Ship Shape: Paper and Packaging Prices on the Rise
IBISWorld anticipates rising prices for wood pulp and paper will flow on to a number of paper-based packaging products and services. The markets that are anticipated to bear the weight of these trends include corrugated boxes, molded fiber packaging and packaging services.
Corrugated boxes are a popular packaging product used for a variety of applications, such as shipping and storing consumer goods and industrial tools and equipment. In the three years to 2017, IBISWorld forecasts the price of corrugated boxes to increase at an annualized rate of 3.0 percent. The rising price of paper, a key input in manufacturing corrugated boxes, will force operators to increase box prices to maintain profit margins. With growing overall demand for corrugated boxes stemming from consumers and businesses alike, suppliers will be able to raise prices without risking drops in demand.
Rising prices are problematic for buyers of corrugated boxes. The number of substitute products that provide the same balance of cost and functional strength is limited. Plastic boxes are similarly durable but carry a significantly higher per-unit cost. Solid fiber boxes are less expensive but lack the durability of corrugated boxes. Consequently, the lack of viable substitutes hinders buyer power, reducing the ability to negotiate.
To gain leverage in negotiations, buyers should take advantage of low market specialization and switching costs. Because corrugated boxes are commoditized and do not require much experience or expertise to manufacture or distribute, buyers can easily find numerous operators that can satisfy their needs. Additionally, low switching costs allow buyers to change vendors easily with minimal risk. Buyers can leverage the large number of qualified vendors to encourage price-based competition among suppliers.
Molded Fiber Packaging
Molded fiber packaging is a type of paper packaging made from paperboard and newsprint, commonly used to form egg cartons, other food containers and various molded packaging supplies for shipping. IBISWorld expects the price of molded fiber packaging to grow at an annualized rate of 4.2 percent in the three years to 2017. Higher wood pulp prices and higher demand for packaging products are expected to fuel such price growth. Additionally, in the three years to 2017, the domestic population is anticipated to grow at an annualized rate of 0.8 percent. The growing domestic population will require more food, which is often packaged with molded fiber packaging, further driving greater demand in the next three years.