Folding Cartons: A Strong Message

The folding carton segment must play off its strengths in key markets and sustainability to compete for its share of the packaging market.

Foreseeable future

Markens is starting to see what he calls "green shoots," with the business environment starting to loosen up. "There seems to be a glimmer of hope; people are becoming somewhat more optimistic," he said. "I am cautiously optimistic for the last half of 2009."

Petrelli is also seeing indications of a turnaround. "Although I'm certainly not an economist, I have seen some encouraging signs of recovery with recent increases in our own company's backlogs and new project activity from major customers and key target prospects. I think the balance of 2009 will be much stronger than the first half and that opportunities for 2010 appear to be bullish at this time. As we are currently developing our 2010 operating budget, we are forecasting a top line growth for the first time in two years."

According to much of the economic news indicating the end of the recession, the "running of the bulls" will look more like a slow walk up Pikes Peak. All indications are that it will be a long and bumpy road. This is, in part, reflected in Markens' prediction on specific key markets. "Hardware will be most unfavorably impacted over the coming years, and our economist predicts only two growth markets—pharmaceuticals and dry goods," he said.

Some overcapacity still exists in the industry that could lead to more plant closings and more consolidation, according to Markens. In 2008, the industry saw some noteworthy acquisitions—Graphic Packaging of Altivity, RockTenn of Southern Container Corp., and International Paper acquiring some units of Weyerhaeser. "I don't think there are many mega deals out there. However, there could be more targeted, strategic consolidations," he said.

Opportunities

Like all industries today, the folding carton industry faces stiff competition on many fronts, not least of which are the innovative new packaging options emanating from the flexible packaging sector. Folding cartons, however, have strong positions in some key market segments—such as food and beverage and pharmaceuticals—and stack up well on the sustainability front.

"Sustainability will be a key differentiator for paperboard packaging. It's here to stay," said Markens. "Paperboard has a good story to tell, especially compared to some competing alternatives such as flexible packaging."

Two of paperboard's primary selling points are its renewability and its proven track record in the recycling arena. "Paperboard is renewable—unlike oil-based films—and recyclable," he said. "We will run out of fossil fuels at some point in time, plus recycle rates [for plastics] are very low—in the single digits. Paperboard recycle rates are approaching 60 percent."

Petrelli shares this view. "From all of the indicators I have seen and studied, I see the paperboard converting and folding carton markets growing in the short term. Regardless of the propaganda and marketing savvy of plastics and other alternative materials to paperboard, the reality of the environmental advantages of paperboard will never be replaced."

Strategies for success

At times such as these, it is important for companies to remain focused on what they do best. "Stick to your niche, your core business," advises Markens. However, this doesn't mean sticking your head in the sand. "For opportunistic people, there are opportunities to be had," he says.

At CardPak, Petrelli has pursued opportunities through product innovation and enhancement. "We have taken a product development approach to finding folding carton and paperboard converting opportunities that are more material replacement strategies than top-line strategies that require market growth," he said. "Our growth has been in plastic packaging replacements and not internal cannibalization of the existing paperboard market. I like the idea of creating opportunities through innovation rather than pursuing pricing decreases to try and get more of less."

For the overall industry, Petrelli believes a focus on sustainability and efficiency will be a good one-two punch. "I see the need for companies in our industry to continue to find new and alternative sources of energy and to develop more Lean Manufacturing processes and systems that improve manufacturing efficiencies and lower production waste. I am hoping that by now all companies are becoming passionate about identifying their own carbon footprints and doing everything possible to lower their own environmental impacts."

Sustainablity and Lean—two good paths on the road to success. pP