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The difference isn't all language

Like virtually no other packaging commodity, corrugated paper quality varies widely from pulp-rich North America to markets that import recycled paper like the Far East. Now, the economic slowdown in the Far East may be changing the outlook for corrugated.
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A distribution packaging engineer with a major U.S. computer products maker says simply "We're working on it" when asked about his company's experience with corrugated paperboard used in Asia. That comment was accompanied by a laugh. (Packaging World agreed not to identify this engineer and another at a different manufacturer because their packaging issues have yet to be resolved.) When asked if the Asian corrugated board was creating a problem the engineer sidestepped the question. "Part of the issue is to determine what standard they use in testing" he told PW. "We haven't seen the actual performance numbers but it definitely looks different. "We're trying to determine what tests they use and whether [those tests] result in comparable or different performance. We do know that the paper makers put materials other than wood products into the mix and that may affect the performance." To packaging professionals that are used to specifications and test data it's the uncertainty that's most frustrating. "Obviously we're not the first company to have to deal with this issue" he says. "So now we're attempting to determine how other companies are overcoming this. It'll probably be a huge 'discovery' process for us." Another U.S. manufacturer buys a lot of products made at various plants in China. Until fairly recently those products were shipped in bulk into the U.S. to be packaged for the consumer market at a U.S. plant. However says one of that company's packaging engineers the U.S. packaging lines were not equipped for the flexibility and short changeover the company needed to meet its marketing objectives. That's when the company decided to try to have the consumer packaging done on-site in China. "This created a new set of problems" the packaging engineer says. "The company needed to be able to spec the boxes there. That's when the company discovered that corrugated specs were quite different in China as were inner packs and packaging turnaround time." Working through agent Its new approach has changed all that. Today the company works through an "agent" on the West Coast of the U.S. This company has people on-site in China. So the agent on the West Coast in effect "translates" what the company wants in packaging performance to the manufacturing companies in China. Package graphics simply travel by disk from a design computer in Chicago to a computer in California to another computer in China. "Working through an intermediary has helped us to get our products shipped to the U.S. exactly how we want them" he says. "But not always when we want them. Lead times have become a real problem. In essence when the company tried this we found that we needed to be very precise in our sales projections. On occasion for example we'd project sales of 20 units but we'd end up selling 30. The time it took to receive another 10 manufactured and packaged products and their cost turned out to be prohibitive" reports the packaging engineer. Ingredients not the same These anecdotes just begin to describe the performance and strength gap between the material produced domestically vs what's common in the Far East. In large measure this disparity is due to the endless recycling of paper. There is so little virgin material--or even good pulp--that Far Eastern corrugated is typically made up from paper pulp with very short fibers. Add to that the fact that many manufacturers add nonpulp "ingredients" to the slurry and the result is corrugated with adequate thickness but often without strength or stiffness. This translates into volume without much protection for what's packed inside. In fairness it must be said that corrugated paper is available in the Far East that is comparable to U.S. standards. Usually however its high cost means that it's only used for the least price-sensitive products. So how do global marketers deal with this disparity in packaging materials for shipping cases? Some rely on their Far East companies to compensate for the lack of corrugated strength by overpackaging. Others go the expensive route with high-quality board and figure that lower labor costs in the Far East will offset the added material costs. Still others avoid packaging on-site and bring goods in the U.S. in bulk and package here. The economic effects Virtually any of those options could be viable under normal market conditions. However the Asian market for protective packaging has been bludgeoned by the economic problems of Korea Japan Thailand and Indonesia. Because the economies of these countries have critically faltered the sales and production of local goods has been severely curtailed. Uncertainties and layoffs by major manufacturers have put the brakes on domestic purchasing so demand for products--and also packaging--has stalled or in many cases declined. This market condition unparalleled in the last generation has caused the market for recycled paper to flatten out. Without a solid steadily growing demand for corrugated the companies that provide the product with the least performance now find that the reduced demand for corrugated has slashed the price of good quality virgin material. This "buyer's market" has in turn wreaked havoc with the expensive system in place for recycling paper materials. The equation is: When corrugated is in great demand its high price covers the cost of an expensive recycling process that helps supply the market with the material at the margin. Without that demand and high corrugated price the recycling process collapses because the recyclers are unable to recover their costs. It's no different in the U.S. For some materials the recycling system has all but disappeared because virgin materials are available at very low prices. Barring some government mandate for use of recycled content manufacturers ask: "Why should we pay more for recycled materials when we don't have to?" Or to state it another way "Why should our [a manufacturer's] customers pay more for its products when they don't have to?" In short it's the old conundrum: A company will do its part to help the environment when it's beneficial to its customers or to the company. When the decision is strictly price vs the environment the environment rarely wins--whether it's in the U.S. or in the Far East. Does recycling pay? Sometimes there are other considerations. And in the Far East--unlike the U.S.--the limited space for landfills may become the issue that overturns the simplicity of the supply/demand economic argument. Currently one of the three major paper recyclers in Hong Kong has closed down citing the falling prices for paper. Other recyclers both large and small may follow suit unless the colony begins to recognize that these paper products will be diverted to already crowded landfills. This is because the colony doesn't municipally sponsor (i.e. financially support) waste separation or reprocessing programs. Meanwhile by government statistics the amount of waste going into landfills each year in Hong Kong grew by 28% between '89 and '97. At that rate the colony's landfills are expected to be full by 2015. Although it would seem to make sense subsidies to recyclers have been all but ruled out says a government official. That's because the government fears subsidies would breach international free trade agreements. In its place may be extra landfill charges. If this drives paper prices higher it could down the road help to jumpstart paper box recycling.

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