December 1, 2020
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COVID-19 remains at the center of our social, political, and economic lives, as it has since February. Yet, corrugated shipments have been significantly stronger than predicted by the traditional relationship between the growth of manufacturing output and domestic box demand. In this article, we will examine the traditional relationships between production of fast-moving consumer goods and the corrugated packaging they consume, and offer some reasons for the current unusual strength of box shipments.
Over the past five years, the relationship between the annual growth rate of U.S. production of consumer nondurable goods and corrugated shipments has tracked fairly closely, as the chart at top right shows. In four of the five years between 2015 and 2019, box shipments have grown faster than production of consumer nondurable goods by 1 to 3 percentage points in any given year. However, the spread has widened significantly to a 6.5 percentage-point gap during the first half of this year.
While no one knows for sure what has caused this favorable divergence, there are a few potential reasons why shipments would have grown as nondurable goods manufacturing plunged at a record rate during the first half of this year in response to the quarantine and social distancing practices that were implemented to contain the spread of COVID-19.
The first contributor to box shipments remaining stronger than nondurable goods is that food production accounts for more than 40% of box shipments, according to Fibre Box Association data. Food is perhaps the most essential product that consumers need during a recession. As shown in the chart at bottom right, domestic production of food fell by only 2.6% during the first half of this year, 2.5 percentage points less than the concurrent drop in nondurable goods production.
Since May, domestic food production has grown each month, so that by the end of August, it had essentially reached its pre-pandemic level of output. The chart on page six shows two additional anomalies. In January, February, and the portion of March before quarantine procedures were put in place, there was panic buying and consequential overstocking of pantry shelves in anticipation of difficulty in resupplying commodity foods such as flour and sugar, as well as paper products and other essential household cleaning and sanitizing supplies. Manufacturers holding lean inventories were unable to keep up with spiking demand, causing grocery store buyers to search frantically for alternative suppliers. Then in April and May, food production dropped sharply, as pandemic precautions caused either full or partial curtailment of many food production facilities, further causing grocery store buyers to scramble to find alternative producers who could meet their needs.
Higher levels of box shipments were shipped initially to meet the increased unpackaged product demand. Also, as buyers found suppliers who could help fill the demand, the normal levels of packaging efficiency were not always achieved, again resulting in a higher-than-normal amount of boxes being shipped to alternative producers.
Another unanticipated factor was the extent of the supply disruption as consumers were unable to get as much of their nutrition from eateries of all types and had to find it in grocery stores. Generally, food shipments are shipped to grocery stores in smaller quantities and are more corrugated-intensive than shipments of food ingredients to restaurants. This also worked to propel box shipments to higher levels than normal.
During the pandemic, shoppers increased online purchases of food and other goods at an unprecedented rate. Online sales soared dramatically, up by 30% in the first half of this year. E-commerce sales accounted for 16% of all retail sales in the second quarter, up from less than 12% in the first quarter of 2020, as the chart above shows.
Packaging of online sales is more corrugated-intensive than products delivered through the traditional supply chain, even though online retailers have made great strides to improve the efficiency of their packaging materials. Just the sheer magnitude of the growth with its long list of new suppliers has affected packaging intensity in a way that has bolstered box shipments this year.
To a large degree, these factors are transient, even though the acceleration of online shopping into areas such as grocery and clothing sales will elevate the growth of online sales going forward. As time moves on, supply chain disruptions will be ironed out, restaurants will reopen more completely, and the traditional relationships between the goods produced by the nation’s manufacturers and the efficient use of corrugated packaging are likely to be restored.
Dick Storat is president of Richard Storat & Associates. He can be reached at 610-282-6033 or storatre@aol.com.”
