Cautious Optimism

January 23, 2024

The state of converting today—and expectations for the year to come

The boxmaking members of AICC represent companies of all sizes, serving various markets across a wide geography. Yet despite those variations, the boxmakers interviewed for this article were largely unified in their experiences and perspectives regarding the state of the industry at the close of 2023. They were similarly united—in their hopes and their concerns—when looking ahead to the remainder of 2024.

Business Today

Across the board, boxmakers report the generally higher cost of doing business today compared with pre-COVID costs.

“All the costs that go into making a box are up,” says Finn MacDonald, president of Independent II, including wages, rent, and utilities; building expenses; and financing. In fact, he notes, “the heartburn in 2024 may be more about getting projects and equipment financed rather than built and delivered. I’m sure these [costs] are not going to decrease quickly moving forward.”

There are new, unanticipated costs as well. Recalling a surprising conversation with his company’s property and casualty insurer, MacDonald says, “We’d performed well, so we thought we might get a decrease in our rates.”

That didn’t happen. Instead, the company’s insurer told him that nationally, they had been hit with a significant number of climate-related claims during the past year. “Because the total bucket had a high claim rate, it affected us locally,” MacDonald says.

And this was not likely a one-time occurrence. “I asked whether we needed to start planning for a regular annual increase in this category if we’re going to have to start paying for what the climate is doing to us as a country regardless of our own experience,” he adds. The answer was yes.

On the more positive side, e-commerce, the force that drove so much business during the pandemic, while down from its “COVID highs,” seems poised to continue playing an important role in the industry. “Following the unprecedented surge of business created by the pandemic, I think e-commerce is going to continue to grow,” says Matt Davis, president of Packaging Express and AICC chairman. “Along with that, I’m seeing customers demanding more and more customization. That’s an opportunity for the packaging industry.”

Along similarly positive lines, MacDonald believes the supply chain challenges experienced during the pandemic seem, for the most part, to have worked themselves out. “We would say everything’s back to normal,” he reports. “We are getting the raw materials we need and getting our finished goods out. Because of the lessons they learned during COVID, our customers are getting better at looking ahead on a quarterly basis to give us planning numbers that they’re more confident in,” which is resulting in a better balance between inventory and demand.

Yet despite the positives that come as the industry moves beyond the chaos of the COVID years, one very big issue remains.

Laboring to Succeed

Finding and retaining a capable workforce tops the list of boxmakers’ most pressing concerns. To some, the current labor situation is not a temporary bump in the road, rather it’s an unfortunate lingering symptom of the industry’s “new normal.”

“Since COVID, I think people aren’t as committed to their jobs as they used to be,” Oklahoma Interpak owner Eric Elgin sums up. Because of that, he says, “we’ve had a lot of trouble finding good, trained workers. At the moment, we’ve got a solid crew. But we have had to go through a lot of different people to get good ones that really set fire with us.”

The situation has put boxmakers in an increasingly tough position. “Labor is the foundation of doing business,” MacDonald says. “The availability of any labor—and the loss of skilled labor—has affected our industry’s ability to grow our workforce and improve it over time. Labor stability is critical to how independents thrive or survive moving forward. We can buy equipment, earn business, and improve our facilities, but we cannot make and ship boxes without a stable workforce. We all need new employees who can become productive, get engaged, and ultimately be loyal to our businesses.”

“In my opinion, the labor shortage is only going to continue in 2024,” adds Davis.

To address that shortage, Elgin is taking a multipronged approach to finding the best people he can, even drawing on old-school strategies he hadn’t used for decades. “I even put signs up along the road telling people to come on down and apply, which is something we hadn’t done since 2001,” he says.

“We’re also working with a couple of local shelters to find good workers,” Elgin continues. “One, in particular, has a preemployment program that helps people develop the skills they need to get and keep a job because some of the people in these shelters haven’t worked for years. But it’s hard for them to adjust and be responsible and dependable. And they have to stick with the program for at least six months to graduate. A lot of them don’t make it, so we haven’t received that many employees through this program. But we are continuing to try.”

In addition to embracing every available recruitment opportunity, MacDonald suggests that boxmakers may also need to address how the work itself gets done. “We all need to think differently about our workforce and how we stabilize and improve it,” he says. “Our industry needs to be able to invest to improve efficiency and create capacity, both of which can offset labor challenges. The companies that are able to do this will find themselves with a competitive advantage moving forward.”

Davis goes even further: “We need to do everything possible to make the job as easy as possible. That means automating where we can automate—so we can continue to deliver the service our customers expect—and working to eliminate as many frustrations of the job as we can to help retain the good workers we have.”

Revising Retention

As if finding a strong workforce wasn’t challenging enough, boxmakers also are discovering that previous approaches to retention and workforce development may no longer produce the desired results.

“How we gain, train, retain, and reward is an opportunity to set us apart from the competition,” Davis says. “The more our team knows about our business and why and how we’re successful, and how they affect its success, the better off we are as a company. So, we have been investing more in coaching and training to show people we value them and we want them with us for the long haul.”

“The workforce has changed,” MacDonald states. “What motivated employees in the past isn’t going to work going forward. Today’s employees aren’t interested in working overtime, working on Saturdays, or taking a split shift. And your experienced, senior workforce—the ones who came up with the mindset that they will do whatever is required to meet the customers’ needs—is diminishing.

“This can impact how we take care of our customers,” he adds. “Most of us are not in the business of telling our customers what their schedule is. Most of us are in the business of giving customers what they want, when they want it. But the new labor situation means we can’t always do that—unless we create stability.”

Stability throughout the industry—both the lack of and the subsequent hope for it—is on everyone’s mind as they consider the remainder of 2024.

Looking Ahead

“In life, I’m an optimist,” MacDonald says. “In business, I’m a cautious optimist. Looking ahead to 2024, though, I’m putting more weight on caution than optimism.

“That’s not the way I want to see 2024,” he admits. “However, the signs are all around us, and they’re hard to miss. We’re seeing massive disruptions globally in economics and international trade. There’s a lot of political instability, a lot of wars. Within our own country, we’re seeing division and vindictiveness. Eventually this all has an impact on how consumers feel about spending, how lenders feel about lending. So, I’m cautious.”

“The things I can’t control are the things I worry about the most,” says Elgin, who chairs AICC’s Government Affairs Subcommittee. “That includes our government. There’s scary stuff going on in the Middle East right now, and I hope we don’t find ourselves in a war. And with this being an election year, there’s going to be plenty of fodder for politicians to argue about.

“It’s hard to know what’s really going on during an election year,” he says. “So much of it just feels like people putting on a show.”

Elgin’s biggest concern is the possibility of a recession in 2024. However, he adds, “the gross domestic product report just came out, and it was a little stronger than everybody expected. I think maybe that’s a good sign that we’re not going to have a recession.”

“I don’t have any great insight into the industry impact of 2024 being an election year,” Davis says. “I don’t have any influence on the taxes coming down or anything that politicians like to argue about. I will say, though, that I’m an optimist by nature, and I always try to approach any challenge from a ‘create your own luck’ mindset. All I know is that we’re going to keep hustling and creating opportunities for ourselves. After all, that’s really the only thing we can control.”

MacDonald agrees, clarifying that any optimism he has for 2024 “comes from the belief that a lot of independents are able to thrive in chaos. By definition, that’s what we do at the customer level; a lot of our businesses are built on managing our customers’ chaos. We have the ability to not be intimidated by chaos and to be creative and agile and resourceful in how we approach it.”

“I believe that great businesses are made in tough times,” Davis points out. “It’s in our interest to make our companies the best they can be, no matter what the present environment is. Anytime you create value, there’s an opportunity. And opportunities are what I’d most like us all to see in 2024.”