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Thriving in 2023

By AICC Staff

January 30, 2023

Predicting the state of the industry over the next year involves equal measures of company experience, customer feedback, industry insight, and educated guesswork—along with a bit of gut instinct. Even then, each new year promises to bring its own unexpected challenges and fresh opportunities.

Perhaps the biggest surprise among the industry veterans we spoke to is none of them are expecting the full-blown recession that has been predicted. And while some of the challenges of the past several years are likely to persist in the short term, there is a general sense the industry is on track toward stability—if not a pre-pandemic “normal.”

In short, the industry veterans we spoke to are generally—if cautiously—optimistic about 2023, despite some anticipated economic and market-driven hurdles.

A Mixed Bag

“Over the next 12 to 18 months, I think the box industry will continue to see strong growth with online sales, which has really propped up many businesses,” says consultant Mark Allen Roberts, CEO of OTB Solutions. But there is a downside. “I think growth will be offset by a decrease in overall demand. I expect that to hit in the second quarter of 2023, impacting boxmakers’ core business: the local companies they serve, displays, and so on.”

Matt Bivens, general manager at Harris Packaging Corp., also expects volume to tick down over the next 12 to 18 months. In addition, he says, “I expect some pressure on the margin side of things. And I expect that companies that have invested in high-speed equipment will come out better than companies that have not. High-speed equipment allows us to run boxes that are extremely good at competitive prices so that we as an independent can compete with some of the higher-volume integrated companies.” That capability will only grow in importance, he says.

On the positive side, Bivens notes, the supply chain challenges the company has experienced are improving. “In a lot of cases, paper mills have caught up so there’s enough paper to go around, which is a big help,” he says. “Going forward, we’re not expecting the pallet problems, glue problems, strapping problems that we had over the last year to continue.”

Like his colleagues, Vanguard Companies CEO Chris Stoler says the next 12 to 18 months are going to be mixed. “Employment is still showing favorable signs, but consumer spending habits are changing,” he says, a situation he attributes to the stimulus reduction, consumer uncertainty, and the effects of inflation. “Large industrial and consumer producers are also changing their buying habits, reducing inventories, and taking a more cautious stance. As a result, we’re seeing packaging volumes come down from their peaks.”

Based on his industry assessment, Stoler is not convinced a classic recession is on the way. “We are not anticipating a big, sustained dip in demand in the next year,” he says. “However, we are anticipating retraction in demand and are planning accordingly.”

Given Vanguard’s role serving retail channel owners and consumer product companies in its display business, the company may be better positioned than some for weathering an economic downturn. “In more challenging economic times, [our customers] tend to more actively engage in promoting their products and in courting consumers,” Stoler says. “They often utilize a variety of different methods to achieve their goals. That includes using off-shelf and point-of-purchase displays, which is where we work to help them be successful. That’s where our focus will be over the next year: giving our clients support and expertise to help them succeed.”

Congress and Other Unknowns

The midterm elections occurred as I was interviewing people for this article, but no one interviewed believed the results would carry any meaningful weight.

“We tend to be agnostic about the political environment,” Stoler admits. “We do not see any changes in the makeup of Congress having much of an impact on packaging manufacturing over the next year or two. I believe we are likely to end up with deadlock, and nothing’s going to get done.”

Bivens agrees. “I don’t think a new Congress will have a noticeable impact on manufacturing,” he says. “I think they’re going to be too busy arguing with each other to get anything done—which means our business will do very well!”

There is one area of government, however, that is expected to affect the industry: the Federal Reserve and its response to inflation.

“We do think the Fed is going to start to slow the economy through its interest rate adjustments,” Stoler says. “We are seeing caution in the credit markets, with banks taking a wait-and-see approach in Q4 2022 and even Q1 2023.

“We hope the Fed slows to half- or quarter-percent adjustments,” Stoler continues, “but interest rates are still going to climb until they see clear signs of inflation reversing.” It may take some time before those signs appear. “The results don’t flow through to the economy for half a year, at least. It’s like steering a large tanker; it takes a long time to get to the new trajectory.” Nonetheless, he says, “we are hopeful that the Fed can see impacts and slow or stop actions before the impact is so severe it causes unintended outcomes.”

Stoler says he expects pandemic-related supply chain to continue, at least in the near term. “While a lot of slack has been taken up, there’s correction that will continue through this year,” he says. “I think we’ll be better than we were in 2020–2022, but it’s going to take time before everything normalizes.”

He also is concerned about rising fuel prices. “With the ongoing conflict in Ukraine and the Russian oil supply not being brought into the greater global supply, diesel availability is going to become a challenge,” he says. “The cost and availability of diesel are things I

hope the federal government keeps its eyes on and acts to protect our country’s best interest.”

Diesel prices are on Bivens’ radar, as well. “I think they’re going to continue to slowly go up as China comes back online,” he says. “They’ll start consuming more and more diesel fuel, which will increase demand. And I don’t see anything happening in the United States to onboard more capacity. So, there is going to be a limited diesel supply, which means the price is going to be high for the foreseeable future.”

Roberts says he believes these costs may have widespread impact across the industry. “I believe you’ll probably see your raw materials continue to increase, as increases in transportation costs and energy costs—as well as the cost of sales—will climb, so your net profits will be hurt if you do not deliver price increases that stick. You will see a softening of demand from your core business, your non-online business. In my book, all of that leads to concerns if we don’t start taking action now.”

Taking Action

Whether 2023 represents an economic downturn or some degree of recession, there are steps boxmakers can be taking now to strengthen their business and prepare for whatever may come.

A 2019 Harvard Business Review study found that during the past recession, while roughly 75% of businesses experienced revenue decreases, 14% actually grew. When Roberts encountered that fact, he couldn’t help wondering why. He discovered that all of the profitable companies had one thing in common: a cross-functional team focused on identifying and responding to market changes. “When they saw new patterns develop and changes occur, they had a team in place that was designed to respond to a range of trigger events,” he says. “A trigger event might be a decrease in the number of new projects coming in or reduced order sizes. Maybe it’s an increase in the accounts receivable people unable to pay their bills.”

Roberts found that these cross-functional teams function independently but within established parameters. And they are nimble, able to respond quickly once a trigger event is identified—making structure changes, investing in new marketing messaging, surveying customers to clearly understand what they were facing and how to react, and so on. They could act within hours and days instead of weeks or months.

“Consider the trigger events for your own company that would make you say, ‘Wow, based on this, I need to create a team and develop a new plan,’” Roberts advises. “Then put that team in place now, so they’re already in place and working when those events occur. Get them looking now for behaviors that are out of the ordinary.”

Speaking of teams, Roberts recommends doing a thorough, companywide assessment now. “Determine who may be in a position they don’t want to be in, and make changes. Find out where the strengths and weaknesses are, and address them,” he says. “Maybe some of your sales folks don’t understand how to prospect, do discovery, and ask qualifying questions. Maybe they’re so focused on making a sale they haven’t taken the time to understand how your customers make money and how your company can be an effective strategic partner. Now is the time to figure out who these folks are and then train them or redeploy them. We must have engaged, focused, and trained team members for the storms ahead.”

Roberts also says he believes it is worthwhile to interview your customers to find out if they’re already seeing signs of an economic slowdown. “It’s kind of like a crystal ball of what’s about to come,” he says.

Such outreach also helps to strengthen existing customer relationships, which is vital regardless of the economic climate. “Whether we see a downturn or a full-blown recession in 2023, I think it’s going to be critical that we all do whatever we can to stay close to our customers,” Bivens notes. “These days, it’s so easy to get on a Zoom call or do a Teams meeting—and there’s nothing like face-to-face interaction with a customer. Stay close to your customers, and it will benefit you in the long run.”

A Favorable Forecast

Despite the potential challenges, Bivens is generally optimistic about what the new year will bring.

“We still have a good pipeline of business here in the North Texas area, and the market is growing,” he says. “It’s not growing like it was at the height of the pandemic, but it’s still a very good market. Once things get under control—which has already begun with the Federal Reserve raising interest rates and the government slowing down its spending programs—we’ll get back to a more comfortable level that’s more manageable for everybody.

“Overall,” Bivens says, “I expect things to be a little bit slower in 2023 than they have been but still far more favorable than they were 10 years ago.”


Portrait

Robert Bittner is a Michigan-based freelance journalist and a frequent BoxScore contributor.