The e-Commerce effect

How much is e-commerce boosting US corrugated demand?

The hard facts.

A common theme from anyone following the North American corrugated box and containerboard market is that the current rally in demand is due in large part to the positive impact from e-commerce. However, there are a number of opinions floating around regarding the actual degree of this increase. Upon request of several people for our opinion on this issue, we delved into the subject.

First, the hard facts.

The Federal Reserve publishes a series that tracks e-commerce's share of total retail sales, and this series confirms the strong growth in this sector. E-commerce accounted for less than 1% of total retail sales at the beginning of the new century, but rose to 4.5% of sales in 2010 and 9.5% in the first quarter of 2018. Growth in e-commerce sales has averaged more than 15% per year since 2010, and the percentage growth has been quite consistent during this period. But starting in 2014, e-commerce hit the critical mass where this double-digit growth led to a tremendous increase in spending. E-commerce spending grew roughly $7.6 billion per year from 2011-2013, but then jumped to $10.4 billion in 2015 and $15.5 billion in 2017.

However—and isn't there always a "however" in an economic analysis?—it is safe to say that the growth in e-commerce sales does not automatically transfer into a similar growth in final corrugated box demand. For one thing, the strong growth from outlets such as Amazon has had a negative impact on traditional brick and mortar stores. Additionally, a substantial amount of consumer goods are imported from overseas, limiting the additional utilization of boxes to distribution centers rather than throughout the US supply chain. And finally, e-tailers are quite aware of the increasing costs for packaging materials and are considering options to bring fulfillment costs under control.

So where does that leave us? Back to making subjective estimates.

While we cannot put any precise figures on the effect of e-commerce on box demand, we can come up with some subjective estimates based on the shift in performance of the market from expectations. And nothing illustrates that better than the chart to the right.

Industrial Production

The March revision to the industrial production data shows the manufacturing nondurable goods sector falling into a near recession in 2014-2015, which normally would have led to a contraction in box shipments. Manufacturing activity accelerated in 2016 and 2017, and box shipments would have grown 2.5% from the 2014 low in 2017 if they had continued to match industrial production growth.Actual shipments were up 5.9% from the 2014 level during 2017. Looking at the difference, we feel it is safe to say that e-commerce has added 20-23 billion square feet to corrugated box demand during the last four years. That translates into roughly 1.5 million additional tons of containerboard demand on top of the growth provided by the broad manufacturing sector. And for anyone who wants to look at the boost in terms of growth rates, e-commerce is adding somewhere between 100-150 basis points to the growth rate for box shipments.So, what is our opinion for how long this will continue? For that, you will need to check out our two-year projections in the Paper Packaging Monitor or the medium-term outlook in our new North American Paper Packaging 5-Year Forecast.

Learn more in the June 2019 story: What’s behind the US e-commerce statistics?

© 2019 Fastmarkets RISI

© 2019 Fastmarkets RISI

© 2019 Fastmarkets RISI

© 2019 Fastmarkets RISI

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