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PA IN THE MEDIA

Online retailers get boxed in by higher cardboard prices

Shanton Wilcox, US manufacturing lead at PA Consulting, explains how higher cardboard prices are impacting online retailers like Amazon.

Click here to read the full Fortune article

The article notes that e-commerce faces a decidedly low-tech hurdle: cardboard boxes. Not only have box prices increased 5% to 10% since the pandemic began, boxes are now tougher to get. It used to take a week to receive an order of boxes, and now it can take up to two months. Because of the higher box prices, online retailers, at best, risk thinner profit margins. At worst, they face having to slow their operations and potentially lose money.

U.S. e-commerce has been on a tear since the pandemic, with quarterly year-over-year sales growth of 32% to 44%, according to the Census Bureau. That’s up from the 11.5% to 17% quarterly growth during the five years preceding COVID.

As COVID restrictions began to loosen, the economy started to pick up steam. But production didn’t increase as quickly. Supplies of fiber, recovered fiber, and petroleum derivatives needed for such things as adhesives all tightened. The result: The cost of paper pulp—the main component of cardboard—is up 10% to 15% so far this year.

Normally, getting cardboard from overseas would be a potential solution. But the cost to do so has soared. A year ago, transporting a shipping container from China cost $2,500. Now it’s $6,500, or as much as $20,000 for a rush shipment. Recycled cardboard, an alternative to using new pulp, is also in short supply.

Pre-pandemic business strategies haven’t helped. The packaging industry had tried to control expenses by creating just enough boxmaking capacity as needed, to avoid spending money on excess capacity or on storing inventory.

Unlike smaller online retailers, Amazon and other large merchants have the money and business relationships to ensure they get boxes. Yet, even they have felt pressure.

Shanton said that historically Amazon has shipped items from the same order in multiple boxes because the items come from different facilities. Now the company is increasing efforts to get customers to purchase more in a single order to reduce the number of boxes per order, and also save on warehouse labor and shipping.

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Shanton Wilcox

Shanton Wilcox

CV Ramachandran

CV Ramachandran

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Hans Houmes

Ruan Jones

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