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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of the All Thoughts podcast.

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Speaker 2: I'm Tracy Alloway.

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Speaker 3: And I'm Joe. Wasn'tal Joe.

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Speaker 2: I Am going to put something on the table and

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Speaker 2: you tell me what it is, Okay, go on, all right,

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Speaker 2: here I go.

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Speaker 3: It is a this is so, this is incorrugated. I

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Speaker 3: believe cardboard box and has taped it, says fragile and

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Speaker 3: I would I guess it's about I don't know. I'm

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Speaker 3: not good at measurements. It'd be eighteen inches by thirty

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Speaker 3: six inches something like that.

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Speaker 2: That is a very good physical description of a cardboard box. However,

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Speaker 2: I'm going to say you're wrong. It is in fact

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Speaker 2: a macroeconomic indicator. The other acceptable answer is it's part

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Speaker 2: of the odd Loocks logo.

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Speaker 3: That's right, that's right. It's a box, and that is

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Speaker 3: core to odd lats. But you know, now we're going

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Speaker 3: to talk about literally, when you think box, you don't

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Speaker 3: often first think magic, money, box, pozes. And when you

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Speaker 3: think box, you often don't necessarily think of the container ship,

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Speaker 3: which is often called a box. Is in the book

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Speaker 3: The Box. But I think when people think about a box.

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Speaker 3: They think about a cardboard box, corrugated or not.

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Speaker 2: Now is a very good time to be thinking about boxes,

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Speaker 2: by the way, because there's been some commentary about this,

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Speaker 2: but we've basically had a sort of box apocalypse.

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Speaker 3: Yeah in the States, we still having one.

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Speaker 2: Uh, jury's kind of out and we'll get into that

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Speaker 2: in the discussion. But US box shipments, so boxes of boxes,

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Speaker 2: which I find funny box reception anyway, US box shipments

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Speaker 2: have fallen to the lowest second quarter reading since twenty fifteen.

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Speaker 2: That's according to the Fiber Box They.

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Speaker 3: Are probably like they're like folded up, yeah, yeah, so

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Speaker 3: you a bunch of them. They're maybe wrapped in plastic

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Speaker 3: or something like that. So shipments of those lowest it's

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Speaker 3: like twenty fifteen.

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Speaker 2: Yeah, And I think there are some other numbers we

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Speaker 2: can get into that are like the worst since the

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Speaker 2: financial crisis and things like that. And obviously the concern

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Speaker 2: is boxes tend to contain products that people are buying, right,

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Speaker 2: So if no one's buying boxes, what does that say

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Speaker 2: about retail spending, the health of the consumer, and the

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Speaker 2: direction of the broader economy. That's when you get into

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Speaker 2: the macro indicator.

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Speaker 4: Stuff.

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Speaker 3: You know, I love e commerce, but I hate breaking

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Speaker 3: down boxing. I know so much and then you like

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Speaker 3: rip it up. There's no it's never quick. I would

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Speaker 3: like to see some innovation on the ease of collapse ability.

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Speaker 2: You know what I did, because I buy a lot.

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Speaker 2: I trained my dog to rip apart Amazon boxing.

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Speaker 3: Oh that's amazing, but.

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Speaker 2: Then he kind of went on strike and stopped doing it.

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Speaker 3: Well, that would be cool for your kids to do it. Yeah,

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Speaker 3: put them to work.

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Speaker 2: Okay, Well, I am happy to say we do, in

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Speaker 2: fact have the perfect guest. We're going to be speaking

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Speaker 2: with Ryan Fox. He is a containers and packaging analyst

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Speaker 2: for Bloomberg Intelligence. So Ryan, thanks so much for coming

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Speaker 2: on all thoughts.

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Speaker 4: Thanks for having me.

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Speaker 2: It's so nice to actually meet you in person, because

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Speaker 2: we've been ibing for a while talking about boxes. I

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Speaker 2: don't know how this became so interesting to me, but

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Speaker 2: probably because of the decline that we've been seeing. Walk

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Speaker 2: us through the numbers, like, how bad is the actual

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Speaker 2: fall in boxes of boxes? Shipments of boxes?

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Speaker 4: Yes, so when we think about box shipments, they are

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Speaker 4: shipped like you said, knockdown flat or KDF for sure.

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Speaker 3: KTF stands for oh, knocked down down, flazing. I already

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Speaker 3: learned something.

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Speaker 4: And so they're shipped sometimes on pallettes, but they're going

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Speaker 4: to in the US and markets like food manufacturers, beverage manufacturers,

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Speaker 4: people who make industrial products. About fifty percent of the

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Speaker 4: boxes that we consume in the US are going to

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Speaker 4: go through a grocery store. So that's a really good

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Speaker 4: way to think about it.

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Speaker 2: Huh.

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Speaker 4: What we've seen box shipments have fallen in the first

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Speaker 4: half about two point three percent, and this is largely

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Speaker 4: due to uncertainties that are stemming from tariffs. We saw

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Speaker 4: a big ramp up during the pandemic where box shipments

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Speaker 4: grew the first year of the pandemic by about three

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Speaker 4: and a half percent, actually two point four percent, then

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Speaker 4: three and a half percent the following year. When we

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Speaker 4: think about it in concrete terms, we talk about box

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Speaker 4: shipments in terms of billions of square feet. And when

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Speaker 4: we talk about billions of square feet, like four hundred

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Speaker 4: billion square feet would wrap around the earth like thirty

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Speaker 4: times or something like that, it's a very.

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Speaker 3: Big what exactly is being measured here?

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Speaker 4: Right, So if you were to take this box here

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Speaker 4: and we were to tear it all apart. And so

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Speaker 4: by the way, this is a this is a regular

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Speaker 4: slotted carton. Okay, this is a double wall box.

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Speaker 3: Is not corrugated.

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Speaker 4: No, this is corrugated. So let's let's take a little

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Speaker 4: quick parenthetical thought. So cardboard is actually not this. This

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Speaker 4: is a corrugated fiberboard box. For all you box nerds

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Speaker 4: out there, this box has this particular one is a

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Speaker 4: double walls. There's five layers. The flat sheet is called liner,

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Speaker 4: the wavy part in the middle is called medium. I

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Speaker 4: am so much in heaven right now. You don't even

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Speaker 4: know if we were to unfold this thing, separate the

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Speaker 4: glue seam and lay it out flat and you just

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Speaker 4: do basic maths, or you take your tape measure and

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Speaker 4: you go with and lengths, So that would measure it

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Speaker 4: in terms of square footage. And this box right here,

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Speaker 4: it's been cut down so it doesn't look as big

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Speaker 4: as it really is, but it's probably somewhere around twenty

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Speaker 4: square feet. We could measure it if we wanted to,

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Speaker 4: but we won't. But if you were to do that

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Speaker 4: for every single box, that's how they will measure it.

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Speaker 4: What's really kind of important is these boxes are made

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Speaker 4: on a variety of different machines. And one of the

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Speaker 4: reasons why it's called a corrugated box is it's made

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Speaker 4: on a corrugator and that's a machine that takes different

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Speaker 4: kinds of paper and it laminates together. They stick together

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Speaker 4: with typically cornstarch or some other starch product. So one

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Speaker 4: of the mechanisms is called the corugator roll and it's

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Speaker 4: a role with these little wrinkles in it. They steam

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Speaker 4: the paper and it forms those little arches and that's

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Speaker 4: what gives the board its strength. There are different sizes

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Speaker 4: of these little things like then they're called flutes, but

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Speaker 4: you can't play them. They don't make any music.

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Speaker 3: So interesting, it's super interesting. Let's just keep talking about

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Speaker 3: this box. What is it about the corrugation process that

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Speaker 3: makes it stronger?

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Speaker 4: So from a physics standpoint, it's what gives the box

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Speaker 4: its shape and substance, and there is a lot of

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Speaker 4: science that goes behind this. In fact, we now have

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Speaker 4: ways to predict how the box will perform in real

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Speaker 4: world situations just mathematics.

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Speaker 2: Do we do box testing where we beat up a box?

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Speaker 4: Absolutely? Yeah. And so for a lot of companies they

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Speaker 4: have to go through the ISTI International Safe transit authority.

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Speaker 4: They actually test the box to make sure it will

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Speaker 4: hold up against ups or FedEx or in some instances

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Speaker 4: they go so far as to make sure that no

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Speaker 4: matter what happens, it's going to survive. And those tests

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Speaker 4: and costs thousands of dollars, So it's a very robust process.

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Speaker 2: What's the best box before.

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Speaker 4: We go, Before we go into what everyone has their

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Speaker 4: favorite box. I mean as adults, you've you've really gotten

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Speaker 4: into adulthood when you get that box and you're like,

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Speaker 4: that's a really good box.

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Speaker 3: Anything that's easy to collapse.

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Speaker 4: Anything that's easy to collapse is one way.

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Speaker 2: No, anything that's easy to open. I like the zippers.

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Speaker 4: The zippers seeah, a lot of people like the zipper polls.

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Speaker 4: There are some boxes that are very elaborate and they

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Speaker 4: don't require much at all to set them up. They

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Speaker 4: kind of fold and lock in on themselves. Yeah, we

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Speaker 4: call those die cut boxes. They are made from a

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Speaker 4: cutting die that looks like a big cookie cutter, and

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Speaker 4: they will make any shape that you want to make.

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Speaker 4: The most popular style is what we call a roll

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Speaker 4: end box, and they can tuck on the inside, they

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Speaker 4: can tuck on the outside, but this is really a

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Speaker 4: nice box. It's it's a box that you might see

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Speaker 4: if you were to buy something online, and they're really

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Speaker 4: trying to go for that wow factor because they're going

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Speaker 4: to get for that tadaka, open the box and show

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Speaker 4: off the product.

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Speaker 3: Let's talk more about this box on the table here, Like,

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Speaker 3: are you learned enough in the space you could say like, oh,

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Speaker 3: I think this came from x mil or X year,

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Speaker 3: or like you have any other insights there?

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Speaker 4: Okay, yeah, so this box doesn't have it, okay that

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Speaker 4: I can see. But on most boxes there me in

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Speaker 4: the USA, there is a small little stamp on the

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Speaker 4: bottom of the box. It's round, and it's called a

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Speaker 4: box maker's certificate. Okay, there are around eleven hundred facilities

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Speaker 4: in the US that make corgated boxes, and that little

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Speaker 4: stamp on the bottom will tell you what company made

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Speaker 4: the box and where it's located, and more specifically, it

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Speaker 4: will tell you what the stuff is made of. You

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Speaker 4: might go, that's kind of a stupid detail, but it

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Speaker 4: goes back over sixty years, actually goes back over one

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Speaker 4: hundred years to when boxes were first starting to come around.

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Speaker 4: Most people don't know that corgated boxes are only one

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Speaker 4: hundred and thirty one hundred and forty years old, only

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Speaker 4: implemented in the late eighteen nineties.

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Speaker 3: I'm trying to think of before this was a joe.

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Speaker 3: What do you think the first corrugated as if I

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Speaker 3: would even begin to have a guess anyway, keep going.

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Speaker 4: So, right after the turn of the century, in the

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Speaker 4: early nineteen hundreds, companies were looking for ways to ship

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Speaker 4: their product. The only mechanism they had. In that time,

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Speaker 4: we didn't really have eighteen wheelers, we had trains, and

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Speaker 4: so the rail companies, as they were making new rails,

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Speaker 4: they're cutting down forests. They had lots of wood to

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Speaker 4: do something with. So what did they do? They made crates.

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Speaker 4: But crates were very expensive and they were very heavy,

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Speaker 4: and so people were looking for alternatives, and they came

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Speaker 4: up with a correated box. Actually goes back funding New

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Speaker 4: York story. The Dumbo area is home to the Gear

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Speaker 4: Building and Gear was one of the early pioneers of

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Speaker 4: paper packaging, and he kind of discovered by accident that

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Speaker 4: you could score pay paper and create these nice little boxes.

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Speaker 2: I will never look at Dumbo the same way again. Okay,

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Speaker 2: Actually that reminds me, so who are the actual big

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Speaker 2: players in the paper industry, because I don't think I

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Speaker 2: could name a single one off the top of my head.

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Speaker 3: I can, oh who International Paper and what used to

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Speaker 3: be smurfet Stone.

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Speaker 2: Oh yeah, Smurfit Okay, that's good, So.

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Speaker 4: You're exactly right. International Paper recently got even bigger. They

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Speaker 4: acquired D. S. Smith.

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Speaker 3: Out of four, there was one named Crown.

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Speaker 4: Crown was also know.

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Speaker 3: That I actually in the brief time when I was

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Speaker 3: an equity ana list over about twenty years ago. I

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Speaker 3: think I did a little research into.

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Speaker 2: This space box analyst a fellow box.

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Speaker 3: All right, very brief, devil in box anyway, keep going.

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Speaker 4: Yeah, So International Paper recently bought D. S. Smith. They

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Speaker 4: got even bigger. They were keeping pace with Smurfit Kappa

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Speaker 4: based out of Dublin, Ireland, who bought west Rock, who's

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Speaker 4: here in the US. They became kind of the first

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Speaker 4: global mega company. IP followed suit. So they're the two

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Speaker 4: biggest in the US and the biggest in the world.

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Speaker 4: Packaging Corporation of America is number three in the US,

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Speaker 4: followed by Georgia, Pacific prad Industries, and a variety of

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Speaker 4: smaller independents.

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Speaker 3: Now, the other thing one of the other boxes come

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Speaker 3: from trees, right or lumber comes from trees. You know, Well,

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Speaker 3: you've talked about lumber a lot on the show, and

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Speaker 3: one of the things that we learned, you know, there's

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Speaker 3: been consolidation in the lumber space. But also particularly after

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Speaker 3: the Great Financial Crisis, there was a lot of reduction

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Speaker 3: in mill capacity. Now that's related to housing specifically, which

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Speaker 3: was ground zero. But what is the story of American

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Speaker 3: mill capacity over the last twenty years, From prior to

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Speaker 3: the Great Financial Crisis to the twenty tens to now.

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Speaker 4: We really didn't see a whole lot of new mill

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Speaker 4: capacity come along, like twenty years ago. There was some investment,

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Speaker 4: there was there were some new mills that would come along.

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Speaker 4: I actually spent ten years working in the cordgated packaging

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Speaker 4: industry before coming to Bloomberg and worked for one of

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Speaker 4: those integrated companies who has their own paper mills. The

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Speaker 4: mills that I worked for were one hundred percent recycled,

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Speaker 4: and so some of their investment would have shown up

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Speaker 4: in that last twenty years. They've built many of the

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Speaker 4: most recent mills over the last twenty years. But we

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Speaker 4: really saw an explosion of growth right around the time

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Speaker 4: of the pandemic. So in twenty twenty three, two and

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Speaker 4: a half million tons of new one hundred percent recycled

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Speaker 4: container board making capacity came online. And now container board

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Speaker 4: is a technical term. It's the big term for the

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Speaker 4: paper that goes in these boxes. So container board means

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Speaker 4: lineerboard and were the medium, so it's just speak term.

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Speaker 2: So everyone's shipping flour for their like sour dough or

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Speaker 2: something during the pandemic, or buying new ovens to remodel

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Speaker 2: their houses while they can. Just going back to the

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Speaker 2: idea of the box as a macroeconomic indicator, I mean

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Speaker 2: I do see people talking about like this idea of

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Speaker 2: boxes as a leading indicator every once in a while.

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Speaker 2: It is unconventional, but some people do it. How valuable

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Speaker 2: our box shipments are tracking the box industry in terms

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Speaker 2: of trying to figure out what's going on with the consumer.

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Speaker 4: Very important for the consumer. Like I said, about fifty

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Speaker 4: percent of box consumption is going to go through a

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Speaker 4: grocery store. So when you start to see box shipments slip,

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Speaker 4: we probably need to be looking at grocery stores and

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Speaker 4: CpG companies to see what's going on there. And we

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Speaker 4: have seen a very challenged consumer environment over the last

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Speaker 4: two years. My personal opinion, I would say we're in

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Speaker 4: a consumer goods recession because of what we've seen. First

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Speaker 4: half of twenty twenty five, box shipments were down twelve

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Speaker 4: percent from the height of the pandemic. That's a massive

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Speaker 4: fallof So earlier we talked about how we would measure

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Speaker 4: these things in billions of square feet. Well, in twenty

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Speaker 4: twenty one we hit four hundred and sixteen billion square feet.

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Speaker 4: The first half was right around half of that, so

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Speaker 4: like about two oh eight, it was really add quick

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Speaker 4: math with one hundred and ninety billion square feet for

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Speaker 4: the first half of twenty twenty five, So pretty big fall.

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Speaker 3: Yeah, what's happening with prices? And so obviously right, so

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Speaker 3: measuring square feet is one thing. What is happening with prices?

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Speaker 4: Well, the pricing discussion is one that is sure full

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Speaker 4: of controversy. So what drives pricing is is it truly

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Speaker 4: supply and demand? Is it something that's more cost based?

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Speaker 4: For many, many years in the US it was supply

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Speaker 4: demand based, where mill operating rates would hit ninety six percent,

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Speaker 4: inventories would get real low, and they would raise prices

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Speaker 4: or the opposite, mill opera rates would go below ninety percent,

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Speaker 4: inventories would rise, and prices would fall. But over the

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Speaker 4: last year and a half we've actually seen none of

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Speaker 4: those fundamentals hold up. So mill operating race have barely

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Speaker 4: been ninety percent. Inventories hit five weeks at the end

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Speaker 4: of the first quarter, and yet price is still went

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Speaker 4: up five weeks. Five weeks is a lot of inventory.

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Speaker 4: Historical averages are around four weeks to kind of set

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Speaker 4: the floor there. Three and a half weeks gets a

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Speaker 4: little dangerous. When it's a little lighter than that, we

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Speaker 4: start worrying about supply chain issues. About half of the

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Speaker 4: container board is made at a paper mill and shipped

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Speaker 4: by rail to a box plant, and rail isn't quite

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Speaker 4: as fast and efficient as an LTL or will actually

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Speaker 4: be a full truckload. But you can carry more rolls

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Speaker 4: by rail than you can buy a truck, so you

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Speaker 4: kind of have to have a little bit more of

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Speaker 4: that time to allow for the transit for those roles.

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Speaker 2: What's your take on why paper companies are actually increasing

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Speaker 2: prices even you know, when inventory seems to be high

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Speaker 2: and demand is going down.

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Speaker 4: Well, it's funny you asked that so four years ago

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Speaker 4: I started trying to figure out if we could read

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Speaker 4: the tea leaves, so to say, and we put together

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Speaker 4: a mix of inputs, and having worked in the industry,

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Speaker 4: we kind of know how the sausage is made. And

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Speaker 4: what we did was we put together this series of

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Speaker 4: inputs and we correlated it back to historic movements, and

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Speaker 4: our algorithm explains ninety three percent of the reasons why

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Speaker 4: prices have moved for Bloomberg terminal.

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Speaker 2: Cost up box pricing algo.

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Speaker 4: Yeah, so bc BCI index for people who are on

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Speaker 4: the terminal Ye.

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Speaker 3: See, keep going well bcb bloom Wait what is it BCI?

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Speaker 3: BCBCI says for Bloomberg cordated box cost Index. And up

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Speaker 3: until this year when we did our the last multiple

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Speaker 3: ration analysis, it had a ninety three percent our square

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Speaker 3: so it was really good, right, Well, pricing in the

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Speaker 3: industry diverted from our index this year where prices went

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Speaker 3: up even though costs are going down. And that's actually

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Speaker 3: not a complete anomaly. We did see this in our

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Speaker 3: index a few years back in twenty seventeen, twenty eighteen,

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Speaker 3: but it wasn't quite as pronounced. Oh so sorry, just

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Speaker 3: to be clear, because I want to get this right.

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Speaker 3: The index that I'm looking at is the box cost index,

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Speaker 3: so it's not so much that it's measuring the cost

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Speaker 3: of box like so that box prices can go up

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Speaker 3: even though this line on a chart is rolling over correct.

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Speaker 3: This is important though.

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Speaker 4: Yeah, and some might call this kind of organic margin expansion,

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Speaker 4: others have more colorful words for it. But in the

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Speaker 4: US ninety percent of the industry is vertically integrated. And

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Speaker 4: what that means is they have their own paper mills,

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Speaker 4: they move that paper to their own box plants, and

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Speaker 4: sell it to their own customers, and so there really

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Speaker 4: isn't much of an open market the way there is

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Speaker 4: in other regions, and other regions like in Europe, they

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Speaker 4: don't have that vertical integration level. So there is a

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Speaker 4: much more robust open market, and it drives prices down

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Speaker 4: because of normal supply demand fundamentals. If you do have

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Speaker 4: just an absolute blood of inventory, prices are gonna fall.

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Speaker 4: Our best data says globally we have around fifty million

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Speaker 4: tons of oversupply of container board. Now we don't have

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Speaker 4: that just in the US. That's that's a global number,

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Speaker 4: but that does kind of alter your frame of consciousness Tracy.

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Speaker 3: By the way, this is just so fantastic everyone she

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Speaker 3: got a Bloomberg terminal because now I'm reading the PDF

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Speaker 3: that describes how the methodology. The weights, by the way,

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Speaker 3: are the cost of diesel, the cost of caustic soda,

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Speaker 3: natural gas price, US recycled fiber price, corn price index,

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Speaker 3: repair and maintenance, average truck rate, US average jar rely earnings.

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Speaker 3: And this is how they derive the cost of a box.

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Speaker 3: And it walks through all the methodology. It's really fantastic.

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Speaker 2: It's so funny to think that corn is an input.

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Speaker 3: Seven percent weight. According to the Bloomberg methodology, the biggest

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Speaker 3: weight is the US recycled fiber price of thirty seven percent.

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Speaker 2: Makes sense just on the how much of the decline

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Speaker 2: this year in terms of box shipments is just an

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Speaker 2: inventory clut. Do we have like a good read on

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Speaker 2: that versus demand.

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Speaker 4: From a box standpoint, We don't have a good read

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Speaker 4: on that. Okay, if we're thinking about the grocery store,

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Speaker 4: those boxes turn over very quickly. Having worked in the industry,

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Speaker 4: the box is going to get made at the box plant,

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Speaker 4: it's going to go to a customer. We're going to

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Speaker 4: think like general mills, and Kellogg's and Hershey's and all

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Speaker 4: of the big brand names that we know. It's not

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Speaker 4: going to necessarily sit in their facility for very long.

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Speaker 4: It will maybe get back into the system within thirty days.

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Speaker 4: In fact, I've been to the grocery store, and my

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Speaker 4: kids hate it when we go to the grocery store

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Speaker 4: because I'm always turning over boxes to see who made them.

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Speaker 4: But sometimes they will date stamp the boxes as to

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Speaker 4: when they were produced, and I've seen as quick as

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Speaker 4: thirty days in the store, and oftentimes when Smurfitt Kappa

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Speaker 4: bought west Rock, I was able to see a brand

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Speaker 4: new Smurfet west Roc BMC within ninety days of that transaction.

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Speaker 4: So it's just an interesting, little like tidbit. And if

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Speaker 4: you find yourself turning boxes over from now on.

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Speaker 2: You can start doing that.

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Speaker 3: How stable is the relationship between square footage of boxes

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Speaker 3: and the actual goods sold in boxes? And the reason

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Speaker 3: I asked this is that you know, I remember the

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Speaker 3: first several times that I ordered groceries, for example, online,

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Speaker 3: and I would get these deliveries as like this seems

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Speaker 3: really inefficiently packed, Like you get a box and there's

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Speaker 3: two tomatoes in there and it's like, was this really

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Speaker 3: did they really need to just have this?

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Speaker 4: Or Amazon?

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Speaker 3: So, but I imagined Amazon doesn't love this either. I

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Speaker 3: imagine they're always trying to optimize for box capacity such

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Speaker 3: that you know, you buy a new remote control for

400
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Speaker 3: your candle fire or whatever, it doesn't come into a

401
00:20:47,119 --> 00:20:50,200
Speaker 3: big box, do they. Is their progress always being made

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Speaker 3: on the efficient use of the cubic footage space within

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Speaker 3: these boxes?

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Speaker 4: Yes? All right, So let's talk about two things first. First,

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Speaker 4: we're going to talk about who the consumer is. Scond

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Speaker 4: we'll talk about right sizing. So first, when we think

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Speaker 4: about consumers, Walmarts, Targets, Amazon Home Depot, they are consumers,

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Speaker 4: and the majority of boxes that are made are intended

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Speaker 4: for them, not for us.

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Speaker 2: In fact, that's why they call them big box stores.

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Speaker 4: Right right, So we can get into this later. But

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Speaker 4: this old box actually has its own aftermarket in which

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Speaker 4: probably eighty percent of the stuff that we recover comes

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Speaker 4: from those stores, not from our doorsteps. So when we

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Speaker 4: think about consumers, we really need to think about the

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Speaker 4: big stores first because that's who the main consumers of

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Speaker 4: these boxes are. And so when you think about the

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Speaker 4: changes that we're seeing, if we're seeing significant changes at

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Speaker 4: those stores. We may be thinking about things like shrinkflation

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Speaker 4: or companies altering the size of their products and then

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Speaker 4: having to alter the size of the boxes that hold them.

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Speaker 4: So I think while it's an important idea, it's probably

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Speaker 4: less significant than what we get at homes and Amazon,

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Speaker 4: for instance. Let's talk about traditional e commerce, or I

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Speaker 4: think I may start referring to this as cart to

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Speaker 4: carton commerce. Oh good, because e commerce today, or digital

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Speaker 4: sales as some people talk about it, can also include

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Speaker 4: things like Uber Eats or instacart. It could also include

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00:22:20,320 --> 00:22:22,760
Speaker 4: a buy online pick up at the store, So a

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Speaker 4: cart to carton commerce might be a better way to

431
00:22:26,600 --> 00:22:28,840
Speaker 4: think about it, or like a I don't know, maybe

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Speaker 4: you can come up with a new term.

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Speaker 2: I'll think about it.

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Speaker 4: So, Amazon, from our best guesses, represents about eight percent

435
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Speaker 4: of all of the boxes made in the US at

436
00:22:39,320 --> 00:22:42,400
Speaker 4: least in twenty twenty four. And what we're seeing from

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Speaker 4: a lot of these companies who do that kind of

438
00:22:45,080 --> 00:22:49,119
Speaker 4: traditional e commerce or the cart to carton, we're seeing

439
00:22:49,160 --> 00:22:51,760
Speaker 4: the right sizing. So you may have gotten an Amazon

440
00:22:51,840 --> 00:22:56,399
Speaker 4: box that looks a little bit weird, right, it's lightweight,

441
00:22:56,600 --> 00:22:58,800
Speaker 4: real paper, it's folded in on itself, it's got that

442
00:22:58,920 --> 00:23:02,119
Speaker 4: zipper pull on it, and it just doesn't quite look

443
00:23:02,240 --> 00:23:05,199
Speaker 4: like this box on the table that's been taped up

444
00:23:05,200 --> 00:23:08,159
Speaker 4: and it's a regular slided card. You may have seen that,

445
00:23:08,280 --> 00:23:11,320
Speaker 4: or you may have gotten a paper mailer, and Amazon

446
00:23:11,359 --> 00:23:15,679
Speaker 4: has really been forging the way and mailers in packging technology.

447
00:23:16,080 --> 00:23:17,400
Speaker 2: Wait, what's a paper mailer?

448
00:23:17,480 --> 00:23:21,600
Speaker 4: A paper mailer is a bag. Oh, it's made from paper.

449
00:23:22,040 --> 00:23:25,320
Speaker 2: Oh, I've only evergotten the plastic ones of those from Amazon.

450
00:23:25,359 --> 00:23:27,399
Speaker 2: I don't think i've gotten a Oh wait, no, I

451
00:23:27,480 --> 00:23:29,560
Speaker 2: probably have with the bubble wrap inside.

452
00:23:29,880 --> 00:23:32,200
Speaker 4: Some of them don't even have bubble wrap anymore.

453
00:23:32,840 --> 00:23:35,440
Speaker 2: I haven't gotten one of those. Okay, but this reminds

454
00:23:35,480 --> 00:23:39,239
Speaker 2: me if I am working in the procurement department of

455
00:23:39,440 --> 00:23:42,119
Speaker 2: an Amazon or I don't know, a Walmart or someone

456
00:23:42,200 --> 00:23:45,600
Speaker 2: like that, what are the factors that go into me

457
00:23:45,920 --> 00:23:49,400
Speaker 2: deciding what boxes I actually want for the business?

458
00:23:49,840 --> 00:23:52,560
Speaker 4: That's going to be a reflection of what your product is.

459
00:23:53,200 --> 00:23:56,600
Speaker 4: And every product has its own specification or what kind

460
00:23:56,640 --> 00:23:59,880
Speaker 4: of box it needs. So if you're making a widget,

461
00:24:01,000 --> 00:24:03,000
Speaker 4: you will determine how many of those widgets are going

462
00:24:03,040 --> 00:24:05,960
Speaker 4: to go into a box and that's going to be

463
00:24:06,000 --> 00:24:08,920
Speaker 4: a function of its weight and fragility, and what kind

464
00:24:08,920 --> 00:24:11,320
Speaker 4: of other internal packaging you might need.

465
00:24:11,960 --> 00:24:14,440
Speaker 2: Let me ask this question in a different way. Why

466
00:24:14,480 --> 00:24:18,680
Speaker 2: does Amazon at least historically seem to like big boxes.

467
00:24:19,800 --> 00:24:21,560
Speaker 4: Well, I don't know that I can answer for Amazon

468
00:24:21,600 --> 00:24:24,720
Speaker 4: on that one, but it does seem to be maybe

469
00:24:25,280 --> 00:24:28,280
Speaker 4: at the discretion of people who are packaging at their

470
00:24:28,280 --> 00:24:31,760
Speaker 4: packing stations and what their available inventory of boxes might be.

471
00:24:31,960 --> 00:24:35,440
Speaker 4: Like I've seen some of these things in action. It's

472
00:24:35,480 --> 00:24:38,679
Speaker 4: a package. It's just a small packaging desk of sorts

473
00:24:38,720 --> 00:24:41,960
Speaker 4: with some overhead bins that have knockdown flat boxes in them.

474
00:24:42,400 --> 00:24:45,040
Speaker 3: This must be an interesting sort of engineering problem because

475
00:24:45,040 --> 00:24:47,720
Speaker 3: I might, at the end consumer levels a look at

476
00:24:47,720 --> 00:24:51,399
Speaker 3: this inefficient use of box space. I got a box

477
00:24:51,400 --> 00:24:53,879
Speaker 3: and all has a little remote control. On the other hand,

478
00:24:54,280 --> 00:24:58,719
Speaker 3: maybe the optimization occurred because the packer has for boxes

479
00:24:58,760 --> 00:25:01,639
Speaker 3: to choose from and they had more choices. Maybe they

480
00:25:01,680 --> 00:25:04,880
Speaker 3: could have had a more efficient space to good ratio.

481
00:25:05,320 --> 00:25:07,359
Speaker 3: But then that would have taken up more warehouse space

482
00:25:07,400 --> 00:25:09,800
Speaker 3: and made that whole process less efficient. So there's probably

483
00:25:09,800 --> 00:25:12,520
Speaker 3: all kinds of algorithms that I'm not even thinking about.

484
00:25:12,520 --> 00:25:13,560
Speaker 3: As the end consumer here.

485
00:25:13,720 --> 00:25:16,040
Speaker 4: There are lots of algorithms, and when you think about

486
00:25:16,440 --> 00:25:19,960
Speaker 4: boxes and pacging in traditional e commerce, they are looking

487
00:25:20,000 --> 00:25:25,119
Speaker 4: to optimize not just from a packaging standpoint, from a

488
00:25:25,160 --> 00:25:29,440
Speaker 4: pricing position, but really from a cube in the shipments.

489
00:25:30,080 --> 00:25:32,960
Speaker 4: So we have to think that Amazon's going to process

490
00:25:32,960 --> 00:25:36,520
Speaker 4: all these orders, or Chewy or whatever the e commerce

491
00:25:36,520 --> 00:25:39,960
Speaker 4: platform is. They process the orders, They're going to go

492
00:25:40,040 --> 00:25:42,960
Speaker 4: through their distribution centers. And if you're Amazon, you have

493
00:25:43,000 --> 00:25:44,440
Speaker 4: your own trucks. You want to make sure that you

494
00:25:44,440 --> 00:25:46,720
Speaker 4: can put many of those things on a truck as possible.

495
00:26:02,160 --> 00:26:05,480
Speaker 3: You know, when we're talking about broader macroeconomic data these days,

496
00:26:05,560 --> 00:26:08,639
Speaker 3: in particular, there are a lot of questions about the

497
00:26:08,720 --> 00:26:11,639
Speaker 3: degree to which the aggregates are missing part of the story,

498
00:26:11,640 --> 00:26:14,760
Speaker 3: and specifically in a lot of commerce these days. Anytime

499
00:26:15,119 --> 00:26:17,800
Speaker 3: there's some retail CEO that like things are holding up well,

500
00:26:18,400 --> 00:26:20,760
Speaker 3: but it's really being driven by the high end. The

501
00:26:20,840 --> 00:26:24,040
Speaker 3: high end is keeping it afloat the middle consumers getting squeized,

502
00:26:24,119 --> 00:26:26,399
Speaker 3: lower incomes getting exqueized, you know, all kinds of things.

503
00:26:26,680 --> 00:26:29,480
Speaker 3: You know, we're talking in aggregates when you talk about

504
00:26:29,480 --> 00:26:32,640
Speaker 3: box square footage having been shipped, But is there more

505
00:26:32,720 --> 00:26:35,879
Speaker 3: granular data that one could look at in terms of

506
00:26:35,920 --> 00:26:38,520
Speaker 3: the quality of cardboard, et cetera. That could tell us

507
00:26:38,560 --> 00:26:41,560
Speaker 3: different things about what's strong within the economy. Even if

508
00:26:41,560 --> 00:26:43,440
Speaker 3: the big numbers are declining.

509
00:26:43,040 --> 00:26:46,879
Speaker 2: The fancy boxes, Uh, the fancy box is not really.

510
00:26:48,040 --> 00:26:50,800
Speaker 4: So one of the problems that our industry faces is

511
00:26:50,800 --> 00:26:53,479
Speaker 4: that we don't have great data. Having worked in the

512
00:26:53,480 --> 00:26:57,000
Speaker 4: industry and having provided that data, it's the chore that

513
00:26:57,119 --> 00:27:00,520
Speaker 4: no one really double checks. So you've you've brought on

514
00:27:00,560 --> 00:27:03,120
Speaker 4: a new customer, right, and you're submitting all your paperwork

515
00:27:03,160 --> 00:27:04,919
Speaker 4: for the new customer. One of those things is a

516
00:27:05,000 --> 00:27:12,120
Speaker 4: classification of their NAICS code, the North American Industry code. Well,

517
00:27:12,119 --> 00:27:14,800
Speaker 4: no one ever checks to make sure that's proper, right.

518
00:27:14,960 --> 00:27:17,760
Speaker 4: You just kind of wing it. You look it up

519
00:27:17,760 --> 00:27:19,879
Speaker 4: and see if they've maybe followed it with the Secretary

520
00:27:19,920 --> 00:27:23,359
Speaker 4: of Commerce or something like that, and that's it. So

521
00:27:24,240 --> 00:27:28,080
Speaker 4: the granular data is murky at best, but it is

522
00:27:28,119 --> 00:27:31,600
Speaker 4: insightful and it is consistent because there is a cost

523
00:27:31,840 --> 00:27:35,760
Speaker 4: to changing your supplier, like we do see it happen,

524
00:27:36,119 --> 00:27:39,080
Speaker 4: and for very big box customers, they don't like changing.

525
00:27:39,440 --> 00:27:43,240
Speaker 4: You have a long standing relationship, typically many many years.

526
00:27:43,760 --> 00:27:46,160
Speaker 4: You have lots of skews, and if you're a really

527
00:27:46,200 --> 00:27:48,920
Speaker 4: big company and you have operating facilities all over the place,

528
00:27:49,080 --> 00:27:52,520
Speaker 4: you don't want to go through that. So the data,

529
00:27:52,560 --> 00:27:55,159
Speaker 4: while murky, might be consistent, and we do see some

530
00:27:55,200 --> 00:27:57,120
Speaker 4: of those things. Like in twenty twenty four, for instance,

531
00:27:57,440 --> 00:28:00,280
Speaker 4: we saw that manufactured food felt like by three point

532
00:28:00,400 --> 00:28:03,520
Speaker 4: seven percent, So if you combine that with beverage, it

533
00:28:03,560 --> 00:28:05,560
Speaker 4: was a little over of a four percent decline in

534
00:28:05,680 --> 00:28:10,160
Speaker 4: box usage. Now, how do we describe that. Did those

535
00:28:10,240 --> 00:28:14,359
Speaker 4: companies see similar falls in their volume? I think I

536
00:28:14,359 --> 00:28:17,240
Speaker 4: think the data would suggest that that's probably very close.

537
00:28:18,040 --> 00:28:21,879
Speaker 4: Corregated packaging does have some known trade offs. One of

538
00:28:21,880 --> 00:28:26,320
Speaker 4: those things is a returnable plastic container that is mainly

539
00:28:26,320 --> 00:28:30,679
Speaker 4: being pushed right now towards produce. Walmart specifically Sprouts Market

540
00:28:31,000 --> 00:28:33,920
Speaker 4: have been pushing some of their people to adopt returnable

541
00:28:33,920 --> 00:28:38,080
Speaker 4: plastic containers as a viable option. It reduces waste. They're

542
00:28:38,080 --> 00:28:41,600
Speaker 4: building supply chains around these things to help carry them around.

543
00:28:42,120 --> 00:28:43,600
Speaker 4: So that is one of the things that we've seen

544
00:28:43,720 --> 00:28:47,080
Speaker 4: kind of cut into box consumption. We don't know that

545
00:28:47,600 --> 00:28:50,440
Speaker 4: it's a big thing yet, but it is out there

546
00:28:50,480 --> 00:28:52,720
Speaker 4: and it is a thing. The other thing that we've

547
00:28:52,720 --> 00:28:57,120
Speaker 4: seen is a movement to larger format boxes, some that

548
00:28:57,160 --> 00:28:59,120
Speaker 4: are the size of a palette, you know, forty eight

549
00:28:59,120 --> 00:29:01,880
Speaker 4: inches long, four inches wide, and maybe forty inches tall.

550
00:29:02,400 --> 00:29:04,400
Speaker 4: A great playhouse for your young kids.

551
00:29:04,840 --> 00:29:08,360
Speaker 2: I remember doing that with huge boxes, turning them into houses.

552
00:29:08,840 --> 00:29:13,560
Speaker 2: Why would anyone invest in this space currently? Because when

553
00:29:13,600 --> 00:29:18,160
Speaker 2: you describe this enormous clut in supply and then the

554
00:29:18,240 --> 00:29:20,960
Speaker 2: fact that demand is going down. Maybe it's because of

555
00:29:21,000 --> 00:29:24,680
Speaker 2: the tariffs. Maybe if the US starts manufacturing more goods,

556
00:29:24,760 --> 00:29:28,280
Speaker 2: it'll domestically it'll start to pick up again. But it

557
00:29:28,320 --> 00:29:31,360
Speaker 2: seems like most of the lines are kind of trending

558
00:29:31,440 --> 00:29:35,680
Speaker 2: in the wrong way. What exactly is like the allure

559
00:29:36,040 --> 00:29:37,680
Speaker 2: of this industry, That's.

560
00:29:37,480 --> 00:29:41,040
Speaker 4: A great question. I wish I knew the answer, other

561
00:29:41,080 --> 00:29:44,280
Speaker 4: than they do have dividends that they have been paint

562
00:29:44,800 --> 00:29:46,080
Speaker 4: and consistently pain so.

563
00:29:46,400 --> 00:29:49,360
Speaker 2: It's considered like a div a, fairly like stable.

564
00:29:49,520 --> 00:29:51,920
Speaker 4: Very stable dividends. I think it's a pretty safe investment.

565
00:29:51,960 --> 00:29:55,120
Speaker 4: We do see. I mean it's very popular. From a

566
00:29:55,160 --> 00:29:58,520
Speaker 4: terminal standpoint. I get bluebird clients that reach out all

567
00:29:58,560 --> 00:30:01,240
Speaker 4: the time. They're looking to figure out if this is

568
00:30:01,240 --> 00:30:04,000
Speaker 4: still a good investment. And while we don't do buy

569
00:30:04,000 --> 00:30:07,240
Speaker 4: sohol recommendations. We still see a lot of traffic in

570
00:30:07,280 --> 00:30:08,280
Speaker 4: these in these lanes.

571
00:30:08,760 --> 00:30:11,800
Speaker 2: Does it just depend on how big your company actually

572
00:30:11,880 --> 00:30:14,560
Speaker 2: is and how much pricing power you have in the market.

573
00:30:14,720 --> 00:30:17,080
Speaker 4: Well, see, I think that's a myth. I think I

574
00:30:17,080 --> 00:30:20,800
Speaker 4: think there really isn't pricing power. If there were pricing power,

575
00:30:21,440 --> 00:30:23,240
Speaker 4: we wouldn't see some of the actions that we're seen

576
00:30:23,280 --> 00:30:26,280
Speaker 4: in the world today. And what I mean by that

577
00:30:26,400 --> 00:30:30,760
Speaker 4: is there are some mills that make a really robust paper.

578
00:30:31,080 --> 00:30:34,760
Speaker 4: It performs really really well, and there are scientific properties

579
00:30:34,800 --> 00:30:37,680
Speaker 4: to that paper that set it apart from anything else,

580
00:30:38,600 --> 00:30:41,360
Speaker 4: and yet they aren't getting the premium that they should

581
00:30:41,360 --> 00:30:45,880
Speaker 4: be getting because there is an alternative. And it's it's

582
00:30:45,920 --> 00:30:49,000
Speaker 4: like wanting a Ferrari and selling for a Mustang. They're

583
00:30:49,040 --> 00:30:54,920
Speaker 4: both great, but one obviously has the allure and one

584
00:30:55,000 --> 00:30:58,160
Speaker 4: has its client base too. And when you can buy

585
00:30:58,200 --> 00:31:03,000
Speaker 4: a Mustang and it, you're not always gonna want to

586
00:31:03,000 --> 00:31:03,600
Speaker 4: buy that Ferrari.

587
00:31:04,120 --> 00:31:05,920
Speaker 3: Well, actually this sort of gets me to where I

588
00:31:05,960 --> 00:31:08,200
Speaker 3: want to go. First of all, what would be the

589
00:31:08,280 --> 00:31:12,360
Speaker 3: name of the biggest box or packaging expo in the

590
00:31:12,440 --> 00:31:15,040
Speaker 3: United States? Like that gets together somewhere.

591
00:31:14,840 --> 00:31:16,840
Speaker 4: Yeah, in big round terms for.

592
00:31:16,920 --> 00:31:19,080
Speaker 3: Packaging pack Expo, where's that Vegas?

593
00:31:19,320 --> 00:31:21,240
Speaker 4: This is going to be in Vegas this year May.

594
00:31:21,360 --> 00:31:23,360
Speaker 3: We'll go on day all right, So, sitting aside the

595
00:31:23,400 --> 00:31:26,120
Speaker 3: volume and pricing trends, which we take for granted, everyone

596
00:31:26,200 --> 00:31:29,880
Speaker 3: is curious about what would be the hot topics right

597
00:31:29,920 --> 00:31:31,959
Speaker 3: now that would be discussed at pack Expo.

598
00:31:32,280 --> 00:31:36,240
Speaker 4: Ooh. Sustainability has been a really big topic for a

599
00:31:36,240 --> 00:31:42,479
Speaker 4: long time, and it's matched with extended producer responsibility laws.

600
00:31:42,560 --> 00:31:46,440
Speaker 4: So this is a state by state initiative to basically

601
00:31:46,560 --> 00:31:49,720
Speaker 4: shift the burden of recycling away from its residents and

602
00:31:49,800 --> 00:31:52,120
Speaker 4: onto the companies who are creating the waste.

603
00:31:52,760 --> 00:31:53,960
Speaker 2: How does that work exactly?

604
00:31:54,280 --> 00:31:56,200
Speaker 4: So right now we have a handful of states who've

605
00:31:56,400 --> 00:32:00,080
Speaker 4: actually passed legislation. Oregon's the first one that is real

606
00:32:00,440 --> 00:32:04,080
Speaker 4: kind of enacting this, and they've set up a fee schedule.

607
00:32:04,200 --> 00:32:07,560
Speaker 4: They've measured how much waste their state produces in a

608
00:32:07,600 --> 00:32:11,720
Speaker 4: month or in a year, and they've allocated a certain

609
00:32:11,800 --> 00:32:15,320
Speaker 4: number of dollars per pound or cents per pound for

610
00:32:15,440 --> 00:32:18,080
Speaker 4: each one of those commodities. And if you're selling something

611
00:32:18,080 --> 00:32:21,880
Speaker 4: into the state, they are essentially placing a fee on

612
00:32:22,240 --> 00:32:24,400
Speaker 4: the waste that you're sending in their state and you

613
00:32:24,440 --> 00:32:25,640
Speaker 4: have to pay a check to them.

614
00:32:25,920 --> 00:32:27,959
Speaker 3: Can you tell a little bit more about the economics

615
00:32:28,000 --> 00:32:30,960
Speaker 3: of recycling, because I put a lot of the cardboard

616
00:32:30,960 --> 00:32:33,480
Speaker 3: I use into the proper into the proper bin. The

617
00:32:33,520 --> 00:32:37,800
Speaker 3: economics of recycling, like I'm always and this goes with

618
00:32:37,880 --> 00:32:40,800
Speaker 3: any recycling really, which is that when I think about

619
00:32:40,800 --> 00:32:43,400
Speaker 3: the labor that actually when I think about a the

620
00:32:43,480 --> 00:32:46,200
Speaker 3: degree of diligence that people and I would say I'm

621
00:32:46,200 --> 00:32:49,600
Speaker 3: probably higher than average diligence about proper bin allocation, but

622
00:32:49,680 --> 00:32:51,840
Speaker 3: I know I'm not perfect. But when I think about

623
00:32:52,000 --> 00:32:54,280
Speaker 3: the degree of diligence and the inefficiency and then the

624
00:32:54,360 --> 00:32:56,920
Speaker 3: labor and all of this stuff, and then talk to

625
00:32:57,000 --> 00:33:00,640
Speaker 3: us like when is it actually economic and when is

626
00:33:00,680 --> 00:33:03,800
Speaker 3: it just sort of some sort of cargo cult type

627
00:33:04,680 --> 00:33:07,400
Speaker 3: behavior that people engage in where there's no real purpose.

628
00:33:07,560 --> 00:33:10,440
Speaker 4: Well, most of the time the recycling fees are paid

629
00:33:10,440 --> 00:33:14,280
Speaker 4: by taxes. My street, for instance, that was not the case,

630
00:33:14,280 --> 00:33:15,840
Speaker 4: and I had to pay twenty five dollars a quarter

631
00:33:15,920 --> 00:33:18,960
Speaker 4: for a bin. Not terrible, but I had to pay

632
00:33:19,000 --> 00:33:23,640
Speaker 4: for it. The economics in big round numbers work like this.

633
00:33:23,920 --> 00:33:26,720
Speaker 4: It costs anywhere from about four hundred dollars a ton

634
00:33:26,800 --> 00:33:29,000
Speaker 4: upwards the seven hundred dollars a ton to go out

635
00:33:29,040 --> 00:33:33,440
Speaker 4: and do the collections and processing for recovered materials, all

636
00:33:33,480 --> 00:33:35,240
Speaker 4: of that stuff. So you'll see a truck come and

637
00:33:35,240 --> 00:33:38,520
Speaker 4: pick up your recyclables. It goes to a facility called AMRPH,

638
00:33:38,560 --> 00:33:42,640
Speaker 4: a municipal Recovery facility, and there it's processed and they

639
00:33:42,680 --> 00:33:45,840
Speaker 4: have lots of lines that sort things out plastics and

640
00:33:45,920 --> 00:33:47,840
Speaker 4: metals and papers and all of that stuff, and then

641
00:33:48,080 --> 00:33:53,440
Speaker 4: they produce bales, so a compact cube of sorts of

642
00:33:53,480 --> 00:33:57,800
Speaker 4: these materials and then they get sold. So if we

643
00:33:57,800 --> 00:33:59,400
Speaker 4: were to just use a big round number and say

644
00:33:59,400 --> 00:34:02,520
Speaker 4: five hundred dollars a ton, the net ton that comes

645
00:34:02,560 --> 00:34:05,440
Speaker 4: out of the murph only has a street value between

646
00:34:05,440 --> 00:34:07,240
Speaker 4: one hundred to one hundred and forty dollars a ton.

647
00:34:08,600 --> 00:34:11,240
Speaker 3: Yeah, listen hearing that right. That sod is terrible.

648
00:34:11,320 --> 00:34:15,160
Speaker 4: That's terrible. And the craziest thing is the correated box

649
00:34:15,760 --> 00:34:21,719
Speaker 4: is what really makes household recycling even work. Because we

650
00:34:21,800 --> 00:34:24,560
Speaker 4: know from data, and this is something we I challenged

651
00:34:24,640 --> 00:34:27,800
Speaker 4: several years ago. Our best data says that we recycle

652
00:34:27,840 --> 00:34:30,400
Speaker 4: about sixty six percent of the correated boxes in the

653
00:34:30,520 --> 00:34:33,759
Speaker 4: US it's a pretty good number. The industry used to

654
00:34:33,800 --> 00:34:36,359
Speaker 4: say ninety three percent of boxes got recycled. There's no

655
00:34:36,400 --> 00:34:39,080
Speaker 4: way that's possible. But we don't have the data to

656
00:34:39,120 --> 00:34:41,799
Speaker 4: say it's lower than sixty six percent, But we do

657
00:34:41,880 --> 00:34:43,839
Speaker 4: have a methodology that we used to kind of get there.

658
00:34:44,360 --> 00:34:47,160
Speaker 4: It was actually supported by the National Renewable Energy Lab.

659
00:34:47,920 --> 00:34:50,560
Speaker 4: You can probably shoot some holes and some other stuff too,

660
00:34:50,600 --> 00:34:54,520
Speaker 4: but big point is we know that about sixty percent

661
00:34:54,520 --> 00:34:56,640
Speaker 4: of these get recycled, and we know they have a

662
00:34:56,840 --> 00:35:01,720
Speaker 4: very robust aftermarket. We process about thirty five million tons

663
00:35:01,920 --> 00:35:06,200
Speaker 4: of old coreated cartons almost every year. About a third

664
00:35:06,200 --> 00:35:09,080
Speaker 4: of them are going to go overseas. There are a

665
00:35:09,120 --> 00:35:11,920
Speaker 4: lot of other countries that want the virgin fiber that

666
00:35:11,960 --> 00:35:12,799
Speaker 4: we produce here.

667
00:35:14,040 --> 00:35:18,040
Speaker 2: Now that we've revealed the depressing truth about recycling, let

668
00:35:18,080 --> 00:35:20,640
Speaker 2: me ask a slightly more positive question, which is have

669
00:35:20,719 --> 00:35:24,040
Speaker 2: there been any cool technological developments when it comes to

670
00:35:24,080 --> 00:35:24,680
Speaker 2: box making.

671
00:35:25,360 --> 00:35:30,080
Speaker 4: They are constantly patenting boxes, making new equipment to make

672
00:35:30,120 --> 00:35:34,439
Speaker 4: them faster, improving the way we make the paper. We're

673
00:35:34,440 --> 00:35:37,400
Speaker 4: trying to make stronger paper that's lighter in weight. So

674
00:35:37,400 --> 00:35:38,839
Speaker 4: if you think about some of these, we'll go back

675
00:35:38,880 --> 00:35:42,239
Speaker 4: to the EPR laws. For a second, those fees are

676
00:35:42,440 --> 00:35:45,959
Speaker 4: based on the weight of what you're consuming. So if

677
00:35:46,000 --> 00:35:48,480
Speaker 4: the companies can buy a lighter weight material, then their

678
00:35:48,520 --> 00:35:51,640
Speaker 4: fees go down. So there's a push now to see

679
00:35:51,640 --> 00:35:55,200
Speaker 4: if we can lightweight the paper, make it as strong

680
00:35:55,280 --> 00:35:57,560
Speaker 4: but with less weight. And so these are things that

681
00:35:57,560 --> 00:35:59,480
Speaker 4: we're going to see really take some shape in the

682
00:35:59,520 --> 00:36:01,000
Speaker 4: next five to ten years.

683
00:36:01,120 --> 00:36:04,400
Speaker 3: You know, I'm glad you mentioned export. One of the

684
00:36:04,400 --> 00:36:07,959
Speaker 3: things that I've noticed whenever I am traveling abroad, even

685
00:36:08,000 --> 00:36:10,239
Speaker 3: to fairly rich countries, but I definitely notice it when

686
00:36:10,280 --> 00:36:14,040
Speaker 3: I'm in poorer countries is that the quality of packaging

687
00:36:14,120 --> 00:36:17,360
Speaker 3: materials is distinctly worse than here. So and the example

688
00:36:17,400 --> 00:36:20,160
Speaker 3: that I often notice is, you know, you buy a

689
00:36:20,160 --> 00:36:22,560
Speaker 3: bottle of water in a US grocery store. It's nice,

690
00:36:22,600 --> 00:36:25,839
Speaker 3: it's dirty, it holds its form very well. You buy

691
00:36:25,880 --> 00:36:29,839
Speaker 3: a bottle of water it's a grocery store in Guatemala,

692
00:36:29,840 --> 00:36:32,239
Speaker 3: where I was a couple years ago. In Mexico, it's crinkly,

693
00:36:32,920 --> 00:36:35,920
Speaker 3: it smashes over easily. You could tell that it's a

694
00:36:36,000 --> 00:36:40,520
Speaker 3: less durable plastic. Is there similar you know, if I hadn't,

695
00:36:40,600 --> 00:36:42,800
Speaker 3: if we were to look at the cardboard boxes running

696
00:36:42,960 --> 00:36:45,960
Speaker 3: through a developing economies such as a Guatemal et cetera.

697
00:36:46,000 --> 00:36:48,880
Speaker 3: Would we see that this is noticeably different than the

698
00:36:49,000 --> 00:36:50,520
Speaker 3: quality of cardboard that we're seeing here.

699
00:36:51,000 --> 00:36:53,440
Speaker 4: It really depends on what the technical term is going

700
00:36:53,480 --> 00:36:55,560
Speaker 4: to be furnished, right, So what are you using to

701
00:36:55,600 --> 00:36:59,320
Speaker 4: make the boxes? The US has historically been a maker

702
00:36:59,400 --> 00:37:03,439
Speaker 4: of Kraft linerboard, meaning they cut down trees, they chip

703
00:37:03,520 --> 00:37:07,520
Speaker 4: the trees, they turn those chips into new virgin paper.

704
00:37:08,239 --> 00:37:10,719
Speaker 4: That's actually been declining and reversing. We've seen more and

705
00:37:10,760 --> 00:37:14,040
Speaker 4: more recycled capacity come online. And because we've still had

706
00:37:14,080 --> 00:37:16,840
Speaker 4: a very good virgin base, the recycled paper here in

707
00:37:16,880 --> 00:37:19,800
Speaker 4: the US has been very good. Now in other countries,

708
00:37:19,840 --> 00:37:22,960
Speaker 4: they may not have Southern yellow pine, so they are

709
00:37:23,000 --> 00:37:26,719
Speaker 4: buying our occ or they're using their own occ OCC's

710
00:37:26,760 --> 00:37:29,960
Speaker 4: old cordiered cartons. Sorry, So they're just going to repulp

711
00:37:30,000 --> 00:37:32,279
Speaker 4: the stuff that they have. And if they start with

712
00:37:32,520 --> 00:37:35,080
Speaker 4: a low quality box, then they're going to get a

713
00:37:35,080 --> 00:37:38,280
Speaker 4: low quality paper on the back end, and so sometimes

714
00:37:38,320 --> 00:37:41,560
Speaker 4: they are going to have a lower grade paper. And

715
00:37:41,600 --> 00:37:44,240
Speaker 4: in other areas of the world, they actually have different

716
00:37:44,600 --> 00:37:46,640
Speaker 4: definitions for that kind of paper, so they would have

717
00:37:46,640 --> 00:37:49,560
Speaker 4: different grades of it, and so yeah, sometimes you get

718
00:37:49,560 --> 00:37:53,000
Speaker 4: the low grade paper because it's a commodity and it'll work.

719
00:37:53,680 --> 00:37:56,520
Speaker 2: So I just have one more question, just to wrap

720
00:37:56,560 --> 00:37:59,680
Speaker 2: it all up. Ah, that's a packaging joke. Okay, wrapping

721
00:37:59,719 --> 00:38:03,600
Speaker 2: it all up. Summarizing what's your prediction for the second

722
00:38:03,600 --> 00:38:05,600
Speaker 2: half of the year in terms of box shipments.

723
00:38:05,840 --> 00:38:08,719
Speaker 4: We think they're still going to be very challenged. Full year.

724
00:38:09,480 --> 00:38:11,560
Speaker 4: We're saying they're probably gonna be down two and a

725
00:38:11,560 --> 00:38:14,319
Speaker 4: half percent, maybe as high as three percent. It really

726
00:38:14,320 --> 00:38:18,240
Speaker 4: depends on what happens. A lot of this is stemming

727
00:38:18,280 --> 00:38:21,640
Speaker 4: from tariffs and policy coming out of the White House,

728
00:38:22,000 --> 00:38:25,080
Speaker 4: so it really depends on how much confidence some of

729
00:38:25,080 --> 00:38:28,880
Speaker 4: these companies have as they look forward. We've seen the

730
00:38:29,400 --> 00:38:32,400
Speaker 4: number of containers coming into the US, like the cargo

731
00:38:32,440 --> 00:38:35,920
Speaker 4: ships was front loaded, right and now that the tariffs

732
00:38:35,920 --> 00:38:38,479
Speaker 4: are kind of here, or maybe they're not here, they've

733
00:38:38,520 --> 00:38:42,160
Speaker 4: been kind of tapering off a bit. It will be

734
00:38:42,280 --> 00:38:46,239
Speaker 4: very curious to see what happens. But to maybe think

735
00:38:46,239 --> 00:38:48,880
Speaker 4: about it another way, most Americans buy stuff when they

736
00:38:48,960 --> 00:38:51,120
Speaker 4: have money, and when they don't have money, they put

737
00:38:51,200 --> 00:38:53,560
Speaker 4: on credit cards, and we're seeing records amount of credit

738
00:38:53,560 --> 00:38:57,080
Speaker 4: card debt, and that's not a great sign for if

739
00:38:57,080 --> 00:39:00,200
Speaker 4: people are going to spend money. So we don't really

740
00:39:00,280 --> 00:39:03,360
Speaker 4: think that it's a really hot outlook for even the

741
00:39:03,520 --> 00:39:06,480
Speaker 4: for the holidays, our American is gonna spend money. Probably

742
00:39:06,840 --> 00:39:08,480
Speaker 4: Is it going to look exactly like it did in

743
00:39:08,560 --> 00:39:09,920
Speaker 4: prior years?

744
00:39:09,960 --> 00:39:13,960
Speaker 2: Probably not all right, Ryan Fox, Containers and Packaging analysts

745
00:39:13,960 --> 00:39:15,839
Speaker 2: at Bloomberg Intelligence, thank you so much.

746
00:39:16,000 --> 00:39:29,879
Speaker 3: Thanks for having me, Joe.

747
00:39:29,920 --> 00:39:31,320
Speaker 2: I learned a lot about boxes.

748
00:39:31,560 --> 00:39:33,399
Speaker 3: That goes great. Yeah, I love Ryan.

749
00:39:34,160 --> 00:39:37,000
Speaker 2: You know, one thing I really like about Ryan and

750
00:39:37,040 --> 00:39:39,360
Speaker 2: people like that is when they trot out all the

751
00:39:39,440 --> 00:39:42,760
Speaker 2: numbers off the top of their head. That was really impressive.

752
00:39:42,800 --> 00:39:45,920
Speaker 2: That was no notes, and he had answers for pretty

753
00:39:46,000 --> 00:39:46,560
Speaker 2: much everything.

754
00:39:46,880 --> 00:39:49,640
Speaker 3: If someone had asked me how I thought they would

755
00:39:49,719 --> 00:39:53,319
Speaker 3: measure box shoes, I might have guessed cubic feet, right,

756
00:39:53,520 --> 00:39:57,080
Speaker 3: square feet, but yes, I would have you know, all

757
00:39:57,080 --> 00:39:59,640
Speaker 3: this covering the world stuff. Yeah, it's pretty cool.

758
00:39:59,760 --> 00:40:03,480
Speaker 2: Yeah, And I guess the question over how useful a

759
00:40:03,560 --> 00:40:08,640
Speaker 2: macroeconomic indicator boxes actually are still kind of lingers. Because

760
00:40:08,719 --> 00:40:11,359
Speaker 2: we did have retail sales data for the past two

761
00:40:11,360 --> 00:40:14,440
Speaker 2: months that are available that came in like pretty resilient,

762
00:40:14,480 --> 00:40:17,480
Speaker 2: pretty strong, despite the decline in box shipments.

763
00:40:18,080 --> 00:40:20,760
Speaker 3: What was the term used cart to carton commerce?

764
00:40:20,840 --> 00:40:21,000
Speaker 4: Yeah?

765
00:40:21,040 --> 00:40:23,320
Speaker 3: I really like that because it's true, right, what is

766
00:40:23,400 --> 00:40:27,080
Speaker 3: e commerce that now encompasses so many different things? So

767
00:40:27,120 --> 00:40:29,480
Speaker 3: there is this sort of classic e commerce where you

768
00:40:29,560 --> 00:40:30,719
Speaker 3: go on a website and you buy a thing and

769
00:40:30,719 --> 00:40:33,160
Speaker 3: it comes in a box. But then there's of course,

770
00:40:33,280 --> 00:40:35,040
Speaker 3: you know, buy and you pick up at the store,

771
00:40:35,080 --> 00:40:38,640
Speaker 3: and that's a slightly different variation, or maybe you get

772
00:40:38,880 --> 00:40:41,520
Speaker 3: food delivered in a cardboard box, et cetera. So I

773
00:40:41,600 --> 00:40:44,040
Speaker 3: like the idea of okay, e commerce is so broad

774
00:40:44,080 --> 00:40:46,440
Speaker 3: that if we want to have like, for like trajectories

775
00:40:46,440 --> 00:40:49,480
Speaker 3: of some of these used cases for cardboard boxes, we

776
00:40:49,560 --> 00:40:51,160
Speaker 3: have to maybe get a little bit more granular.

777
00:40:51,320 --> 00:40:53,680
Speaker 2: Well that reminds me, actually, I think one thing that's

778
00:40:53,719 --> 00:40:57,839
Speaker 2: still really underappreciated about the packaging industry is how much

779
00:40:57,840 --> 00:41:01,080
Speaker 2: it feeds into broader inflation. Yes, yes, and this is

780
00:41:01,120 --> 00:41:04,279
Speaker 2: something I remember some economists bringing this up during the

781
00:41:04,280 --> 00:41:08,160
Speaker 2: post pandemic era. But the interesting thing is now, even

782
00:41:08,200 --> 00:41:11,560
Speaker 2: though box shipments are going down, prices still seem to

783
00:41:11,600 --> 00:41:14,520
Speaker 2: be kind of sticky and even going up. So what

784
00:41:14,640 --> 00:41:15,960
Speaker 2: does that mean for inflation?

785
00:41:16,080 --> 00:41:18,120
Speaker 3: I always think about this, and sometimes it maybe gets

786
00:41:18,120 --> 00:41:20,520
Speaker 3: a little metaphysical. But when you buy a thing in

787
00:41:20,560 --> 00:41:23,080
Speaker 3: a grocery store, Let's say, buy an avocado, Like, what

788
00:41:23,120 --> 00:41:26,000
Speaker 3: are you buying when you buy the avocado, right, Because okay,

789
00:41:26,040 --> 00:41:28,400
Speaker 3: there is the physical avocado that you might cut open,

790
00:41:28,800 --> 00:41:31,120
Speaker 3: But then you're buying the time it's spent in a

791
00:41:31,160 --> 00:41:35,040
Speaker 3: refrigerated space. You're paying rent to those owners of refrigeration, transport,

792
00:41:35,239 --> 00:41:38,440
Speaker 3: you're buying the transportation, et cetera. It's interesting to think

793
00:41:38,440 --> 00:41:41,680
Speaker 3: about any good that you buy period ahead of lettuce

794
00:41:41,680 --> 00:41:45,719
Speaker 3: et cetera. How little is the lettuce whatever, even the

795
00:41:45,760 --> 00:41:48,160
Speaker 3: lettuce means, because there is labor that went into the

796
00:41:48,200 --> 00:41:50,200
Speaker 3: planting of the lettuce, and there is the land of

797
00:41:50,200 --> 00:41:52,160
Speaker 3: the lettuce, et cetera. To the idea of what are

798
00:41:52,200 --> 00:41:55,840
Speaker 3: you buying when you're buying something, often that it includes packaging,

799
00:41:55,880 --> 00:41:58,000
Speaker 3: but often it's just never really clear at all what

800
00:41:58,080 --> 00:41:59,960
Speaker 3: it is except this bundle of goods and service.

801
00:42:00,200 --> 00:42:03,840
Speaker 2: I'm buying an entire slice of the economy. You literally are, Okay,

802
00:42:04,200 --> 00:42:07,200
Speaker 2: now that we've gotten into a metaphysical discussion about boxes,

803
00:42:07,280 --> 00:42:08,040
Speaker 2: shall we leave it there.

804
00:42:08,080 --> 00:42:08,799
Speaker 3: Let's leave it there.

805
00:42:08,960 --> 00:42:11,759
Speaker 2: This has been another episode of the Authoughts podcast. I'm

806
00:42:11,800 --> 00:42:14,640
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway.

807
00:42:14,760 --> 00:42:17,400
Speaker 3: And I'm joll Wisenthal. You can follow me at the Stowart.

808
00:42:17,680 --> 00:42:20,440
Speaker 3: Check out Ryan Stuff at Bloomberg Intelligence. A lot of

809
00:42:20,440 --> 00:42:24,440
Speaker 3: fascinating stuff there. Follow our producers Kerman Rodriguez at Kerman

810
00:42:24,520 --> 00:42:27,640
Speaker 3: armand desh O Bennett at Dashbot and kill Brooks at Kilbrooks.

811
00:42:27,880 --> 00:42:30,239
Speaker 3: From our odd Laws content, go to Bloomberg dot com

812
00:42:30,239 --> 00:42:32,799
Speaker 3: slash odd Lots were the daily newsletter and all of

813
00:42:32,920 --> 00:42:35,920
Speaker 3: our episodes. You can chat about all of these topics

814
00:42:35,920 --> 00:42:39,360
Speaker 3: twenty four to seven in our discord Discord dot gg

815
00:42:39,560 --> 00:42:40,480
Speaker 3: slash odline.

816
00:42:40,520 --> 00:42:43,000
Speaker 2: And if you enjoy Oddlots, if you like it when

817
00:42:43,040 --> 00:42:45,840
Speaker 2: we talk about boxes, then please leave us a positive

818
00:42:45,840 --> 00:42:49,080
Speaker 2: review on your favorite podcast platform. And remember, if you

819
00:42:49,160 --> 00:42:51,920
Speaker 2: are a Bloomberg subscriber, you can listen to all of

820
00:42:51,960 --> 00:42:55,080
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821
00:42:55,160 --> 00:42:58,160
Speaker 2: is find the Bloomberg channel on Apple Podcasts and follow

822
00:42:58,200 --> 00:43:00,399
Speaker 2: the instructions there. Thanks for us, name

823
00:43:21,640 --> 00:43:21,879
Speaker 4: Yeah