Stressed bulk packagers stay afloat by offering cost savings
Slumping demand, volatile costs makes bulk packaging a difficult market to forecast
By Gordon Graff -- Purchasing, 10/15/2009 2:00:00 AM
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The bulk packaging industry has faced two formidable hurdles in the past year: the global recession, which is still potent even if slowly easing, plus wild gyrations of plastic resin prices. While bulk packaging as a whole has been negatively impacted by these conditions, some segments of the business have found ways to cope with them, and even prosper from them. One reason is that the recession is spurring bulk packaging buyers to switch to alternative container systems that offer hefty cost savings.
The poor economy has cooled demand for all types of industrial packaging, notes Lewis Anderson, executive vice president of the Flexible Intermediate Bulk Container Association, a Minneapolis-based industry group. But he says that business in flexible intermediate bulk containers (FIBCs) is holding up better than in other packaging sectors, "despite some economic bumps in the road." As Anderson explains it, the recession is causing cash-strapped companies to look for ways to cut their packaging costs, and some are turning to FIBCs to achieve that goal.
A rigid container such as a corrugated cardboard box with a wooden pallet can weigh up to 50 lbs., Anderson says, while an equal-capacity FIBC (which is essentially a giant woven plastic bag with straps) weighs only 6–8 lbs. Even with required "small investments" in the filling and discharging infrastructure, FIBCs can be a more economical alternative to rigid packaging systems, Anderson adds, "especially when transportation costs are factored in."
But any savings could be eroded by more expensive resin pricing. Last year saw an unprecedented run-up in prices of polypropylene from which the FIBCs are made, a plunge in tags at the end of 2008, and then a gradual ramping up in prices this year. (Polyethylene, another bulk packaging material, has followed a similar path.) Those rising resin prices have been "a challenge," concedes Anderson, but he says that some rigid plastic containers, such as plastic drums, have been affected far more by costlier resins.
At B.A.G. Corp., a Dallas-based manufacturer of flexible bulk packaging, Jodi Simons, says her company, and others in the industry, typically use hedging strategies to lock in fixed prices of polypropylene they buy for their products. That can help, she notes, when prices are rising, as they did earlier this year. A polypropylene shortage in China, Simons adds, has contributed to inflationary pressures on that material. But polypropylene tags, she says, "have remained more or less steady for the past few months."
But if escalating prices of polypropylene and polyethylene are a bane to some packaging firms, they are a plus to manufacturers of bulk packaging formats that are less plastics-intensive. One such firm is Paper Systems, a producer of one-way liquid bulk containers that compete directly with plastic drums. The company's containers consist of a corrugated cardboard box with a polyethylene lining.
"Plastics are really only a small fraction of our total package weight," says Kevin Stuart, marketing director at the Des Moines, Iowa-based firm. "So we've been able to ride out the peaks and valleys of resin pricing without too much impact on our customers." Over the past few years, he adds, "there have been many price increases for plastic drums, while we've only put through one."
Even some suppliers of plastics-intensive bulk containers have found ways to thrive in today's hard times. In fact, the recession has actually been a factor in their success. Take a company called Container and Pooling Solutions (CAPS), which rents plastic bulk containers to industrial customers. According to Drew Merrill, vice president for business development and strategic planning at the Livonia, Mich.-based firm, the containers, which are collapsible and returnable, are intended for temporary use. With the current high level of uncertainty in the industrial arena, not to mention constrained budgets, he notes that many manufacturers are reluctant to purchase expensive fleets of bulk containers to ship their raw materials or parts. Instead they prefer to keep their shipping infrastructure lean by renting containers. The renting option, says Merrill, is particularly attractive to businesses that are going through plant consolidations or closures, where they need to temporarily build up banks of parts.
Right now "we've never seen a stronger time for our company," Merrill comments. A prime reason, he says, is the turmoil in the auto industry. Automakers are frequently changing suppliers these days , he adds. But while awaiting deliveries from their new suppliers they have to build up inventories of parts from their old suppliers. "The temporary ebb and flow of parts into and out of plants" makes rented bulk containers a "cost-effective solution" for automakers, Merrill says. For automotive parts CAPS provides 48×45×34-inch bulk bins made of high-density polyethylene (HDPE), which fold up when they are empty.
Merrill says the food industry is also increasingly attracted to bulk container rentals. In that sector, he notes, product life cycles are growing shorter and consumer tastes are becoming "more fickle."
"If a product line isn't doing well, food companies don't have to be stuck with a huge fleet of purchased containers" used to bring in required ingredients, Merrill says. "Instead they can simply rent the containers they need and return them when they're finished." For the food industry, CAPS supplies rentable 315-gallon bulk liquid containers, suitable for shipping vegetable oils, condiments, flavorings, sauces and dairy products. The containers, which fold up when empty, are made of rigid polypropylene walls and include a disposable linear low-density polyethylene (LLDPE) bladder for holding the liquids.
The chemical industry is another big user of bulk packaging, and the longstanding rivalry between rigid and flexible packaging formats continues in that sector. Economics often dictates buyers' decisions on which system to use. At chemical distributor TRInternational in Seattle, Shondra Garrigus, vice president of purchasing, says that rates for moving isotainers—huge bulk metal shipping crates—across the ocean have remained "extremely high." That is one reason why her firm has been switching its transoceanic shipments from isotainers to lower cost packaging called flexitanks, which are flexible plastic bags inside rigid boxes. While flexitanks are a newer packaging technology, Garrigus says her customers "are increasingly willing to take the time to learn how to properly unload flexitanks."
Bulk Packaging Facts
Rigid bulk packaging demand
(U.S.) (million dollars)
| Item | 2003 | 2008 | 2013 | Annual growth (%) 2008–2013 |
| Source: The Freedonia Group |
||||
| Overall Demand | $4,356 | $6,275 | $6,970 | 2.1 |
| Drums | $1,322 | $2,055 | $2,150 | 0.9 |
| Pails | $1,229 | $1,565 | $1,745 | 2.2 |
| Material Handling Containers | $566 | $955 | $1,155 | 3.9 |
| Bulk Boxes | $779 | $975 | $1,030 | 1.1 |
| RIBC (Rigid Intermediate Bulk Containers) | $460 | $725 | $890 | 4.2 |
Flexible bulk packaging demand
(U.S.) (million dollars)
| Item | 2001 | 2006 | 2011 | Annual growth (%) 2006–2011 |
| Source: The Freedonia Group |
||||
| Overall Demand | $4,724 | $6,070 | $7,185 | 3.4 |
| Shipping Sacks | $2,299 | $2,465 | $2,685 | 1.7 |
| Film Wrap | $1,075 | $1,930 | $2,610 | 6.2 |
| Strapping | $515 | $735 | $805 | 1.8 |
| Drum/Box/Bin Liners | $530 | $610 | $725 | 3.5 |
| FIBC (Flexible intermediate bulk containers) and Other | $305 | $330 | $360 | 1.8 |
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