The Difficult Weight-Loss Journey of North American Containerboard

Just as healthy weight loss remains a popular topic among consumers, it is also gaining traction within the containerboard sector. In North America, regular linerboard is usually produced at above 32lb/1,000ft², while lightweight linerboard typically ranges between 26lb and 32lb/1,000ft². Ultra-lightweight containerboard is also produced, mostly in Europe, at rates as low as 18lb/1,000ft².

After falling behind its European counterpart for years, lightweight containerboard is finally gaining momentum in North America (see Figure 1). Roughly 35% of total containerboard capacity in North America is lightweight compared to 50% in Europe in 2020. Capacity for lightweight containerboard in North America grew 4.1% annually in the past decade, outpacing overall sector growth of 1.2%. Among the lightweight grades, lightweight recycled linerboard registered the highest growth at 7.0% CAGR, while virgin lightweight grades have not shown similar success (see Figure 2). New capacity addition projects, especially in recycled grades, often include lightweight paper machines, making them the leading growth grades in this sector.

There are many factors driving the shift toward lightweight. First and foremost among these are the rationalization of containerboard basis weight and shedding of excessive fiber and the associated costs. According to the International Corrugated Cases Association, North America linerboard weighs around 20% more than European counterparts. Two-thirds of North America’s market is made up of high-quality virgin fibers and can already offer higher fiber strength. Strong virgin fiber coupled with heavier weight can thus be excessive in some applications. Reducing weight can help reduce fiber costs for brands, an especially important benefit given the recessionary economic environment we will be in in the coming months.

Next, a growing number of recycled players in the North American market have accelerated the lightweighting trend. These players, mostly independent and often new entrants, are using lightweight containerboard as a competitive advantage in the highly consolidated and integrated market. Between 2017 and 2022, over 25% of new containerboard capacity in North America is expected to come from new players, a powerful shift in the competitive landscape (see Figure 3). This, coupled with imported lightweight containerboard from Europe, is a disruptive force.

Third, new technologies to improve board strength enable containerboard manufacturers to go lightweight. New fiber processing techniques and additives can alter the fiber structure or how fibers bind to each other. With these new technologies, similar strength can be achieved with lower-quality fiber (e.g. recycled) and less fiber. This will position lightweight containerboard at a significant advantage over traditional counterparts.

And lastly, sustainability initiatives are motivating brands and retailers to find ways to reduce packaging, and lightweighting fits the bill perfectly. Sustainable packaging has been one of the key priorities for domestic and multinational brands and retailers, such as Coca-Cola and Amazon. Efforts such as right-sizing corrugated boxes and lightweighting can significantly reduce containerboard used, while also reducing the shipping weight and related emissions. With more brands and retailers setting aggressive packaging reduction goals, pressure from offtakers for lightweight solutions will be a key factor.

Just like any weight loss, lightweighting in containerboard doesn’t come easy. In addition to the traditional view that heavy weight equals premium quality, lightweighting is accompanied by a whole suite of challenges.

First, the North American containerboard market is extremely consolidated, with the top four players, all of which are vertically integrated kraftliner manufacturers, accounting for 68% of the total capacity. They hold only 18% to 40% share of lightweight containerboard individually, which is less than the regional average of 44%. The conversion space is highly integrated as well, and the number of independents is shrinking each year. Such a degree of vertical integration means that manufacturers are not motivated to sell lightweight, whose shipments are often calculated by weight.

Furthermore, greenfield and conversion projects only started to happen in recent years, and the majority of North American manufacturers operate older machines throughout the supply chain. Older machines are often not able to handle lightweight or thinner boards and may require significant modifications to be compatible. These modifications come at a price that not every manufacturer is willing or able to pay. We expect this to create major headwinds as overcoming the hurdles of changing physical assets can be a slow and expensive process.

Lastly, lightweight is not as cost-effective for kraft producers as it is recycled producers (see Figure 4). While lightweight recycled liner on average has a 4% cost advantage per metric ton, lightweight kraftliner costs 2% more per metric ton. This price difference can be offset when comparing board area rather than weight, but the cost advantage for lightweight boards disappears. Even though recycled capacity is fast growing in the US, virgin fiber still dominates the industry. As long as this continues to be the case, it will be difficult for lightweighting to progress significantly in North America.

We believe that there are significant drivers of containerboard lightweighting in North America. Though the weight-loss journey will be difficult and slow, we expect it to be inevitable. As lightweight containerboard is typically viewed as a less expensive option, especially on an area basis, it will exert margin pressure on the rest of the industry. Fiber is the largest cost in manufacturing containerboard and can take up to 50% of total costs in virgin grades. Reducing the fiber cost can thus prove essential in the long run. As recession is underway, North American players could be proactive and improve their offerings in lightweight grades in order to protect their margins.