikes in the amount of corrugates and different materials used [as a result]. It’s really an aspect of adjusting to the recovery from the pandemic, in many ways,” Blake explains. “I think best practices or opportunities for companies to mitigate this are around identifying where they have single sourcing of packaging that creates supply chain risk.”

Surging direct-to-consumer sales and related last-mile delivery demands are also to blame, according to Gartner research from late 2020. When asked to rank their strategies for controlling final-mile delivery costs, more than 400 supply chain executives surveyed placed “packaging optimization” in their top three, according to Blake.

“There is an awareness that the way we have been using [packaging] is inefficient and there is opportunity to improve the cost,” he explains. “And there has definitely been an emphasis on that over the past year.”

Blake and others recommend taking small steps, such as re-evaluating the types of packaging a company uses, and considering more advanced strategies such as on-demand packaging to address the problem.

 

STRONG DEMAND FUELS NEW STRATEGIES

 

Shipments of corrugated materials hit a record high in 2020, reaching 407 billion square feet of volume, a 3.5% increase over 2019’s 405 billion square feet (which was also the previous record), according to data from the Fibre Box Association (FBA), a trade group representing manufacturers of corrugated products. The industry had been experiencing steady growth since the 2009 recession, when shipments dipped to 345 billion square feet, says Rachel Kenyon, FBA senior vice president.

“There are a couple of reasons we believe we had record growth [in 2020],” she explains, pointing to a steady rise in e-commerce activity over the past several years as a contributing factor. “But that’s not enough to move the needle on corrugated packaging. Last year, when things shut down, you saw even greater growth in e-commerce, and that’s when you really saw the industry start to pick back up.”

Strong e-commerce sales eliminated the tapering of volume the industry typically sees at the end of the year, she says. And following a slight dip in January, corrugated shipments resumed their climb, reaching historic highs this spring, she adds.

All of this is contributing to a sharper focus on packaging in general, according to Blake. The shift from brick-and-mortar to online sales was already forcing companies to examine their packaging protocols, especially when it comes to the last mile. But Blake says the past year has created an opportunity for them to ramp up those efforts and develop packaging processes that best fit the application.

“One of the greatest challenges is the vast variety of fulfillment options. We have [everything] from traditional brick-and-mortar to growth in discounters to e-commerce,” he explains. “All of these different routes to the market, to the consumer, have different packaging requirements, and that creates complexity in the supply chain.”

Product protection is at the heart of the issue. In traditional retail, products are shipped on pallets, where they are protected until the pallets are broken down at the store and the items placed on shelves, with the consumer taking responsibility for safe delivery. E-commerce and direct-to-consumer shipping has changed all that, leaving brands with the responsibility of packaging individual items for safe delivery from the warehouse, distribution center, or retail store through the final mile to the customer’s door. Most brands’ answer to that problem is to add extra packaging to safeguard the items during the journey. But those strategies are changing in light of rising costs and environmental concerns.

“With e-commerce, there’s always been the practice of using more packaging to help [the merchandise] survive the journey. But there is [growing pressure] on companies to reduce the amount of packaging used or work toward making sure what they’re using is curbside recyclable,” Blake explains. “There are a lot of areas where optimizing packaging drives a financial benefit.”

 

RIGHT-SIZING TO FIT DEMAND

 

Strategies for reducing package waste include using padded envelopes, plastic mailers, or more appropriately sized boxes—anything to avoid placing items in an oversized box that has to be stuffed with filler. Such adjustments can help reduce the amount of paper and cardboard a company uses as well as free up space in the warehouse and on the delivery truck, factors that also address cost and environmental concerns.

“If you can use a padded envelope instead of a box, [do so]. If you have items that are durable, don’t put them in a big box with a bunch of paper—use something more form fitting, like a mailer,” Blake advises, citing some simple steps companies can take to optimize packaging.

More advanced solutions include employing on-demand, right-sized packaging systems that enable shippers to produce the right-sized package for the job on-site. Such solutions are best suited to high-volume operations, Blake says, but they represent an “interesting and exciting space” in the market.

Salt Lake City-based Packsize is one company that offers such a solution, using a mix of hardware, software, materials, and services for on-site carton creation. Packsize Executive Chairman Hanko Kiessner says right-sized packaging directly addresses the tight capacity and increased costs the market is experiencing—simply because it reduces the overall amount of packaging material a business uses. As for the extent of the opportunity, Kiessner says his company’s studies show that shippers typically use about 30% more packaging than needed.

“To a large degree, these price increases [we are seeing] are self-inflicted by the industry because [shippers] are using large packages, usually too large,” Kiessner explains. “What would happen to the market if every package was sized right? We could save 30% of the total demand for packaging material—in this case, paper.”

With the economic recovery from the pandemic in full swing, and online buying behaviors firmly entrenched, Kiessner and Packsize CEO Rod Gallaway say such questions are likely to persist, leading more companies to evaluate their packaging needs and sourcing strategies.

“I think demand will continue to increase, and I think, therefore, the supply and the secureness of your supply is going to be critical,” Gallaway says. “Many companies did not get all the corrugate they needed in peak season [2020] … we expect that to happen again in 2021.”

Written by: Victoria Kickham

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