E-commerce is booming
The number of packages that are being delivered to homes while everybody has been at home due to COVID-19 has skyrocketed. Ecommerce represented a small portion of total consumer sales pre COVID-19, but with the pandemic, that % has increased significantly.
In Canada in December 2017, e-commerce accounted for nearly $1.9 billion, or 3.4%, of total retail sales in Canada, according to Statistics Canada. In March 2020 alone however, e-commerce's share of total consumer sales was up to 4.9% (actually it’s probably higher than that because Canadian consumers may also buy online from foreign websites which are not captured in these numbers).
Canadian e-commerce sales were up 23.8% year-over-year in Q1 2020, while bricks-and-mortar retail sales dropped 0.7%. Year-over-year growth of e-commerce sales is expected to increase more in the next few months as consumers become more accustomed to shopping online and many people will continue to avoid going into physical stores if they don’t really need to due to health and safety concerns.
Increased demand for cardboard is not just from increased E-commerce
When US and Canadian consumers rushed to stock up on toilet paper starting in March, they caused domestic tissue demand to surge and a lot of toilet paper is made from recycled cardboard and paperboard.
In addition, many North American manufacturer are closely examining their supply chains and looking to move sourcing away from foreign suppliers like China in the wake of significant manufacturing and production disruptions.
As an example, Procter and Gamble (P&G) accesses over 300 suppliers in China for more than 15,000 products. If even a fraction of the packaging for those products and other manufacturers’ products is moved back to North America, that would drive significant additional demand for cardboard, chipboard and other paperboard products and converting services.
Canadian cardboard and paperboard manufacturers were deemed essential services during COVID-19
The cardboard box and paperboard packaging industries were declared essential services and kept running with demand increasing more than 5% year in March 2020 vs March 2019, but at the same time, supply of the recycled material was severely impacted.
Across Canada, there are more than 50 manufacturing plants that either make the paper supplies needed to create cardboard boxes or produce the finished boxes themselves and there’s a multitude of other paperboard converters who are also making paperboard products to feed the e-commerce boom. They are making the packaging for essential products like food, medical and personal hygiene and for ecommerce shipping – things like chipboard stiffeners for mailers, layer pads for within corrugated boxes and solid paperboard packaging where heavy duty packaging is essential.
With retail businesses (including large companies like Walmart, Home Depot and Canadian Tire) and manufacturers being forced to shut down during COVID-19, you would think packaging demand would be down. Well, it wasn’t, but the supply that the cardboard, chipboard and other paper manufacturers rely on was, creating a double whammy – increased demand for product and less availability of raw materials.
The supply of used corrugated, chip and other paperboard is tightening significantly
The vast majority of corrugated boxes and other paperboard containers produced in Canada are made from recycled materials collected from municipal blue box programs, retail stores and manufacturing facilities.
The raw materials supply was negatively impacted because a lot of the people were not working, or were working limited hours as their employers were concerned about health and hygiene for workers. Ensuring the collection of paper and board continues during the crisis is important. Otherwise, it would create a shortage of raw material within weeks and force cardboard and paperboard manufacturers to stop production, or move to using much more expensive and not as eco-friendly virgin fiber.
Recycling is very important to the domestic supply chain. To date, recycling programs have mostly continued largely unaffected, but there have been some suspensions of curbside recycling programs. As an example, just this month (June 2020), after a number of collection workers at Baltimore’s Department of Public Works tested positive for COVID-19, the city suspended curbside recycling for a number of weeks. The department has now called back workers on leave, brought help in from other areas and enlisted outside contractors to resume normal service. Baltimore Public Works has now said that waste collection service should be returning to its usual schedule, but recycling service remains affected.
Overall though, disruption to blue box programs is not believed to have had a significant impact on used cardboard and other paperboard materials for recycling because the changes are not widespread in most states and they’re generally occurring in small communities. However, last month, Waste Management Inc. suspended some residential recycling operations in California because some residential recycling sorting lines are not configured to meet social distancing guidelines, which puts workers at risk.
Even before the COVID-19 crisis, many municipal blue box program operators have been struggling to make their operations economically viable, so with the COVID-19 challenges on top of the economic concerns, supply of used cardboard, chipboard and other paperboard may be reduced even further.
This isn’t helped by the fact that used cardboard collection from commercial, industrial, institutional sectors is down significantly, which are usually very reliable sources with high recovery rates.
Other factors are offsetting the reduced recycling happening in North America though, at least in the short term. Prior to the pandemic, India was one of the largest importers of mixed office paper from the US, but on March 25 they imposed a national lockdown to limit the spread of COVID-19. Unlike in the US, India's lockdown was very strict. Very few businesses were deemed essential and allowed to remain open, and if people violated the curfew rule and were found in public, they faced disciplinary measures.
In any case, this recent North American concern for the supply of used corrugated (typically referred to in the industry as OCC or old corrugated cardboard / containers) is in sharp contrast to the last few years where the price of used corrugated has plummeted (caused largely by China declaring they don’t want to be the world’s dumping ground and limiting their acceptance of recycled cardboard).
The Bottom Line
Like so many things during these crazy COVID-19 times, it’s anybody’s guess what the overall demand for corrugated and paperboard will be and where pricing will go for these products. Supply and demand will likely continue to be very volatile and fluctuate significantly.
Many analysts are predicting at least in the short term that used corrugated and other paperboard supplies will remain in high demand, and supplies will remain tight, leading to further increases in raw materials prices, but many analysts are also forecasting a slight decline in overall demand over the next year or two, in contrast to previous estimates of moderate growth (1-1.5%), but a lot will hinge on the bigger economic picture and how the global economy fares.
Operating out of Vaughan, Ontario, Hammond Paper Company has been a reliable source for paperboard and protective packaging solutions in Canada for over 25 years and has continued operating through the COVID-19 pandemic as an essential service.
Whether you need custom cardboard, other paperboard products or packaging, or just off-the-shelf protective packaging supplies like slip sheets, dividers, layer pads, corner posts or even pallet wrap, Hammond Paper can help. We can also do custom laminating, cutting to size, die cutting, round cornering, grooving and more.
Contact us anytime at (905) 761-6867 or firstname.lastname@example.org to talk about the industry or get pricing on our paperboard products & converting services.