Bulk packagers adapt to changing market

By By Christopher Reilly -- Purchasing, 7/13/2000

Bulk packaging companies have a lot to think about in today's business climate. Like the CPI, the North American bulk packaging market is feeling the effects of rapid consolidation. At the same time, the market is becoming more global, and U.S.-based bulk packaging providers are seeing increased competition from overseas-primarily from Europe, where the packaging market is more mature.

But the rising competition level in North America has been accompanied by healthy packaging demand growth. To take advantage of the market's dynamics, packaging companies are developing a steady stream of new products to solve niche chemical packaging and shipping problems and are expanding their service offering to handle customers' packaging needs at every stage of containers' life cycles. In this way, packaging providers are focusing their services to provide customers with total packaging solutions.

Also adding to the constant transition is the emergence of electronic commerce in bulk packaging. However, unlike in the CPI (where analysts, buyers and suppliers alike are coming to recognize the inherent benefits of B2B e-commerce procurement and supply), players in the bulk packaging arena give e-commerce mixed reviews in terms of its application to packaging. Despite this disagreement, many packaging providers are gearing up to offer online product ordering and product tracking capabilities to customers.

Robust, dynamic market

The bulk packaging marketplace covers substantial territory. Containers are manufactured from a wide variety of raw materials to handle and transport a multitude of chemical products. Due to the many applications, the market is divided among several segments. The main segments include: bulk drums (usually 55-gal containers made of paper fiber, plastic, or steel), intermediate bulk containers (IBCs) constructed of steel, flexible intermediate bulk containers (fibcs) made from a wide variety of plastic resins and other non-rigid materials, and tank liners, which are available to fit a range of tank sizes and specific materials.

Demand and price for these products usually track trends in the economy as well as supply fluctuations in the markets for the raw materials used to make packaging containers. Overall, chemical packaging demand growth is estimated at about 3% to 3.5% annually, according to one industry source. However, supply, demand and pricing trends for the various bulk packaging market segments can vary greatly and are often dependent on market-specific factors. A closer look at these market segments may be found later in this section.

"An ongoing trend," says David S. Humphrey, senior vice president, sales and marketing at Hoover Materials Handling Group Inc., based in Alpharetta, Ga., "Is the combination of consolidation and globalization in the bulk packaging market, as well as in the markets it serves. And as chemical companies merge and get larger, they're looking more globally in terms of their packaging, both from a specifications perspective and from a sourcing perspective," he says.

The U.S. marketplace is also seeing an increase in competition from global producers located in other world regions. This is especially true for IBCs, but it is also evident in the steel and plastic drums market segments.

Hoover's David Humphrey comments, "The level of competition in the bulk packaging marketplace is high and is increasing. This is particularly true in the U.S. market, where European competition continues to make inroads on market share. And we're contributing to the process," he says. Humphrey explains that Hoover Materials Handling Group recently licensed technology from two European manufacturers (Mauser-Werke GmbH, located in Germany, and Mamor Packaging Services, based in Italy) to market their bulk packaging products in the U.S.

In addition, other European bulk packaging manufacturers are partnering with U.S. producers. In March, Clawson Container announced the formation of an international alliance of intermediate bulk container (IBC) manufacturers.

Member companies in the venture include Fustiplast, SPA, located in Bottanuco, Italy; Reyde, SA, in Barcelona, Spain; BCS, GmbH, in Aachen, Germany; and Clawson Container Co., in Clarkston, Mich. The venture will produce PacNet IBC, reusable blow-molded intermediate bulk containers for distribution in Europe, Asia, Africa and the Americas.

Several mergers and acquisitions have also changed the face of competition in bulk packaging in the past few years. Among the largest of these consolidations was last year's merger of Van Leer Container, an industrial container manufacturer based in The Netherlands, with consumer market packaging giant Huhtamaki, based in Finland.

Another major consolidation was Grief Bros.' acquisition of Sonoco Packaging in 1998, which greatly boosted its fiber drum and plastic drum packaging businesses.

"The business is undergoing a tremendous amount of change," says Wayne Carlberg, vice president of marketing at Grief Bros. Corp., located in Delaware, Ohio. "This will spell opportunity to those that embrace change," he says. "It's going to be painful at times for some, but we'll begin to see the cream rise to the top and, overall, buyers, consumers and the industry as a whole will benefit."

And while the market adjusts to the changes, suppliers continue to develop new products. According to Carlberg, most of the growth in bulk packaging depends primarily upon the development of new products.

"If you look at our business over the past couple of years, you'll see that we have spent a lot of time and resources in developing co-extrusion capabilities," says Greif's Carlberg. "This has been a substantial investment," Grief plans to release several new co-extrusion products to the marketplace in the near future, according to Carlberg.

Service solutions

Aside from the changes caused by consolidation and globalization, the bulk packaging markets have been affected by another ongoing trend: suppliers striving to reduce customers' packaging costs as a percentage of their total production costs.

"Customers are looking for lower-cost forms of packaging, says Hoover's David Humphrey. "This is not to say that they're looking for cheaper containers, rather they want lower-cost packaging solutions," he says. "As a result, there is a drive toward being a lower-cost manufacturer. The survivors in the future will be those companies that are able to reduce their customers' total costs," Humphrey says.

But with upward material cost pressures, such as for polyethylene resins and cold-rolled stainless steel, bulk packaging suppliers are faced with a challenging margin squeeze.

To remain competitive, suppliers are developing their services as well as new products. Rather than simply supplying a container, bulk packagers are bundling their services around the container and are focusing on handling all the packaging needs of its customers. Examples of this include the development of vendor-managed container inventory, managed container recycling, reuse and disposal programs.

Container recycling and reuse has grown substantially in the past few years, and more growth is in store. According to analysts, annual demand growth in drum reuse and recycling should reach 15% to 20% in the next few years. One reason for this is the drive in the chemical industry toward responsible care. And one of the key components of responsible care involves minimizing waste in residual materials, which includes packaging.

"Reuse is becoming a mandatory part of the industrial packaging game," says Van Leer's Barbara Swanson. "If you don't provide the additional service, you are not going to be successful in the IBC side of the marketplace."

"If you make a product once and forget about it, and it's being reused five or six times by the customer, then there's a revenue stream that you're completely locked out of," says Greif's Carlberg. "If we don't provide the service, someone else will," Carlberg says. "Also, the more these packages are recycled and reused, the fewer new packaging products we're going to sell," he says.

And like most other industrial packaging suppliers, Grief has also developed its services to address the entire life cycle of its products. "We have a separate business unit that focuses strictly on packaging services, such as container reuse and recycling," says Carlberg. Another part of Grief Bros. Corp.'s, service offering is the development of a team of troubleshooters located across the country. According to Carlberg, this team of experts works with customers and personnel at the plants to resolve complaints and make improvements in packaging and logistics processes.

"We spend a lot of time on logistics," says Carlberg. "With all the recycling and reuse, you have to get the containers from point A to points B, C and D, and you have to get them back again for reconditioning," he says.

"Our container trip-lease concept has never been more valuable than this year," says Russell-Stanley's Ron Aloisio. "It has enabled us to offset some of the pressure to increase prices because of our ability to spread those costs over several trips," he says.

"Recycling and freight to retrieve IBCs from end users is a huge capital investment. These costs often exceed more than 85% of the original purchase price of new IBCs," Aloisio says.

Russell-Stanley's ContainerCare plus program offers 55-gal drum collection service. Under the program, standard drums are collected without a pick-up or freight charge within the continental U.S., according to the company. Customers call a toll-free number found on the drum label to schedule drum pick-up, prepare the necessary transport paperwork, collect the drum and handle disposal.

Similarly, Hoover Materials Handling Co. Inc., has developed its Closed Loop packaging service. "We have set up two Hoover facilities in Charlotte, N.C., and Chicago, Ill., which we refer to as "super centers," says David Humphrey. "Services at these facilities include the manufacture of new containers, collection of used containers, cleaning, reconditioning and recycling-depending on where the containers are in their life cycle," he says.

Hoover also offers its Container Fleet Management program for use with the more expensive, stainless steel returnable IBCs.

"Typically, major chemical companies don't manage their container fleets efficiently. They're in the chemical business-not the fleet management business," he says. According to Humphrey, the company has developed the capability to track container movement, maintenance and cost using bar coding and SAP-type software systems.

Humphrey also explains programs with customers in which Hoover owns the container fleet, tracks its movement, and generates management reports. In this respect, the customer simply pays a per-trip cost. "This reduces the company's capital investment, reduces an asset off their books, and they pay only when they use the container," Humphrey says.

Emerging e-commerce

Increasing interest in use of the Internet to procure and supply materials also has sparked changes in bulk packaging. As customers in the CPI (which represents about 80% of demand for industrial packaging) become more technologically savvy, they are beginning to demand that their packaging suppliers provide e-commerce capabilities for benefits in time saved and improved communications this mode of transacting business can provide.

But while most top bulk packaging companies are developing some form of e-commerce offering, there is some disagreement as to the extent of its applicability to the bulk packaging arena.

Haron Wise, vice president of sales and marketing at Berenfield Containers, a manufacturer of steel and plastic drums, located in Mason, Ohio, is skeptical of the hype surrounding e-commerce growth predictions and its affect on the bulk packaging markets. "E-procurement is coming, and it's clearly a situation that we will all have to deal with," Wise says. "It will be interesting to see it run its course in the industry."

Because his company focuses on tailoring its drums to customer specifications, Wise doesn't see steel drums as "commodity-type products that would lend themselves to online procurement," he says. "Frankly, we're surprised to see such rapid progression and interest in procurement of these items through e-commerce channels."

"There seems to be a lot of confusion among the chemical players as to how e-business will shape the future," says Wayne Carlberg at Grief Bros. "But we know that we will be deeply involved in e-commerce in the future," he says. "E-commerce will impact us and our industries, probably greater than anything we have seen in the last 30 years."

According to Carlberg, Grief has assembled an executive committee to explore the possibilities of e-commerce and determine Grief's role and involvement. "The next step is to look at the different facets of e-commerce and their impact on marketing, human resources, purchasing, customer relations, manufacturing and other functions within Grief Bros.," he says.

"At this stage, I think that the key to developing a sound strategy is that you have to have commitment from key top-level management players," Carlberg adds. "We definitely have that."

Russell-Stanley also has an e-commerce plan in development, which, according to Ron Aloisio, will include a mix of software, portal sites and internal system modifications to handle the requests of customers. "Following the completion of our customer survey, we should have a better idea which directions to take to ensure that we can best provide customers with their e-commerce needs," he says. "E-commerce has a great future-it's just a question of when. Our customers aren't demanding e-commerce yet, but we're ready to change as soon as customers want it," Aloisio says.

And like many companies, Van Leer Container has sought to partner with technology providers in order to determine its e-commerce direction in the bulk packaging markets. The company recently signed an agreement with Ironsides Technologies, a technology development company.

"We believe that the necessary tools are out in the marketplace, and it's just a matter of choosing which e-commerce tools are right for the company," says Van Leer's Swanson. "Minimally, we think we'll have to provide order entry, order status and sign up with trading companies that offer families of products for trade on one site," she says.

"E-commerce for us involves faster communications with our customers," says David Humphrey with Hoover Materials Handling. "We are beginning to see a need to install EDI systems for order placement and inventory management," Humphrey says. However, Hoover is tailoring these programs to individual customers' needs.

But when it comes to selling product online, Humphrey doesn't see the e-commerce connection. "We don't see the Internet as a viable way to go to market, at least in the near term," he says. "For small buyers, maybe-but for large buyers, industrial packaging is a repeat business," he says. "There's an opportunity to use the Internet for improved interaction and communications, but in terms of going to market, other than the preliminary data collection, I don't see an opportunity there for bulk packaging. E-commerce will never become the primary sales tool," Humphrey says.