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Will the Containerboard Industry’s Pricing Practices Undo Its Gains?

By AICC Staff

June 1, 2018

width=232This issue of BoxScore deals with paper: flutes, substrates, sustainability, value. All these wonderful attributes make corrugated and paperboard-based packaging the most cost-effective and value-added packaging product available. Indeed, it’s been that way for more than a century. And yet, given the way this past spring’s containerboard price increase was announced and implemented, it makes me wonder whether our containerboard industry’s pricing practices are undermining our best arguments for the use of corrugated and folding and rigid boxes.

When AICC was founded in 1974, there were more than 25 companies selling containerboard and sheets. Looking at charts that go back to the mid-1980s, the top five producers then—Stone, Union Camp, International Paper, Champion, and Weyerhaeuser—had 34 percent of the containerboard market. Today, the top four—WestRock, International Paper, Georgia Pacific, Packaging Corporation of America—have 74 percent. As I see it, this concentration of supply has emboldened producers into a kind of market bullying, in which price increases, one after another, can be imposed without the need for justifications such as higher input costs or tightness in the market. “Because they can,” was the most oft-heard expression in regard to the spring 2018 increase.

But it’s not just the increases that concern some in our industry. It’s the way these are communicated to the industry’s customers, including independent buyers of containerboard and sheets.

Earlier this year I came across an article on price-signaling, the practice of one competitor announcing an increase via some public medium in an effort to “test” whether other competitors will follow. In an article from the global law firm Baker McKenzie titled “Price Signaling and Global Antitrust Enforcement: Practical Counseling Tips,” authors Kurt Haegeman and Grant Murray describe investigations of this practice in the European Union (EU), the United States, and elsewhere.

Consider the following example that parallels our North American containerboard industry so closely. In the EU, the European Commission investigated 14 ocean container shipping companies that announce prices via a general rate increase (GRI) announcement. Here are the similarities:

  • These announcements don’t give the final price of the service, only the dollar amount of the increase.
  • Announcements were made three to five weeks before their effective date.
  • All other carriers followed closely with similar rate increases, effective on the same date.

The article’s authors write: “The EU Commission was concerned that these practices would allow these competitors to ‘explore’ each other’s pricing intentions and ‘coordinate their behavior,’ and this might enable the carriers to ‘test’ … whether they could reasonably have implemented a price increase.” The article goes on to cite examples from around the world, dealing in telecommunications, oil and gas, and cement producers. Space won’t permit me to deal with these, so I refer you to the article.

These actions by antitrust authorities do raise questions for me: Will this industry, which we all know is sustainable, cost-effective, and competitive, be undone by the pricing practices of its largest players? When our customer base has already had three increases in the previous year, will they begin to look at alternatives such as plastics or other packaging materials? Our industry would do well to remember that our customers can send us signals, too—that despite the positive attributes of corrugated packaging, they can take their business elsewhere.

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Steve Young

President, AICC