Prices for corrugated boxes have increased at an estimated annualized rate of 3.2% in the three years to 2017, hurting buyer power. While rising demand has afforded suppliers the leverage to raise prices, a $50.00 per ton price hike has largely been responsible for the price increase. The top suppliers of corrugated boxes typically institute $50.00 per ton price hikes every two to three years, and the latest increase, which hit the market in early 2017, was overdue. The ensuing 5.8% rise in prices has contributed to a moderate level of price volatility during the recent three-year period, creating some budgeting difficulty for buyers.
While leading suppliers have increased their prices because of an overdue price hike, rising demand for corrugated boxes has allowed them to do so. Sales have grown in line with increases in construction, mining and manufacturing activity because corrugated boxes are often used as shipping containers for various industrial goods due to their durability and low cost. Additionally, from 2014 to 2017, consumer spending has increased as a result of rising consumer confidence and a dip in the unemployment rate, which have fueled growth in demand for corrugated boxes used to transport various consumer goods. Population growth has also boosted demand for market products to transport food items. Overall, rising demand has provided the foundation for leading suppliers to raise their prices.
On the input side, declining paper costs, falling wage costs and significant market competition have kept price growth suppressed. The price of paper has fallen in the three years to 2017, reducing the overall cost of production for suppliers of corrugated boxes. Moreover, suppliers have been able to cut wage costs by investing in automation technology, thereby reducing their reliance on low-skill labor. Shrinking wage costs have allowed suppliers to boost profit margins in a climate of rising sales. Furthermore, substantial market competition has played in favor of buyers because it has forced vendors to curb price growth and avoid being undercut by lower price offerings from other vendors.
In the three years to 2020, the price of corrugated boxes is forecast to rise at a slower annualized rate of 1.5% as demand continues to swell and input costs increase. However, in the wake of the recent market-wide $50.00 per ton price hike, prices are expected to remain steady and undergo only mild price growth for the majority of the forecast period, which will aid buyer power. Buyers will benefit from price volatility falling to a low level during the period, which will allow them to make ad hoc purchases and delay contractual decisions without risking unanticipated price spikes. Despite mild price growth, because prices are projected to grow, buyers are still advised to enter into contracts sooner rather than later to lock in lower prices.
Through 2020, demand from key buyers, including grocery and food distributors, is expected to rise, partly due to further population growth, which will increase the amount of food shipped in corrugated boxes. Consumer spending is also projected to continue increasing amid general wage growth, which will increase demand for various goods that are shipped in corrugated boxes. Additionally, accelerating mining, manufacturing and other industrial activity will encourage higher demand for corrugated boxes, which are used as shipping containers for many of the goods that operators in these sectors produce and require. Overall, growth in demand for corrugated boxes will allow operators to raise prices without risking losses in business from buyers.
Furthermore, the price of paper, which is one of the suppliers’ key production inputs, is expected to shift direction and rise due to increasing wood pulp prices. Suppliers are expected to pass rising input costs on to buyers in the form of higher corrugated box prices. Price growth will, however, be tempered by falling wage costs and substantial market competition, which will limit suppliers’ ability to significantly raise prices. Overall, steady and mild price growth will support buyer power by allowing them to easily budget for future purchases and plan accordingly.