Looking at U.S. box consumption through the lens of consumption data offers a different view from the usual emphasis on production figures. In this article, we will examine the inflation-adjusted average annual percentage growth rates of some box-intensive consumer spending categories. And we will see how those packaging opportunities translate into box shipments for domestic converters.
First, let’s look at overall spending. Over the past five years, total consumer spending for goods rose by around 3% per year. As the chart below shows, that growth has picked up to 3.5% through the middle of this year.
Nondurable spending has grown at 3.3% during this period, while durable goods consumption has grown at a faster 4.1%.
Let’s zero in on some sectors important to boxmakers. Fresh produce: fruits, vegetables, and tree nuts are packageable agricultural products often protected by corrugated packaging. The long-term outlook for production of these goods is bleak. According to the U.S. Department of Agriculture, the long-term growth outlook for these packageable agricultural products between 2019 and 2028 is no more than a fractional 0.6% per year. Only the production of tree nuts is expected to produce more than marginal annual increases, with growth projected at 2% per year.
Purchases of goods in grocery stores has grown at an average annual rate of 2.4% per year over the past five years. Unfortunately, imports have grabbed the lion’s share of this growth, as the trade balance for food products has fallen from a positive $16 billion in 2013 to a negative 0.9 billion at the end of last year. During the first half of this year, domestic food production has risen by a meager 1.0%, significantly lagging behind the 3.2% growth rate of inflation-adjusted consumption during 2018.
Nondurable goods other than food also account for a significant share of U.S. corrugated consumption: about 20% of all box shipments last year, according to the Fibre Box Association (FBA). Boxmakers may be surprised to learn that the nondurable goods market sectors that receive these boxes have grown by only 0.6% annually during the past five years and have fallen by 0.6% during the first half of this year. By way of comparison, consumption of nondurable goods has grown at 3.5% during the first half of this year. Again, the growth of imports is the underlying factor in why box shipments into domestic nondurable goods markets have been so poor.
Durable goods are defined as those intended to last for three or more years. They represent about 37% of total U.S. consumption of goods and a similar amount of total U.S. manufacturing production. In 2018, they accounted for less than 10% of corrugated shipments, according to the FBA. Durable goods consumption has been growing at a rapid annual rate of 6.8% over the past five years. But again, encroachment of imports has depressed domestic growth opportunities, even more severely than for nondurable goods. Over the past five years, domestic production of the durable goods market sectors into which U.S. boxmakers ship their products has been a paltry 0.4% per year, on average. During the first six months of 2019, these markets have grown by 0.7% per year, on average.
Box shipments direct to retailers have been growing more rapidly than any end use destination, as e-commerce growth disrupts traditional supply channels. By the middle of this year, nonstore retailers accounted for 11.8% of retail sales and were growing at a 10.6% rate, sustaining double-digit growth even as the sector has risen above a 10% share. Notably, e-commerce sales have overtaken the share of retail spending at general stores, a category that includes department stores and large-format stores such as Walmart. Also noteworthy is that nonstore retailers are rapidly closing the gap between their sales share and grocery stores’ and restaurants’ shares, each currently having a 12.6% share. At the current pace of growth, nonstore retailers will have the largest share of any retail distribution channel by the end of next year.
Surging shipments direct to e-commerce and other retailers have resulted in lower shipments to manufacturers and wholesalers. Nearly 15% of box shipments go to wholesalers who package manufactured goods for distribution to retail outlets. Even though wholesalers have some opportunity to benefit from growing imports, their growth has been squeezed as more goods flow from manufacturers directly to retailers, bypassing wholesale distributors.
Over the past five years, the sectors of the wholesalers’ markets that consume boxes has grown by only 1.3% per year. During the first half of this year, those shipments to wholesalers have declined by 1.6%, another reason for scant growth in box shipments amid consumer spending that is growing at more than 3% per year on an inflation-adjusted basis.
Dick Storatis president of Richard Storat & Associates. He can be reached at 610-282-6033 firstname.lastname@example.org.