Time for a Change in Pricing?

Until recently, box buyers and sellers had limited options when choosing a pricing mechanism to underpin their supply agreements. The U.S. corrugated packaging industry’s decades-old benchmark—the open-market price of 42-pound kraft linerboard—still drives adjustments in most box contracts, even though those sales now reflect only a sliver of the containerboard market.

Green Markets estimates around 90% of the industry is vertically integrated, meaning the largest producers make containerboard at their own mills and convert it into boxes at their own facilities. After years of consolidation, the open market for containerboard has shrunk to around 1.5 million tons a year, or less than 4% of total capacity of 40 million to 42 million tons, according to the American Forest & Paper Association.

This creates a structural mismatch and an opportunity to modernize how contracted box prices change. Integrated producers such as Packaging Corp. of America (PCA) and International Paper say 60%–70% of the boxes sold in the United States are tied to contracts, mostly linked to Fastmarkets RISI’s open-market containerboard price. Any boost in containerboard tends to result in higher box prices.

Yet, recent price increases appear to be defying supply and demand fundamentals. U.S. box shipments fell to 31 million tons in 2024, according to the Fibre Box Association, and global oversupply has reached 30 million tons. Open-market buyers should have little reason to pay more, since excessive supply of a commodity normally leads to price declines.

That feedback loop is absent in containerboard pricing in which index-driven contract structures continue to push box prices upward, regardless of market dynamics.

Searching for Alternatives

This raises a key question: How should box contracts be structured in a chronically oversupplied market dominated by vertically integrated producers that can transfer internally at any price they choose? In conversations with Green Markets, many boxmakers and buyers have expressed dissatisfaction with the current pricing model.

PCA President Tom Hassfurther is among industry officials who’ve voiced concerns over the accuracy and relevance of the industry’s benchmark pricing. The company said it implemented increases of $70 per ton on linerboard and $90 per ton on medium, effective January 1, 2025, with customers accepting the moves. It also began paying higher prices for containerboard from suppliers that enacted similar increases.

Yet, Fastmarkets RISI’s Pulp and Paper Week didn’t adjust benchmark prices despite reporting that roughly 90% of major U.S. producers announced increases, Hassfurther said in late January. He also noted some boxmakers had postponed purchases to avoid the hikes, indicating they were being recognized in practice.

The benchmark’s small sample base no longer appears to fully represent the market, Hassfurther said. Under the existing system, commentary on box prices often gets conflated with containerboard pricing, even though the former are highly customized and contract-driven. “PCA is moving away from [the current index] as fast as we possibly can,” he said.

Keeping Contracts, Updating Methods

Still, that doesn’t mean the industry wants to scrap contracts entirely. Green Markets’ channel checks have found that most corrugated packaging buyers and producers continue to favor stable, long-term contracted relationships, citing operational and financial predictability.

For producers, the capital-intensive nature of converting operations and the need to manage containerboard inventories several weeks in advance make demand visibility essential. Customers, meanwhile, prioritize consistency in supply. Combining multiple facilities into larger supply agreements provides scale for negotiating price.

Even so, there’s no particular reason why the price of 42-pound kraft linerboard needs to be the standard for those contracts. Its prominence can be traced to legacy performance standards rooted in the Mullen test. Since the adoption of edge crush test standards in 1990, the industry has shifted toward lighter-weight liners that can meet performance requirements through improved engineering and design.

Most corrugated contracts remain indexed to the grade partly out of inertia; existing agreements, each with unique terms and expiration dates, are routinely renewed or extended without modifying the price adjustment mechanism.

Greater Transparency

A foundational requirement for any contractual price adjustment mechanism is trust in the metric. By incorporating a broader range of input categories beyond raw materials, users can get a more comprehensive view of cost pressures throughout the supply chain. Buyers and sellers can track the index’s direction in real time and see which components are driving it, reducing uncertainty.

Insights gleaned from the monthly data could strengthen users’ positions ahead of their scheduled price reviews and encourage better-informed discussions. Barring extraordinary events, buyers and sellers shouldn’t be caught off guard when costs shift or when market conditions suggest a need for downstream changes in box prices. There are other options to help with pricing. Feel free to reach out to me if you’d like to discuss them.

Ryan Fox is a corrugated market analyst at Green Markets, a Bloomberg company. He can be reached at rfox93@bloomberg.net.