Carton Boxmakers Shifting Strategies
March 1998
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External and internal pressures are forcing changes in manufacturing habits, product mix and technology utilization.
By David Luttenberger
Controlling production costs, increased M&A activity, and meeting changing end-user demands are but three of the many issues folding carton converters must address in the coming year in order to ensure a future for themselves, and to maintain a healthy industry as a whole. Overall, 1997 was an on-again, off-again year for carton makers who, fortunately, ended on an up note that they hope will carry loud and clear through '98.
With folding carton demand and production so closely tied to consumer spending, particularly on non-durable goods, with the ebb and flow of the national economy, so goes the folding carton industry. As of November, the volume of folding carton shipments was down 1.6 percent vs. 1996, at $4.67 billion vs. $4.74 billion. According to the a National Paperbox Assoc. (NPA) survey, industry backlogs, however, were up slightly, 2.37 weeks vs. 2.26 weeks a year ago, but still down from an industry average of between six and eight weeks two years ago.
Regionally, only the South was showing positive growth at about 2.8 percent. Even with December actual numbers not yet recorded, forecasts are for an over industry decline in shipments of about 2 percent. Currently, the value of production for the North American folding carton market is about $6.8 billion.
A study released by the Cleveland-based market research firm, the Freedonia Group, projects shipments among this segment to rise 4.7 percent annually through Y2K to $9.6 billion—a figure most industry experts believe is highly unrealistic given end-user consolidation activity and competition in the form of alternative packaging structures continuing to erode this segment's share of market.
Sentiment among respondents to a business climate survey of NPA member boxmakers was that about half felt that business in '98 will be on par with '97. More than one-third—38 percent—indicated they see improvement on the horizon.
Production issues
As end-user needs change to reflect products marketed to shifting demographics and in such retail environments as club stores, so too must carton makers rethink their strategies in terms of production, market mix, and delivery methods.
First, carton converters must develop new raw-materials buying strategies in order to more efficiently cope with price fluctuations. Next, capital expenditures must justify a ROI that will serve existing markets, as well as new and emerging markets that will ensure a competitive position at least a full decade into the new millennium. Finally, manufacturers must established long-term, after-the-sale-service- and delivery-focused partnerships and contracts with end-users, who by and large, are seeking supplier/partners who can ship, if not produce, on-demand. This trend is forcing carton makers who cannot spin on a dime but must retain key accounts to increase inventory, a costly but increasingly necessary maneuver.
By David Luttenberger
Controlling production costs, increased M&A activity, and meeting changing end-user demands are but three of the many issues folding carton converters must address in the coming year in order to ensure a future for themselves, and to maintain a healthy industry as a whole. Overall, 1997 was an on-again, off-again year for carton makers who, fortunately, ended on an up note that they hope will carry loud and clear through '98.
With folding carton demand and production so closely tied to consumer spending, particularly on non-durable goods, with the ebb and flow of the national economy, so goes the folding carton industry. As of November, the volume of folding carton shipments was down 1.6 percent vs. 1996, at $4.67 billion vs. $4.74 billion. According to the a National Paperbox Assoc. (NPA) survey, industry backlogs, however, were up slightly, 2.37 weeks vs. 2.26 weeks a year ago, but still down from an industry average of between six and eight weeks two years ago.
Regionally, only the South was showing positive growth at about 2.8 percent. Even with December actual numbers not yet recorded, forecasts are for an over industry decline in shipments of about 2 percent. Currently, the value of production for the North American folding carton market is about $6.8 billion.
A study released by the Cleveland-based market research firm, the Freedonia Group, projects shipments among this segment to rise 4.7 percent annually through Y2K to $9.6 billion—a figure most industry experts believe is highly unrealistic given end-user consolidation activity and competition in the form of alternative packaging structures continuing to erode this segment's share of market.
Sentiment among respondents to a business climate survey of NPA member boxmakers was that about half felt that business in '98 will be on par with '97. More than one-third—38 percent—indicated they see improvement on the horizon.
Production issues
As end-user needs change to reflect products marketed to shifting demographics and in such retail environments as club stores, so too must carton makers rethink their strategies in terms of production, market mix, and delivery methods.
First, carton converters must develop new raw-materials buying strategies in order to more efficiently cope with price fluctuations. Next, capital expenditures must justify a ROI that will serve existing markets, as well as new and emerging markets that will ensure a competitive position at least a full decade into the new millennium. Finally, manufacturers must established long-term, after-the-sale-service- and delivery-focused partnerships and contracts with end-users, who by and large, are seeking supplier/partners who can ship, if not produce, on-demand. This trend is forcing carton makers who cannot spin on a dime but must retain key accounts to increase inventory, a costly but increasingly necessary maneuver.
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