Page 10 - Packaging News Sep-Oct 2020

10 INDUSTRY INSIGHT | PAPER & BOARD
www.packagingnews.com.au | September-October 2020
Brown box bonus
The corrugated box supply chain has positioned itself for whatever turmoil comes next, writes Tim Woods, managing director of IndustryEdge.
IN all the dreadful pandemic pandemonium, the end of the financial year almost slipped by unnoticed. For the box, carton, and bag sector, the start of the new financial year normally is an opportunity to take stock, but the sector remained busy shipping the nation’s needs and much of its exports.
There was plenty of which to take stock in the past financial year, including merger and acquisition activity that streamlined the supply chain for corrugated boxes, dis- ruption to recovered fibre supplies, and the effects on the sector of drought, bushfires, and of course, the coronavirus.
The corrugated box sector has dealt with wide-ranging challenges and disruptions over the year. Despite the pressures, its efforts place it among the significant pack- aging sectors most likely to experience growth in the coming year.
DROUGHTS, FLOODS, FIRES, PESTILENCE
There is effectively no specific consumer demand for packaging. Almost all demand comes from business-to-business transac- tions. What that means is the drivers of demand for fibre packaging are pretty much the same as those for the general economy. Demand for
like retail sales growth, business invest- ment, and economic growth were all trend- ing down.
Drought conditions in Queensland in par- ticular impacted food production, reducing demand for packaging, especially corru- gated boxes for export markets. Demand for industrial sacks was also a little softer in the second half of 2020.
Even as the drought conditions eased, Australia faced some of the worst bushfires in living memory. As a result, January 2020 saw particularly suppressed economic activity. Coupled with that, Australia’s two major fibre packaging producers operate from regions that are in fire-prone regions. Production was impacted in January and part of February.
The longer-term impact is a serious reduction in the plantations that supply the fibre required to manufacture virgin liner- boards (kraftliner) for corrugated boxes.
Even as the coronavirus took hold, Australia’s governments finalised their plans to end exports of lower-quality and lower-value recycling materials, includ- ing recovered paper. Though the export ban is some years off (mid-2024 for fibre),
DEMAND SHOCKS AND CHALLENGES
The immediate impact of the coronavirus was on the demand side. It is best explained by retail sales that have seen records set, both positive and negative, in successive months.
Inevitably, supply chains struggled to meet runaway demand in some moments before being whipped around and having their own supply-side challenges the next. The packaging suppliers were similarly whipsawed, with corrugated box manufac- turers exposed to every sector of the national economy and the varied impacts each sector saw.
Inventory challenges were evident in some regions, but supply outages were few and far between thanks to national produc- tion, conversion, and distribution models. The power of integration in the corrugated box supply chain was an advantage in the first half of 2020.
When faced with a rise in consumption and falling production, exports are typi- cally the point of flex that ensures the main- tenance of domestic supply. Australia saw exactly that in 2019-20, with total exports of corrugated box materials down more than 7 per cent compared to the prior year.
When we take supplies from New Zealand into account as local, levels of domestic self-sufficiency in the corrugated box mar- ket lift from a high average of around 90 per cent to a world-leading 98.5 per cent. Australia’s self-sufficiency was estab- lished and has been maintained by local producers who have proven themselves to be best-in-class on the international stage. Little wonder they are able to operate a local fortress.
corrugated boxes in particular is a fairly good indicator of the direction in which the Australian econ- omy is headed.
During the second half of 2019 the Austra- lian economy was al- ready largely in the dol- drums. Key indicators
There is a reason corrugated boxes are ubiquitous in the Australian economy, and indeed worldwide: they work.”
this development may become vital for the future of corrugated boxes in Australia, especially given the constraints on virgin fibre supplies.
And then came the pandemic and its various, far-reaching, wide-ranging and long- term effects.