Linerboard supply is very tight across America today. We are waiting for another shoe to drop here in boxland. So far it has been raining shoes and what’s wrong with another? Our industry has been dealing with some of the most intriguing issues I have ever seen personally in my 40 years of box making. We walked into this year coming off the most explosive demand for boxes ever in our country. The pesky virus enhanced every American’s ability to order just about everything online. We shipped over 3 billion parcels during the holiday rush season. Many reports indicate that we were collectively about 5% late on deliveries. Think about that for a bit, we had 90 million parcels arriving late for Christmas. The usual shippers UPS, FedEx, Amazon, and the rest, stopped their express shipments and USPS attempted to pick up the slack. For this reason, I still scratch my head when the post office racks up multi billion dollars losses at USPS. We also must understand that 30% of items ordered online get returned. The last few months have been the “Return Season”. Oh, to be in the reverse logistics business!
To get this eCommerce explosion on track, Amazon built and leased out over 50% more space in 2020. Others followed and the likes of Target and Walmart used their massive footprints as mini distribution centers to move all their products through to people’s homes or pick up areas. Just think of the rise in warehouse costs we see today. Where did all the Uber drivers go? Amazon, FedEx, UPS? Where oh where could they have gone? You can’t get an Uber unless you call out for a Black Car or SUV. Transportation prices are still exploding as the industry is taxed with a short supply of labor and equipment. One of our long time Clients is closing their doors, due to rising material and labor costs. They sighted their transportation cost is more than seven and a half percent of their sales price. WOW!
Let us look at what else is going up. Labor is now very scarce. I am talking about unskilled and skilled labor and these costs continue to skyrocket. Bay Cities is fortunate to have a great working environment, fantastic benefits, an opportunity to progress upward, fantastic training processes, a great culture and competitive rates to combat the labor issues the industry and many industries are facing. Our biggest competitors are Amazon and our partners the State and Federal government. Our State and Federal governments keep coming up with plans that influence people to stay at home and paying them competitive wages. Get this, we pay you to sit at home and buy crap off the internet! Brilliant strategy don’t ya think? Amazon on the other hand is pouring dollars into their infrastructure to attract workers using huge starting pays. Amid a complete shortage of paper and a large spread ransom wear attack on several large players in this industry, we also had an extensive 5-Billion-dollar weather event in Texas. Texas has never seen anything like this ever. That region supplies us with anything made of petroleum. The refineries supply us with glue to lick and stick a litho to a hunk of corrugated and glue to glue a box together. Polybags are made of petroleum, as are many accessories for displays like hooks and clips. Paint is made of resins that come from that area. Have you seen the price of paint lately? This storm also knocked out many mills in the south for at least a week, right when we were going through another multi system wide shortage. This too put the industry into a tailspin, and we are still working hard to get out of it.
What is extremely striking to me is when we can’t get simple 200-pound grades of linerboard that make up the basic box and when we can’t find heavy weight liners, IP tells many of its petroleum clients that we can’t supply them with multiwall bulk bins and that there are hardly any white grades of liner in the system. OCC (old, corrugated cartons), which used to be made from recycled linerboard, has increased in price month after month for the last six months. We have increased the export price of liner board repeatedly and we are down, year over year, 30 plus percent in exports of linerboard. Why dump it abroad when it is in short supply domestically? Labor, transportation costs and basic material costs are on fire, you would think that box prices should be doubling. Did you know that copper is up 70%, iron ore is up 200%, soybeans are up 55%? Yet, our industry’s barometer of prices, pulp, and paper claims there was very little movement up in linerboard in April (and we couldn’t even find some grades), yet we will see stronger movement up in price in May. This tells me this periodical has rendered itself useless as an indicator of real prices in this market. This is now akin to Mad Magazine and its credibility is now in Alfred E. Newman, who will direct us into exhaustive research of where linerboard prices are for a multibillion-dollar industry. Holy smoking paper mill, we have another crisis on our hands now. Hundreds of contracts are based on Mad Magazine’s opinion on the movement of paper and its top research analyst is Alfred E. Newman! Yet, we are paying top dollar for linerboard at the same time our input prices are at all-time highs, and we can’t even find grades of different liners to suffice our Client’s needs. These are the true factors of what’s causing box prices to rise.
This is a very crucial time to look for alternatives to liner grades and combinations. Bay Cities just invested in brand spanking new ISTA test equipment that can be utilized to downgrade heavy liners when we don’t really need them. We can simulate logistical movements and warehouse storage compression via the ISTA testing protocols to proof the downgrade. This will help with eliminating scarce paper grades and potentially reduce costs, yes, I said it, “reduce costs”! This is a time to get close with your suppliers of not only boxes, but just about everything, and put them to work to help you get raw materials and look exactly at where you are and have been using. Maybe there are some better and more available alternatives. Its also time for us (Bay Cities) to get excellent at Customer Service. Covid has kept everyone in the C(ovid) Cloud. We are coming out of the fog and up for air.
It’s time to understand a couple of things about Bay Cities. Everyone is in Sales. Production minus Sales equals Scrap. We know this stuff inside and out and it’s time to brush off the dust and get to work. Bay Cities is working in our Client’s best behalf by investing in an enterprise plan to get us close to our Clients, so we can help them through what will be a very challenging and difficult time. This will be a time of explosive growth (experts are predicting 6.4% GDP in the US) coupled with wild commodity challenges, transportations issues, labor issues and who knows what’s next in the Covid cloud of dust left behind. Bay Cities will learn once again enterprise wide how to bend over backwards to help our Clients win. We will educate them on what we see ahead and how to address those challenges and opportunities. We will develop systems to help collect data for them so they can make winning decisions. We will get back to excellent world class Customer Service.
Wash your hands, wear your mask, and keep it separated.
Greg Tucker
Chairman CEO
Bay Cities