Thinking about the box

In 2000, e-commerce accounted for less than 1 percent of total retail sales. By 2009, it grew to about 4 percent. According to the Department of Commerce, by the third quarter of 2018, e-commerce accounted for 10 percent of total retail sales. Many analysts suggest online sales will triple to 30 percent of total U.S. retail sales by 2030.

E-commerce has affected the containerboard and corrugated box industries and old corrugated containers (OCC) recycling in many ways. Instead of most goods being shipped to retailers, an increasing number of products are shipped individually, directly to the consumer—gradually shifting more OCC to the residential recycling stream to be sorted at material recovery facilities (MRFs)—and more OCC are going into mixed paper.

Demand for OCC has grown gradually but consistently for decades. However, after years of this relative continuity, e- commerce threatens to change the fundamentals of OCC markets.

The e-commerce era

A recent consumer survey I conducted shows that 8 out of 10 Americans shop online at least once per month or more, and almost one-third of respondents say they purchase products online once a week. In comparison, 8 out of 10 shop retail at least once a month or more, and half shop at “brick-and-mortar” retail stores weekly.

The growth of e-commerce cannot be fully understood without reference to Amazon, which held a 49 percent share of total e-commerce sales in July 2018, reflecting 30 percent growth from 2017, when its share was 43 percent. (EBay, Apple and Walmart fall far behind Amazon with 6.6 percent, 3.9 percent and 3.7 percent e-commerce shares, respectively.)

Implications for U.S. containerboard and corrugated box demand depend on whether products are shipped directly from abroad in boxes made overseas or whether the goods and boxes are made in the USA. To some degree, the relative size of the product and box matter too. Clothing may be the most frequently purchased e-commerce category because of the ease of packing and shipping. Electronics have a high percentage of imports, as do home furnishings, but this is less so for appliances. A detailed study would be needed on each category to determine the importance of goods shipped directly from offshore with no repacking in the U.S. versus products originating locally.

With OCC recycling, it doesn’t really matter where the boxes come from. More consumer product purchasing generally means more corrugated boxes and OCC. As the amount of products shipped directly to consumers increases, recovery becomes more uncertain.

Are the packages boxes?

On average in 2018, UPS delivered 15.8 million packages daily in the U.S. and Fed- Ex delivered an additional 3.4 million. USPS delivers at least as many packages as UPS but focuses on smaller ones.

Data from the Fibre Box Association, Itasca, Illinois, on volume of box shipments in 2017 show that shipments peaked in 1999 at 401.1 million square feet, followed by a decline during the 2000s because of the offshoring of U.S. manufacturing. Also, box shipments hit bottom in 2009 with the recession, shipping 345.1 million square feet. But gradual growth since 2012 returned volume to 386 million square feet in 2018.

In 2018, most analysts expected U.S. box demand to grow by 2.5 percent to 3 percent annually for the next few years. As we move into 2019, demand forecasts have become more pessimistic. A recent survey by Deutsche Bank shows that more than half of industry decision-makers now forecast volume growth of between zero and 2 percent in 2019 against the backdrop of considerably more U.S. production capacity coming onstream.

While the current volume of corrugated box shipments is respectable in light of recent history, it is nowhere near the pace of e-commerce growth. The expansion of manufacturing abroad and the growth of imports to the U.S. are important factors limiting internal U.S. containerboard demand. The development of alternative shipping methods and materials is another key issue.

Recovering OCC

From 2016 to 2017, U.S. retail sales grew by 4 percent while e-commerce grew 16 percent. Domestic box production grew by 2.5 percent, but U.S. OCC recovery in 2017 dropped by about 300,000 tons, or the equivalent of 1 percent of the volume of total OCC recovered. This decline, the first since 2012, is small in comparison with overall OCC recovery; however, it does raise concerns as domestic demand for OCC grew by 3.5 percent in the same year and is expected to continue to grow.

Retailers recover about 95 percent of their OCC, but residential recovery is much lower at about 36 percent, according to The Recycling Partnership, Falls Church, Virginia. Ameripen, Minneapolis, reports a 30 to 40 percent increase in OCC in the curbside recycling stream in recent years, and yet some communities (Cleveland, for example) say more OCC is ending up in landfills.

In cities with high recovery, OCC capture rates (the ratio of recovered OCC to disposed OCC) range from 60 to 90 percent among households that recycle.

A recent national survey I conducted shows other options are available for OCC. Respondents indicate that while 55 percent of the corrugated boxes they receive are recycled curbside and 13 percent are put in the trash (the equivalent of an 81 percent OCC capture rate), about 4 percent are taken to recycling drop-off locations and more than one-quarter are “kept for later reuse.”

MRFs are well-aware of the shift of OCC to the residential stream. With single-stream collection, the quality of the OCC is reduced, and many MRFs have invested in additional equipment for more effective sorting. The result of these many changes is an increase in the OCC content of mixed paper.

At present, MRFs tend to follow one of three strategies: Maximizing separation of OCC at the front end leads to 5 percent to 10 percent (or less) OCC in mixed paper and separate baling of OCC. Midlevel OCC content (10 percent to 25 percent) is the result of removing some OCC upfront but investing less in OCC separation. High OCC content (more than 25 percent) implies no OCC removal and the lowest processing cost, producing a product between mixed paper and OCC, with pricing that is desirable for paperboard mills.

With growing domestic consumption of mixed paper, the optimal OCC level probably varies depending on which mill is buying. At this point, mills would do well to get involved and work with MRFs to develop mixed paper packages that most closely fit their needs.

Susan Cornish is with Moore & Associates, Atlanta. She leads the firm’s sustainability practice focused on corporate sustainability, sustainable packaging and recycling. Contact her by email at susan.cornish@insight-action.net.