Carton Converters Awash in Optimism
Continued economic strength, new end-use market opportunities and better production strategies all paint a bright picture for this once over-shadowed segment.
By David Luttenberger
By most accounts, the U.S. folding carton industry had a banner year in 1998. According to Gary Stanley of the U.S. Department of Commerce (DoC), segment records were set for both quantity and value of product shipments. DoC figures estimate the value of shipments at $9.7 billion. That's a 3.5 percent increase over '97.
Much of the good news for the paperboard carton segment can be directly attributed to the strength of the national economy and a better-than-expected export climate. U.S. exports of folding carton-related commodities in '98 were valued at $292 million, a 5 percent hike vs. a year ago. Exports of finished folding cartons were valued at $187 million, a whopping 12 percent greater than the previous year.
This was the second consecutive year of significant growth in this segment. Factors most positively affecting this continuation were a real GDP growth of 3.7 percent, continued availability of disposable income, growth in U.S. industrial production, an upswing in purchases of non-durable goods and the afore mentioned record exports of folding cartons.
Marla Donahue, president of the Paperboard Packaging Council (PPC), an industry trade association representing independent and integrated folding carton converters and suppliers, says converters here can expect the stability they encountered in '98 to continue this year, despite an extremely competitive business climate.
"The folding carton industry generally follows the non-durable goods market, which has been very good," says Donahue, who adds that this segment's success is tied directly to consumer confidence. "If there is a a downturn in the national economy, there could be a blip in the folding carton industry."
Another positive driver here has been the steady price and availability of raw materials. During the period 1996 through 1998, the price of pertinent grades of folding boxboard material has varied less than 5 percent. This has allowed box makers to control costs somewhat, particularly during the inventory buildup period of April through June.
New challenges, new light
A strength of this segment has historically been its ability to adapt to changing market demands and develop new products. Recent developments and utilization of printing, folding and diecutting technologies have helped keep operating costs down, while improving overall operating efficiencies. This has helped the segment compete successfully against other materials and construction types.
The Freedonia Group recently issued a report saying paperboard packaging will outpace plastics in selected consumer packaging markets. This is likely due, according to the report, to renewed concerns regarding the safety of food packaged in such plastics as polystyrene and polyvinyl chloride.
Specifically, new processes to convert lighter weight materials and incorporate more colors and more visually stimulating graphics, both without sacrificing structural integrity have been a boon to box converters. In coming years, the migration to flexo printing from offset and gravure will continue. This should help further reduce printing costs and improve turnaround time.
Dan Stolfi, executive vice president, sales and marketing, Innovative Folding Carton Co., South Plainfield, NJ, agrees it was a good year. "However, the entire folding carton industry is becoming more competitive. The marketplace is extremely cost-sensitive and quality conscious."
"As end-users became a bit more cognizant of their cash flow, they were asking their suppliers, including carton producers, to convert and hold finished product," says Stolfi, who adds that this was particularly prevalent in the pharmaceuticals segment, but the same held true across many other end-use segments as well. "The situation also tied itself to the whole JIT manufacturing concept, but was somewhat skewed as end-users were taking their JIT deliveries from warehoused product instead of directly from the manufacturing floor."
Donahue contends that the trend of large consumer product companies to consolidate their supplier bases, a practice referred to as "strategic sourcing," posed an additional challenge to the carton industry, but no more than it did in other segments.
Stolfi says he is still very optimistic about what lies directly ahead for folding carton converters. "We're seeing a lot of line extensions in generic and private label products, as well as many new ethical drugs." Both hold promise for box makers who can extend their packaging offerings to include labels, cartons and shrink sleeve labels, essentially becoming a total packaging solutions supplierincluding application machinery. Another hot new market box makers may want to explore is "nutraceuticals," which according to Stolfi, "is probably one of the fastest growing industries today."
Donahue points out that carton converters' end-use markets are extremely diverse. "Growth markets as computers, pharmaceuticals, software and specialty foods are being packaged in paperboard."
Overall, Donahue says there is optimism among converters here. "It is a high value-added business which benefits from the continuing growth of the economy." She believes that as long as this segment can continue to provide value to its customers via high-impact graphics, innovative packaging, upscale printing, promotions and branding, it should continue to fare well.
- Companies:
- Paperboard Packaging Council
- Places:
- U.S.