UK cardboard shortages – what is really causing the current situation?

Whilst ongoing for some time now – being noticeable as far back as October last year – the issue of paper shortages and resulting increases in the cost of both corrugated cardboard material and the packaging manufactured from it, has recently come to public attention.

In fact, even the BBC has covered the issue, detailing a number of small and medium sized businesses that have been struggling to get their packaging – and letting down customers as a result.

The knock-on effect is businesses of all sizes struggling to find a supplier with short enough lead times to meet their requirements, and many others who are able to source their boxes being faced with simply unavoidable price increases.

Jawbone Brewing, the Twickenham based company that features most prominently in the BBC article, were unable to find delivery boxes to send out orders of their new Pale Ale product.

As quoted by the BBC, their founder, Ben Hughes lamented;

I simply couldn’t hold of any boxes. [Then when I did] I wanted to get the boxes branded. But we haven’t been able to. All the suppliers are saying you have to wait a few months for that.

Other businesses that have featured in coverage of the issue include Wanderlust, The Oxford and Cambridge Club, the Cheshire Cheese Company and Alpine Wines. Notably, even large retailers such as Asda have had to switch from cardboard packaging to plastic in some instances.

For many, not being able to source corrugated packaging simply means that they do not have a business.

For others, it can at best mean upsetting customers with increased delivery times, or at worst not being able to fulfil orders at all.

Joelle Nebbe-Mornod, of Alpine Wines, was quoted by i News as saying;

We have no business if we can’t deliver. Packaging stocks are just not something I ever had to think about much before.

Yet, with a huge amount of sales moving online due to the pandemic and the general changes in consumer spending habits – with everything from house plants to bikes, clothes, wine and more being purchased directly from companies websites – it mean more and more businesses are being faced with similar problems.

The other major impact of material and packaging shortages is, of course, price increases.

It has been reported in various places that from the start of 2021, there has been a paper price rise of at least £40 per tonne (for both Kraft and recycled liners).

It is also being suggested that some buyers are paying £70-160 per tonne over autumn’s paper prices to secure containerboard supply in January. For some, February’s prices are higher still.

The nature of supply and demand means that packaging companies are being squeezed relentlessly. The material available is much costlier, and yet there is considerably less of it. And all the while, demand continues to increase dramatically.

Inevitably, this means that at least part of the price increase is being to be passed on by packaging manufacturers to their customers.

Put simply, there has been a perfect storm of factors that has led to the current shortage in cardboard.

For one, the Confederation of Paper Industries (CPI) indicates demand for cardboard boxes from online retailers was five years ahead of where it had expected it to be before the pandemic.

Yet this is just one of many factors at play.

The following section looks at all of the circumstances and causes that have led to the shortage.

Arguably the biggest reason for shortages is due to hugely increased demand. In fact, in some quarters cardboard is being referred to now as “beige gold”.

Whilst the shift to online shopping resulted in a steady growth in demand for corrugated ecommerce packaging over the last 4 – 5 years, the coronavirus pandemic accelerated this massively. To put this in context, Royal Mail have estimated that there were around 200 million extra parcels through their own and other courier networks in 2020.

The other factor here is that whereas items sent to retail outlets would require one large box – for example 20 units shipped in one outer pack – when ordered online each of these individual items will have their own cardboard shipping box.

The effect of this can be particularly acute for small items such as pens, memory cards, DVDs etc. It takes far more board area to wrap around a single product for posting than a multi-pack delivered to a traditional retailer.

In simple terms, there is a hugely increased amount of packaging being used.

The Coronavirus pandemic has affected demand in a number of other ways too.

For example, many businesses that would never traditionally sell online – such as breweries, bakeries, fresh fruit and veg producers etc. – have been forced to pivot online.

With traditional physical markets, restaurants and cafes closing, the only option for many of these businesses was to start offering subscription or takeaway services.

Another impact of Coronavirus was staff shortages.

Last year, some of Europe’s largest paper mills endured significant downtime due to staffing issues created by the impact of COVID-19. The knock-on effect was paper stocks running at very low levels at exactly the same time that UK corrugated volumes started increasing (some estimates indicating as much as much as 30%).

This was another significant reason for the market-wide paper price increase from December 2020 (which also pushed lead times out significantly).

Large companies such as Amazon – who have been reported to profit particularly well from the switch to ecommerce – are also being blamed for buying up large amounts of corrugated packaging.

This has, in particular, been reported by The Telegraph (subscription required to read full article), and Amazon themselves have been quoted as saying it was not facing shortages (potentially indicating they have bulk bought supplies);

“We work with suppliers throughout the year to forecast and manage our packaging needs.”

Other sources contradict this however. Raj Bhardwaj, writing for industry publication Packaging News, suggests that;

If you tried to buy extra containerboard, sheet board or boxes for supply in December – you couldn’t access them for love nor money. Seriously – even the likes of Amazon are said to have been unable to buy enough boxes and were turned down by sizeable alternative international suppliers who were understandably reserving precious and suddenly insufficient capacity for long-standing customers.

However, with their huge buying power, it could be argued it is highly likely that packaging suppliers have ensured that Amazon have received what smaller business would call “more than their fair share”.

Another possible factor is how companies have reacted when faced with not being able to source their usual packaging supplies, or being told that they face considerably longer lead times than previously.

Joelle Nebbe Mornod, one of the business owners quoted in the i News story, says

It’s like toilet paper all over again. People are over-ordering when they do get the chance to get cardboard, because they don’t want to be caught out with too few boxes. So in worrying about more of a shortage, they’re creating shortage.

I’m going to be just as bad when my supplier gets boxes back in… Whether I need them or not, I’m going to order some, because without boxes, how can I send wine to my customers?

This additional pressure has further exacerbated the underlying problems.

Perhaps the other major factor to consider is the supply coming out of European paper mills.

Packaging News reported that In July containerboard stocks were up 16% on the previous year and demand across Europe was significantly down (initially) thanks to the pandemic and notable new containerboard capacity coming on stream.

With a view to bringing the market closer to balance in terms of supply and demand, European paper mills even brought forward their usual quarter one plant shutdowns and many aggressively exported to China.

With an absence of co-ordination between competitors on the combined amount of capacity that was temporarily closed or exported, the net effect was a drastic overcorrection in the supply-demand balance.

The result?

The normal 72-hour lead time from sheet board suppliers (in the UK) became 3-8 weeks and largely unreliable everywhere – with some sheet feeders refusing to take any orders at all for 1-2 weeks recently in an (unsuccessful) attempt to clear growing backlogs.

There are a few other more minor issues that have compounded the situation further.

Brexit for example has led to problems transporting material to make corrugated boxes across the Channel.

Whilst this is largely due to “chaos” at the ports caused by pre deadline stock piling and the usual quarter 4 rush, the increased paper work and ongoing confusion hasn’t helped either.

Collections of household recycling in the UK has also been hampered by staff shortages, the Christmas break (which can take a few weeks to catch up following the bank holiday enforced changes) and an increase in waste overall.

Simon Ellin, chief executive of the Recycling Association, indicated to The Times:

Home delivery is sucking the cardboard from the system because there is such phenomenal demand.

And finally, it is even being reported that Chickens – or rather an increase in home baking and egg consumption – is playing a role too.

One of the more publicised examples of the difficulties here is Asda and other large supermarkets switching cardboard egg packaging to plastic due to a shortage of the pulp used to make the usual packs.

Being a corrugated cardboard packaging manufacturer, the shortages of cardboard have had a noticeable impact on GWP’s operations.

However, due to a close working relationship with Corrboard, GWP have had an advantage in that we have been able to maintain (to date) a consistent supply of corrugated material.

Saying that, due to all of the factors detailed above, lead times have been pushed out and the price of producing and purchasing corrugated has increased significantly.

GWP has absorbed as much of these costs as possible, whilst also providing ideas on how packaging cost increases can be mitigated in other ways. This includes packaging design that uses less material for example, as well as being able to supply returnable transit packaging (such as Rapitainer) where a supply chain “loop” can be implemented.

For full details of the steps GWP are taking in tackling the issue of shortages, please read this article.

There are encouraging (if still small) signs that capacity in the corrugated board market is starting to increase.

However, with demand remaining strong, uncertainty remaining over the pandemic and consumer behaviour likely to be permanently altered, things have the potential to get worse before they get better.

If you are struggling with packaging shortages – or the other consequences of this – then please contact us at GWP to see if we can help.

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