Demand in the North American containerboard industry is forecasted to grow in the near-, mid- and long-terms. Several factors tied to various underlying economic fundamentals are driving this growth, globally and in North America.
First, the continued global and North American GDP growth adds to the overall containerboard demand each year, by simply increasing the number of boxes required to ship durable and non-durable goods.
Secondly, the rapid growth in online retail sales, with some forecasting that e-commerce will grow to 30 percent of total retail sales by 2030,1 could lead to significantly higher box demand.
And third, China’s decision to limit the import of old corrugated containers (OCC) will have a direct impact on the country’s demand for virgin material needed to produce boxes. By not having OCC as a readily available raw material, the Chinese will need to import more virgin material, pulp and containerboard, to meet their ever-growing appetite for boxes within their economy.
Maxed operating rates leading to conversions
This demand growth has caused recent North American paper machine operating rates for linerboard and corrugated medium to run above 100 percent2—a result that is not sustainable. Higher demand and unsustainable operating rates are creating the need for new capacity, which is being answered by the industry via machine conversions and building new paper machines for both new and recycled linerboard production.
Conversions have recently been completed or announced by several major paper and packaging companies. And, others have indicated that they are building new recycled machines or installing new virgin machines to replace those that are aging, which helps the companies be better positioned on the cost curve. Similar projects can be expected in the future as demand continues to grow.
What do these projects all have in common? They each require hundreds of millions of dollars in capital expenditures; months of planning, input and involvement from valuable and often scarce resources; and the hiring and management of many outside contractors.
Digital mill of the future tools provide solution
Large capital projects and hiring contractors throughout the year is nothing new for the forest products industry. What is new are the digital tools that dramatically increase the ability to:
…all while building the foundation required to transition to a digital mill of the future.
Gathering momentum to realize benefits
Adoption of digitally based tools and technology in the forest products industry is in the very early stages. Many different concepts and ideas are being presented and written about at industry conferences and publications, respectively. Plus, use cases from other process-based industries (e.g., energy, metals, mining) are being shown to demonstrate the value and gains that are being achieved when the "what-if" becomes reality, driving discussions among corporate leadership teams.
In the early stages of this journey, the adoption rate for forest products companies is expectedly slow. Independent of the current pace of change, let's look at three benefits that can be gained as some of the new ways of working get implemented—each directly improving bottom-line results and delivering additional production that can push out the need for new greenfield or brownfield investments.
Digital drives improvement in key areas
To achieve benefits like these, companies can leverage digital tools that lead to improvements in seven critical areas:
Leveraging digitally based tools that can dramatically improve daily operations, shutdowns and capital projects is an important step toward the digital mill of the future. Based on Accenture’s client project experience, we estimate that digital tools can deliver direct labor cost savings of up to 20 percent while building capability to continuously improve via data gathering and analytics.
As forest products companies continue to build new capacity and annual CapEx budgets grow, leaders will strive to use these monies more efficiently; build a more robust, employee-safe atmosphere; and go beyond these improvements by using tools for the digital mill of the future.
That’s a strategy worth putting in writing…on paper!
1 Armstrong Investment Research, Containerboard Industry Update, November 17, 2017.
2 “American Forest & Paper Association Releases October 2017 Containerboard Report,” American Forest & Paper Association, November 15, 2017. Accessed on January 5, 2018 and viewable at: http://www.afandpa.org/media/news/2017/11/15/american-forest-paper-association-releases-october-2017-containerboard-report.
3 Accenture project experience.