Demand for packaging accelerated into 2021, following a wild ecommerce explosion in 2020, caused by our pesky virus. Transportation costs and labor costs were getting out of control. Our new President signed into law the 1.9 trillion-dollar American Rescue Plan. While money was dispersed into Americans’ bank accounts, our industry was suffering from not only labor and transportation issues, we were also short on containerboard (the base material of what boxes are made off) and the capacity to convert these into sheets and boxes. Early in 2021, the second largest containerboard manufacture in the US was brutally hacked by cowardly cyberattacks. We then realized just how interdependent we all are with regard to paper makers. I must say, they did a fantastic job in fixing the issues at hand and got up to speed quickly, considering the daunting hole that was just ripped into the side of their ship. This attack went through others and it created a tighter market than what we all had anticipated. Mill shortages created steep increases in containerboard prices. Many converters across America simply ran out of paper and couldn’t do much to suffice the demand from their hungry Clients. Bay Cities was very fortunate with regard to supply due to our relationship to the New Indy mill and its relationship and proximity to our sheet feeder ENCORR.
We continued to alter shifts, breaks and lunches. We disinfected everything in sight and learned to deal with this virus. We had no transferable cases in our facilities, with exception of one all the way back to March of 2020. However, employees continued to call out to take care of exposed loved ones. We worked Saturdays and Sundays, we even made-up days to work to keep our Clients supplied with packaging and displays. Due to our great culture, competitive wages, rich and robust benefits, we attracted, retained, and continued to build our employee infrastructure. Then the next shoe dropped: A wicked storm came into parts of Texas, which is the bed rock of refined petroleum products, and froze the infrastructure there. With Americans flush with cash and sitting at home buying everything and anything online, corrugated packaging continued to get tighter. This storm just made things much worse for paper supply. Heavy grades of paper were nowhere to be found, as was glue, plastic strapping and anything else made from refined oil. Understanding that we would not see the heavy weight grades of linerboard for some time, we went into commando mode and started substituting with lighter weight liner combinations. We became testing fools with our transit testing equipment running full tilt to keep our Clients supplied. Our ISTA certified lab needed an upgrade, so we purchased brand new equipment to suffice the amount of testing we were conducting. Wouldn’t you know it? They lost the equipment in the supply chain snarls. It did eventually arrive but WOW!
Vaccines for younger Americans became available around March, and we then started to see green shoots springing up with more optimism. The AICC even set its first in-person National Meeting in March. Bay Cities went so far as setting up our hybrid “Winning@Retail” in Redondo Beach, California in May. Landing in Amelia Island, Florida in March, reminded me of “Open Season” for sales. Back on the road and back on planes to visit our Clients again! The AICC meeting was a great event, as we got to visit with friends in person. We all learned a bunch as to what we could expect going forward, and how to deal with some of the issues we all went through and would continue to encounter. Bay Cities’ “Winning@Retail” was a great success, as we got to learn firsthand from some of the most knowledgeable experts in the field of retail, ecommerce, and commercial real estate (malls and shopping centers). They demonstrated to this intimate crowd how America will come out again and begin to shop. Remember, at that time we had been buying stuff online and we had not yet made the transition towards experiencing the retail treasure hunt and diving back into the service sector of our economy. Dinner and a movie, hunting for that “new dress” and makeup, as our women heroes had been locked down for so long, were the most sought-after prizes. She was the one who worked, cooked and cleaned, taught math to children, welcomed her college kids home with all of their issues and strange pets, all while most men sat on the couch and binged watched Netflix. The American hero is all of the moms out there. They really were the ones that got us through this troubling time, and they continue to do so. Her day finally came with the advent of vaccines, which helped to open up the service segment and the retail segment of our economy.
We continued to fight with our three competitors: The state government, federal government, and Amazon. Here, in the “Peoples’ Republic of California”, pay to stay was the cocktail of the way! We incented our fellow Californians with paychecks to stay home. Our other competitor, the Federal government was just as ruthless. And you wondered why there was a labor problem and why we bought so much stuff! Amazon, our other competitor, set the bar with minimum wages at $15.00 / hour. In addition, they sucked up so much real estate, that they drove the lease costs higher than a kite. In many instances, here in LA county, we see industrial leases at $1.40 per square foot a month triple net. Holy cow Batman! Our women and men in Washington began to call this inflation spike “Transitory”. They even tried to make Wallstreet believe this. We know this, as the Big Mac increased from $3.57 pre-Covid to now $5.65. That is inflationary. Of course, everything else has skyrocketed. When we experience labor rising, we will never be able to reduce that escalating part of our economy. When warehousing costs jump as much as they have recently, we will not see long-term leases being renegotiated down. There is too much demand for space and that will continue for the foreseeable future. So much for Transitory!
The Independent Packaging Association conducted an in person Super Corr Expo in August, where machinery manufacturers came together to showcase their newest and greatest machinery. From my perspective, the theme seemed to be our industry’s best foot forward with automation. It was a great opportunity to converse with our machinery manufacturers as to what is better, faster and less manned. This is where we need to go as an industry. Fast accurate machinery that requires less people to run it. Hey, do more with Less!
We then got into the Holiday season. This is, where we as an industry prepare for Christmas, that giant time of the year where we ingratiate each other with gifts. The season of giving was in full tilt in America. Remember, we were buying tons of stuff to start and, we, as Americans, did not fully migrate to the service sector 100%. We were just about 60% there. So, we had ships on the water delivering boatloads of stuff and Christmas was set up to deliver at the same time. No drivers, no containers to put stuff in and send back to foreign lands, high labor costs and super inflated goods due to commodity creep and hyper demand. These were some of the issues that set up the perfect storm of just dismal performance: Unloading container ships in all the ports, especially LA and Port of Long Beach. Delivery times were moved out and some items never got delivered. Our industry was still struggling with supply issues and converting issues, and products got very hung up in a blown-out supply chain mess. Many of our clients had to deliver their products to retail and pay to have them placed in displays in store. Yet, we still had to make delivery for the rest of our Clients, whose products did make it in time to ship. We made a small dent in the deliveries and unloading of container ships, but just like the word “Transitory” the congestion at the ports was optically removed. Basically, the ships parked 150 miles away from the docks to make things look like everything was under control. Just about the same number of ships existed outside our docks, they just could not be seen. To help our clients get to market, we formed BC Logistics to contract teams of drivers and get items picked up out of the ports, deliver to our pack centers and then deliver to retailers. This helped in a giant way for our Clients to not miss Christmas.
We were very packed in our LA packout centers. So much so, that we needed to expand quickly to help make the Christmas miracle. We actually leased another 150,000 square foot building and closed one of our smaller buildings at the end of December. This will allow us to be even more positioned for next year’s continued supply chain mess. That in itself was a huge undertaking: Working out of an extra building, then shutting one down and moving everything into another building right during one of the craziest times in American history. Our Clients sure loved it!
So, here we are at the end of this year with yet another version of this pesky virus among us again. This one will be very contagious yet will not be as harmful as the others it’s been said. I think it will come and go very quickly and by the second or third month of next year we will be back on track towards a new normal (again). We all need to focus on staying healthy and doing anything and everything we can to help our small businesses. They are the life blood of America. We need them to get through this next round and come out the other side whole. Get out your holiday spirit and spend as much money with these small businesses as you can. They need you now more than before. It is up to us to make ALL of America get through this next round.
With that God bless, be safe, wash your hands, wear your mask and Keep it separated!
Greg Tucker
Chairman/CEO