2023 Midyear Converters Roundtable

AICC member experts weigh in on the economy and industry in Miami

At one of this year’s strongest sessions at the AICC Spring Meeting in Miami, attendees heard from a panel of stalwart leaders on the current economic and industry outlook. Moderated by Mike Schaefer, CEO of Tavens Packaging & Display Solutions, the panel discussed navigating inflation, spearheading employee initiatives, managing capital, and more. That session was transcribed exclusively for BoxScore and is as follows: Mike Schaefer: During the beginning of the (COVID-19) pandemic, we met and talked a lot about what do we need to do? What [do] we need to think about? What kind of changes do we have to make to survive both the lull before the pandemic spike and then the pandemic spike? We wanted to get together and talk a little bit about what things are looking like now and what sort of things we held onto through that. Right off the bat, Howard, how do you see things looking in the coming year? What kind of market are you expecting? Are you expecting a growth market in the box business specifically? Howard Bertram: Thanks for having me; thanks for inviting me up. It’s good to see some friends here. A lot of what I heard earlier in all the statistics and all were kind of “gloom and doom.” Demand is down, and capacity’s up. Inflation’s here; recession’s inevitable. Business kind of sucks right now to be honest with you. I don’t know about you guys, but it’s flat to say the least. We’re doing the best we can to, as my friend Mitch says, “rightsize” the business and stay positive. I’m optimistic, but last quarter last year started to flatten off, and it’s been about the same for this first quarter. So, I don’t know about you guys. Schaefer: How are you guys seeing that? Brett Kirkpatrick: For The BoxMaker, we’ve got two plants: one facility in Seattle and the other in Arkansas. So, two interesting areas to compare and contrast to each other. We’re about 10% off year to date currently, and we’re anticipating probably staying in that 6%–10% down through the rest of the year. As we look at next year, probably flat status is what we’re planning for. Schaefer: You guys—anything different? Joseph M. Palmeri: Good afternoon, everybody. We are running the Great Lakes from Cleveland up through western Pennsylvania, Ohio, [and] Rochester, Syracuse, up through Utica, (all in New York). So, we have four sheet plants, a foam fabricating facility, [and a] contract packaging and packaging supply facility. Sheet feeder Niagara Sheets—we’re a majority owner-operating partner along with Buckeye Corrugated Inc., Cascades, and WestRock. And we’ve got part of the Greenpac Mill. When Anna (Wong) presented, in my notes, I’m not necessarily optimistic for this year. I still think there’s going to be a softness. I’m not quite convinced we’ve bottomed out yet, so we’re approaching it that way at least through 2023 and into 2024. My two cents is we’re in a recession—at least our industry is in a recession—and many of our customers are currently in a recession. And I think historically you see, if you go back to like 2008, 2009—I know specifically for us it was November 2008—it was like a light switch shut off. I think the recession was recognized in March or April of 2009. So, that’s my take. Ben Urquhart: We’re an independent in central Massachusetts. We experienced a tremendous boom during the pandemic, and that very much has stopped. January [and] February were quite slow, and we’ve experienced a resurgent sense, hopeful that’ll continue, but many of our customers have told us that the best-case scenario for the future is flat. Schaefer: OK. I know the things we’re worried about today are different than they were certainly a year and a half ago. So, what keeps you up at night right now? What’s keeping you from sleeping? What’s the big concern? Anybody that wants to jump in. Palmeri: For me, three things. You’ve got obviously the cost that we’re all dealing with of 2022 coming into 2023, but you’re looking at really business levels, or sales levels, that are back to pre-pandemic. So, 2018–2019, but we’ve got the costs up today. So, it’s really managing those costs. We’ve all worked hard on the labor side to build things up, but at some point, things are going to have to get more in balance. I think about that. I think about the lack of really skilled labor, really more technically sound labor, to be able to deal with some of the more complex machinery we have now—entry-level supervision, certainly maintenance personnel. And then really the additional capacity coming into the market or currently into the market, whether on the mill side or on the converting side. Schaefer: So, you’re really not sleeping at all. (Laughter.) Palmeri: I can’t sleep. (Laughter.) Urquhart: I worry. The increase in our energy costs was shocking over the past six months, and I also worry a great deal about negative price pressure when most of our costs are increasing. Kirkpatrick: I would add onto that continued cost of compliance—regulatory, federal, state—taxes and things just keep escalating as well. Those are never going away. Bertram: The concern I have is probably among my peers more so than—well, all those are legitimate concerns, for sure. All of us, I think we’re all talking from the same language here for sure. But we are all independent-minded people, and that’s why we’re in this business, and it’s a great industry still, and I remain optimistic. But we have to be … careful … . One of my good friends out here, we talked a few weeks ago, and he said as independents, we’ve got to be OK with making less money in a period of time when the economy’s down, when things are down a little bit. It’s not a loss if you’re looking at wins and losses like I do—it’s still a win to make money. Maybe you made less than you did before. Certainly, the last two years, the pandemic years, have been kind of out of control for sure, and certainly an anomaly. The people that just came along lately think that’s reality, and it’s not. Schaefer: How about supply chain? Has the supply chain, for all of you guys, come back to normal pre-pandemic levels? What’s the residual difficulties or triumphs that you’re facing in your supply chain compared to pre-pandemic? Bertram: For me, it’s come right back. I didn’t mention, we’re in Concord, North Carolina, near Charlotte, so we’re surrounded by great sheet feeders. We have some great independent thinking, sheet capacity. Their demand is down, too, so turnaround time has come right back. We’re struggling a little bit with quality there. I think they are struggling with labor like many of us were, but in the sheet-feeding industry, if any of you’ve ever worked on a corrugator—that was my glory days back a long time ago—today it’s tough to find somebody that really wants to do that. And I think as a result, some of my good friends in that business are suffering trying to find quality labor to run through the shift work and the summer-type work and all that. It’s a tough, tough task. The result is, at least, we’re experiencing a little bit of quality issues there. But we’re battling through it. There’s no lack of effort there, and there’s no lack of effort on our side. Schaefer: Knowing that you’ve got plants in two different places a long, long ways apart—actually both of you guys do in your situations—are you seeing a difference in supply chain in one part of the country versus another? Is it all flattened out for you? Are the issues all gone? Palmeri: Not necessarily. I think for us it’s pretty much stabilized. Like we’ve talked or I’ve mentioned, historically the costs are really high. So, what we’ve tried to do is really leverage the supplier base, in particular who we’re buying from, where you may have to buy outside your market to get something, where you would historically just do it within the confines of that plant or facility. It’s also leveraging the buying power that you have, really utilizing that where you’re maybe a bigger piece of the pie to somebody where you’re less likely to get shut off or rationed, those kind of things. But it’s pretty much back to normal. Urquhart: I would agree with that, very much so. Kirkpatrick: Yeah, sheet supply is fast, lead times are short, and freight seems to really have mellowed out from a cost perspective. And availability of trucks and truckers has improved over time, too. Schaefer: There was a time as a small sheet plant that we couldn’t get anybody to return our phone calls, and we needed sheets. So, they’re all coming to me now. It’s different. When COVID-19 started, a lot of us talked a lot about the special initiatives you had to put in place to retain employees, to train employees. For instance, we put a productivity bonus in place at our plant because we needed to increase productivity without adding more people because there were no people to be found. A lot of special programs were put in place as a mother of necessity when the pandemic was going on. You guys have done some of those same things. Did those stick around? Are they fading away with business ebbing away? What are you seeing? Bertram: For us, we practice culture at our facility. The way we started and the way we’ve evolved have always been a cultural lifestyle, I guess you say. So, we preach and talk a lot about our lifestyle, our culture there. Several of you have been through visiting and touring our facility in Concord, and oftentimes people leave talking about the culture. We didn’t develop that through COVID-19. We’ve enhanced it. We recognize it more and more, and people recognize it as well and tell us that we have a great culture. So, we have emphasized that. But we have added to it as well. One thing we did do I learned from another friend in the business: As far as second shift, reducing that to four days and more hours, and that helped us bolster the second shift, find higher-quality people who wanted to work there, supervision that wanted to work on second shift, and so forth. Obviously, everybody, I’m sure, in this room has increased wages. Looking back, I don’t know that that’s really changed the quality of anyone’s employee base. But, you know, the whole thing has been elevated, just as the world economy and Amazon and all those folks out there, elevating pay, and all of us bottom feeders, you know, we’re having to come along with it. Now they’re dumping people on the street, and we’re not going anywhere. So, we’re staying right where we are. We’re marching on. Kirkpatrick: We hired an internal recruiter to help shore up staffing and get people where we needed them. Of course, wage increases, benefit increases, small things like people in leadership roles; we have unlimited PTO (paid time off), as an example. So, things like that where you can try to engage a person and have them retained or just keep them on board, especially the key folks. Schaefer: If I had unlimited PTO, I wouldn’t be here. (Laughter.) How about you guys? Urquhart: On the management side, I think we’ve benefited from enlisting a very powerful cohort of young people right before the pandemic hit, and that’s served us very well over the past couple of years. Very little turnover. On the factory side of things, it is still a significant problem. The three years I spent as production manager, I never once used a temp agency, and I’m pretty sure we churned through 200–400 in the past two years. Palmeri: For us, Mike, it’s recognizing that you’re not necessarily competing just with your fellow boxmakers for labor—you’re competing with everybody. Every single employer now you’re competing against. We’re utilizing all avenues—direct hire, temp services, referrals, social media—so you’re bringing your competitive to the market. Schaefer: You look like a Facebook guy. (Laughter.) Palmeri: That’s me. No, you’re competitive in the market. We’ve all had to adjust wages, but it’s not just the incoming wages. It’s looking at your existing employees and not forgetting about the existing employees, the ones that have been there. Schaefer: Speak to that. Have we all done more things to retain employees? What kind of things have those been? I mean, unlimited PTO is a perfect example. What have you guys done to hold on to that guy that you just couldn’t stand to live without? Palmeri: We’re looking at different recognition programs, different fun things throughout, whether it’s on the office side, the manufacturing side. We all spend a significant chunk of time in our lives within the walls of those facilities, so you may as well have some fun while you’re there. Bertram: For us, again go back to the culture side, but we try to make it a pleasant place to work, to call home if you will. To drive up in the parking lot and see people’s cars that you don’t mind being around all day. We emphasize that big. Over time, over years, that seemed to have paid off. It wasn’t intentional. It’s not a phony practice—it’s real. People’s feelings are real. We have, believe it or not, counseling. And we’re actually considering or looking at having pastoral leadership there. We’re a very faith-driven company, my company is, and many of us who are there. So, it’s nice to know someone’s going to be around. Maybe you might be an employee who’s having some personal issues or needs some help making some decisions, and you know somebody’s coming through twice a week and can have some private time with that person. Some things like that. Again, it’s not a phony practice. It’s just trying to treat people like you want to be treated, try to live in your life together with them. We commune together. Like you said, you spend a lot of hours together, and yeah, we’re at the top of this heap, I guess you’d say, but we joke about it at our place. A lot of you heard me say it, but it’s kind of a company of misfits there. It works for us. It’s been a good 21-year run. Schaefer: Sure, sure. How about you? Have you done anything different? Urquhart: There’s been an increase in compensation for people. The state of Massachusetts has a variety of paid time off policies that we’re all learning to manage. On the factory side of things, much of it is negotiated. Some of my co-workers who are here went through a very interesting negotiation during the pandemic that took some time. The results of that were very different than they’d have been in years past. Schaefer: We went so far as to have more luncheons, more carnivals. And it might surprise you to know that they really enjoyed having me in a dunk tank. Kept morale up for some reason. Along that same vein, we’re finding and hiring people who are less skilled. What are you guys doing to bring them up to speed? We’ve got new, complicated equipment that we’re looking for unskilled folks to run. How are we handling that today? How about you, Joe? Palmeri: Well, we’re training, like you guys and like everybody out there, I’m sure. With new equipment comes new technology comes hopefully some training through the manufacturers and the reps. But, again, on our side, it goes back to the people. We use our local community system, community college, a lot. We happen to be lucky and have a really strong one in the area, and I’m a big fan. We’ve used them for years. They helped me in my early startup days, helped me fund simple things like forklift training and then, as I grew, software training and so on. And they would not only fund it, but they would bring trainers in. That was a big deal then. Fast-forward to now, we use it constantly, probably more than quarterly. Maybe six, eight times a year. We recently had active shooter training. It’s hard to believe that we talk about those things, but hey, it happens all the time. Everybody was really receptive to that. It was actually quite interesting. That was a half-day program that somebody came in and trained us on. We’ve had leadership training that’s four, five, six weeks long for certain people. We’re trying to give back to our people, spend money there. And then we offer even some upper-level training for those who want to do online school and earn some sort of a degree. I think there’s no substitute for training and education for those who want to do it. Schaefer: Sure. And, Brett, you put together a whole plant? How’d you handle all that? Kirkpatrick: I found the skill level to be about the same. For us, that wasn’t a difference or a change. So, we invested in the onboarding process and the education piece to get people to continue to be engaged and educated. And the Corrugated 101 classes offered through AICC have been one avenue of great benefit to get those new people through. Going through those modules online is really cool. Schaefer: How about you guys? Palmeri: We’ve got basically employees at all locations on all shifts identified as the trainers. So, it’s more of just the general industry knowledge, particularly the safety side, so there’s a consistent message when people come in. They may know the general understanding of operating a machine, but not the exact operation, so they’ve been working on standard operating procedures and just the core training. Certainly relying on AICC and what it has to offer, but trying to keep the message consistent and ongoing. Urquhart: This phenomenon hasn’t changed for us much over the years, but I will say that we’re doing a much better job than we traditionally have in documenting and being consistent with the training that is executed. Much of what happens at our place happens in an apprenticeship-like program, where there’s a veteran who’s taking on board someone who needs to learn. But the problem, of course, remains we have to find that person who’s going to be there every day and continue to show up first of all. Then you get to train them. Schaefer: You have to train them to show up as the first step. As an official old guy with strong opinions that sort of disagree with what’s going on out in the world around some things, anybody still have remote workers? Urquhart: When someone tests positive for COVID-19, they have five to 10 days where they work remote to the best of their abilities. We do have a couple of people with persistent health concerns who remain out of the office but not those who need to run presses. Schaefer: There are strong opinions out there about it. Are you seeing the reported productivity increases or the reported productivity slacking? (Laughter.) Urquhart: No, seems like the work is getting done. Schaefer: OK. How about you guys?  Palmeri: Obviously it’s mostly geared to the office, but it’s also part of retention. It’s about a little bit of recognition. It’s hard to have a flexo operator work remotely. There’s certain jobs that you have to be in the facility. But we still do it. Schaefer: It’s hard to operate a press remotely. Kirkpatrick: We went through and addressed every job description and made a designation if it’s an in-plant, in-office job, out of office completely, or hybrid. And once we established that, we then looked back and we said, “OK, we got about 70% of the people in IT (information technology) and development that are remote. Got about 50% of customer service and technical that are remote. And the rest of the office staff is two to three days a week remote.” So, we’re pretty heavy. I think that’s what we’re going to see in what you want to call “future work.” And … it’s going to be a blended scenario of at-home work and in-office work. If you look at the activities that people do, there’s a big grouping of activity that people do well by themselves, in their home, in remote work, and there’s another group of things that we’re required to be in-office for, really. I think that’s what we’re going to see: a discernment of those activities and breaking that up for people who can have remote. Schaefer: So, lastly, capital: Are things changing for you guys with the economic news that we just heard and what we’re experiencing? With that, if you are spending money, are you seeing lead times coming back into line versus pandemic-style? Bertram: We’re spending less money, I will say. We’ve spent a bunch of money in recent years, but we have made some purchases and some commitments mostly on the technology side, upgrading software, some robotic features for unitizing and things like that. … We purchased some more cutting capabilities and whatnot. But we’re not committing to what we were a few years ago. Like I said earlier, we’re trying to wrap our arms around what we have, rightsize what we have, circle the wagons a little bit. But, again, trying to stay optimistic and aggressive to a degree, and hopefully just run this thing out. Kirkpatrick: We’ve got plans this year for software enhancements, software upgrades, continuing automation with software through workflow, honing that, refining it. Additionally, we need a die cutter, upgrading some equipment that’s existing—stackers and things like that—that are required. Just overall moving forward. Not at the pace of pre-pandemic, but moving forward. Palmeri: I would agree. We’ve slowed down some as well. We’ve added some equipment over the past couple of years, but right now you’re waiting for more of the support pieces that are coming in from being ordered last year. Schaefer: And that lead time hasn’t improved? If you’re still waiting … Palmeri: Lead times are improving now. They’re showing up; things are coming in. Urquhart: I’m not sure I would know much about lead time right now. We need to take a deep breath and digest what it is that we did during the pandemic. We made some great, prudent investments that have turned out wonderfully, and it’s time to see what we can do with them. Schaefer: All right, guys. I appreciate you spending some time, sharing a little bit of your personal insights.