The Cardboard Boxpocalypse and the State of the US Economy

In short

Odd Lots Podcast Summary

Episode Title

The Cardboard Boxpocalypse and the State of the US Economy

Hosts

Joe Weisenthal
Tracy Alloway

Guest

Ryan Fox - Containers and Packaging Analyst for Bloomberg Intelligence

Overview In this episode, the hosts delve into the significance of cardboard boxes within the economy, exploring the dramatic decline in box shipments and rising prices, and what it all suggests about consumer behavior and the overall state of the US economy.

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Key Discussion Points

The Ubiquity of Boxes

Significance of Boxes: Almost all products purchased today are shipped in boxes, making their shipping volumes an unconventional macroeconomic indicator.
Current Trends: There has been a significant drop in box shipments—lowest since 2015—indicating potential declines in retail spending and consumer health.

Insights from Ryan Fox

Box Shipment Statistics: The first half of the year saw a 2.3% decline in box shipments, which is attributed to uncertainties stemming from tariffs.
Consumer Goods Recession: Fox describes the current environment as a "consumer goods recession," with box shipments down 12% from pandemic highs.
Box Measurement: Box shipments are measured in billions of square feet, which provides a tangible way to visualize box consumption.

Box Manufacturing Process

Corrugated Boxes: Explained the difference between cardboard and corrugated fiberboard, detailing the manufacturing process, including the use of cornstarch as glue and the corrugation process that gives boxes their strength.
Testing for Quality: Discussed the rigorous testing processes that boxes undergo to ensure they can withstand shipping conditions.

Pricing Dynamics

Price Trends: Despite declining shipments, prices for boxes are rising due to various economic factors, including the industry’s vertical integration and a mismatch between inventory and demand.
Box Pricing Index: Ryan mentioned the Bloomberg Corrugated Box Cost Index, which has historically tracked box prices effectively but has shown discrepancies recently.

Implications for the Economy

Macro Indicator: The drop in box shipments signals potential declines in retail sales and consumer health. However, recent retail sales data showed resilience, complicating the narrative.
Consumer Behavior: The discussion highlighted how consumers are increasingly using credit due to rising costs, indicating financial strain.

Innovations in Packaging

Sustainability Efforts: The packaging industry is seeing a shift towards sustainability, especially with extended producer responsibility laws aimed at reducing waste.
Technological Advances: There is ongoing R&D to produce lighter yet stronger packaging materials to reduce costs associated with recycling fees.

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Key Takeaways

Boxes as Economic Indicators: The decline in box shipments could suggest a contraction in consumer spending, but it’s essential to consider broader economic data for a complete picture.
Consumer Behavior Trends: Rising credit card debt and changing shopping habits indicate uncertainty in consumer spending patterns.
Innovative Practices: The packaging industry is adapting through technological advancements and sustainability measures in response to changing market dynamics.

Conclusion The episode presents a comprehensive view of how seemingly mundane items like cardboard boxes play a crucial role in understanding economic trends and consumer behavior. Through the insights of Ryan Fox, the podcast illustrates the complexities and interdependencies within the packaging industry and its implications for the broader economy.

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For more insights, check Bloomberg's resources and the Odd Lots newsletter for ongoing discussions related to finance and economics.

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Transcript

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1:47hello and welcome to another episode of the all thoughts podcast i'm tracy alloway and i'm joe wasenthal joe i am gonna put something on the table and you tell me what it is okay Go on. All right. Here I go.

2:05It is a, this is a corrugated, I believe, cardboard box and has tape that says fragile. And I would guess it's about, I don't know, I'm not good at measurements. It'd be 18 inches by 36 inches, something like that. That is a very good physical description of a box. It's a cardboard box. However, I'm going to say you're wrong. It is, in fact, a macroeconomic indicator. The other acceptable answer is it's part of the Odd Lots logo. That's right. That's right. It's a box. And that is core to Odd Lots. But, you know, now we're going to talk about literally when you think box, you don't often first think magic money box positive scheme.

2:47And when you think box, you often don't necessarily think of a container ship, which is often called a box, as in the book the box. But I think when people think about a box, they think about a cardboard box, corrugated or not. Now is a very good time to be thinking about boxes, by the way, because there's been some commentary about this, but we basically had a sort of boxpocalypse in the States. Are we still having one? Jury's kind of out, and we'll get into that in the discussion. But U.S. box shipments, so boxes of boxes, which I find funny, sort of box-ception. Anyway, U.S. box shipments have fallen to the lowest second quarter reading since 2015.

3:26That's according to the Fiber Box Association. So these are probably like they're like folded up. Yeah, flat-packed. Yeah, so a bunch of them, they're maybe wrapped in plastic or something like that. So shipments of those lowest since like 2015. Yeah. And I think there are some other numbers we can get into that are like the worst since the financial crisis and things like that. And obviously the concern is boxes tend to contain products that people are buying. Right. So if no one's buying boxes, what does that say about retail spending, the health of the consumer and the direction of the broader economy?

4:01That's when you get into the macro indicator stuff. You know, I love e-commerce, but I hate breaking down boxes. I hate it so much. And then you, like, rip it up. There's no—it's never quick. I would like to see some innovation on the ease of collapsibility of purple boxes. You know what I did? Because I buy a lot. I trained my dog to rip apart Amazon boxes. Oh, that's amazing. But then he kind of went on strike and stopped doing it. Oh, that would have been cool. Get your kids to do it. Yeah. Put them to work. Okay, well, I am happy to say we do, in fact, have the perfect guest. We're going to be speaking with Ryan Fox.

4:34He is a containers and packaging analyst for Bloomberg Intelligence. So Ryan, thanks so much for coming on Odd Thoughts. Thanks for having me. It's so nice to actually meet you in person because we've been IBing for a while talking about boxes. I don't know how this became so interesting to me, but probably because of the decline that we've been seeing. Walk us through the numbers. Like how bad is the actual fall in boxes of boxes, shipments of boxes? Yes. So when we think about box shipments, they are shipped, like you said, knockdown flat or KDF for short. KDF stands for, oh, knockdown flat.

5:09Knockdown flat. Amazing. I already learned something. And so they're shipped sometimes on pallets, but they're going to, in the U.S., end markets like food manufacturers, beverage manufacturers, people who make industrial products. About 50 % of the boxes that we consume in the U.S. are going to go through a grocery store. So that's a really good way to think about it. Huh. What we've seen, box shipments have fallen in the first half about 2.3%. And this is largely due to uncertainties that are stemming from tariffs. We saw a big ramp up during the pandemic where box shipments grew the first year of the pandemic by about 3.5%, actually 2.4%, then 3.5 % the following year.

5:49When we think about it in concrete terms, we talk about box shipments in terms of billions of square feet. And when we talk about billions of square feet, like 400 billion square feet would wrap around the earth like 30 times or something like that. It's a very big number. So what exactly is being measured here? Right. So if you were to take this box here and we were to tear it all apart. Oh, okay. So by the way, this is a regular slotted carton. Okay. This is a double wall box. Wait, what is it? Does that mean it's not corrugated? No, this is corrugated. Okay. So let's take a little quick parenthetical thought here.

6:23So cardboard is actually not this. This is a corrugated fiberboard box for all you box nerds out there. Oh, okay. This box has, this particular one is a double wall. So there's five layers. The flat sheet is called liner. The wavy part in the middle is called medium. Are you like in heaven right now? I am so much in heaven right now. You don't even know. All right. Keep talking about it. No, you don't have to stop. Anyway, so if we were to unfold this thing, separate the glue seam, and lay it out flat and you just do basic math, or you take your tape measure and you go width and length. So that would measure it in terms of square footage.

6:53And this box right here, it's been cut down so it doesn't look as big as it really is, but it's probably somewhere around 20 square feet. We could measure it if we wanted to, but we won't. But if you were to do that for every single box, that's how they will measure it. What's really kind of important is these boxes are made on a variety of different machines. And one of the reasons why it's called a corrugated box is it's made on a corrugator. And that's a machine that takes different kinds of paper and it laminates together. They stick together with typically cornstarch or some other starch product.

7:26So one of the mechanisms is called a corrugator roll. And it's a roll with these little wrinkles in it. They steam the paper and it forms those little arches. And that's what gives the board its strength. There are different sizes of these little things. Then they're called flutes, but you can't play them. They don't make any music. This is so interesting. super interesting. Let's just keep talking about this box. What is it about the corrugation process that makes it stronger? So from a physics standpoint, it's what gives the box its shape and substance. And there is a lot of science that goes behind this.

7:58In fact, we now have ways to predict how the box will perform in real world situations, just mathematically. Do we do box testing where we beat up a box? Absolutely. Yeah. And so for a lot of companies, they have to go through the ISTA, International Safe Transit Authority, they actually test the box to make sure it will hold up against UPS or FedEx. Or in some instances, they go so far as to make sure that no matter what happens, it's going to survive. And those tests can cost thousands of dollars. So it's a very robust process. What's the best box? Before we go into what's happening right now.

8:40Everyone has their favorite box. I mean, as adults, you've really gotten into adulthood when you get that box and you're like, that's a really good box. Anything that's easy to collapse. Anything that's easy to collapse is one way. No, anything that's easy to open. I like the zippers. The zippers. Yeah, a lot of people like the zipper pulls. There are some boxes that are very elaborate and they don't require much at all to set them up. They kind of fold and lock in on themselves. Oh, yeah. We call those die cut boxes. They are made from a cutting die that looks like a big cookie cutter. And they will make any shape that you want to make.

9:18The most popular style is what we call a roll end box. And they can tuck on the inside. They can tuck on the outside. But this is really a nice box. It's a box that you might see if you were to buy something online. And they're really trying to go for that wow factor because they're going to get for that ta-da, kind of open the box and show off the product. Let's talk more about this box on the table here. Like, are you learned enough in the space you could say like, oh, I think this came from X mill or X year or like you have any other insights? OK, so this box doesn't have it that I can see.

9:54But on most boxes that are made in the USA, there is a small little stamp on the bottom of the box. It's round and it's called a box maker's certificate. OK. There are around eleven hundred facilities in the US that make corrugated boxes. And that little stamp on the bottom will tell you what company made the box and where it's located. And more specifically, it will tell you what the stuff is made of. You might go, well, that's kind of a stupid detail. But it goes back over 60 years. It actually goes back over 100 years to when boxes were first starting to come around. Most people don't know that corrugated boxes are only 130, 140 years old.

10:33Only implemented in the late 1890s. I'm trying to think of before this, someone said, Joe, when do you think the first corrugated body? As if I would even begin to have a guess. Anyway, keep going. So right after the turn of the century in the early 1900s, companies were looking for ways to ship their product. The only mechanism they had in that time, we didn't really have 18 wheelers. We had trains. And so the rail companies, as they were making new rails, they're cutting down forests. They had lots of wood to do something with. So what did they do? They made crates. But crates were very expensive and they were very heavy.

11:08And so people were looking for alternatives and they came up with a corrugated box. It actually goes back, funny New York story. The Dumbo area is home to the Gare building. And Gare was one of the early pioneers of paper packaging. And he kind of discovered by accident that you could score paper and create these nice little boxes. I will never look at Dumbo the same way again. Okay. Actually, that reminds me. So who are the actual big players in the paper industry? Because I don't think I could name a single one off the top of my head. I can. Oh, who? International Paper and what used to be Smurfett Stone.

11:49Oh, yeah. Smurfett. Okay. That's good. So you're exactly right. International Paper recently got even bigger. They acquired DS Smith out of Europe. Oh, and there was one named Crown. Crown was also – well, they're still around. Why do you know this? I actually, in the brief time when I was an equity analyst over about 20 years ago, I think I did a little research into this space. A box analyst, a fellow box analyst. Very brief. I dabble in box. Anyway, keep going. Yeah. So International Paper recently bought DS Smith. They got even bigger. They were keeping pace with Smurfett Kappa based out of Dublin, Ireland, who bought Westrock, who's here in the U.S.

12:26They became kind of the first global mega company. IP followed suit. So they're the two biggest in the U.S. and the biggest in the world. Packaging Corporation of America is number three in the U.S., followed by Georgia Pacific, Pratt Industries, and a variety of smaller independents. Now, the other thing, one of the other boxes come from trees, right? Or lumber comes from trees. You know, we've talked about lumber a lot on the show. And one of the things that we learned, you know, there's been consolidation in the lumber space, but also particularly after the great financial crisis, there was a lot of reduction in mill capacity.

13:00Now, that's related to housing specifically, which was ground zero. But what is the story of American mill capacity over the last 20 years from prior to the great financial crisis to the 2010s to now? We really didn't see a whole lot of new mill capacity come along like 20 years ago. There was some investment. There were some new mills that would come along. I actually spent 10 years working in the corrugated packaging industry before coming to Bloomberg and worked for one of those integrated companies who has their own paper mills. The mills that I worked for were 100 % recycled. And so some of their investment would have shown up in that last 20 years.

13:39They've built many of the most recent mills over the last 20 years. But we really saw an explosion of growth right around the time of the pandemic. So in 2023, two and a half million tons of new 100 % recycled container board making capacity came online. And now container board is a technical term. It's the big term for the paper that goes in these boxes. So container board means liner board and or the medium. So that's this big term. So everyone's shipping flour for their like sourdough or something during the pandemic or buying new ovens to remodel their houses while they can. And just going back to the idea of the box as a macroeconomic indicator, I mean, I do see people talking about, like, this idea of boxes as a leading indicator every once in a while.

14:27It is unconventional, but some people do it. How valuable are box shipments or tracking the box industry in terms of trying to figure out what's going on with the consumer? Very important for the consumer. Like I said, about 50 percent of box consumption is going to go through a grocery store. So when you start to see box shipments slip, we probably need to be looking at grocery stores and CPG companies to see what's going on there. And we have seen a very challenged consumer environment over the last two years. My personal opinion, I would say we're in a consumer goods recession because of what we've seen.

15:06First half of 2025, box shipments were down 12 % from the height of the pandemic. That's a massive fall off. so earlier we talked about how we would measure these things in billions of square feet well in 2021 we hit 416 billion square feet the first half was right around half that so like about 208 it was really bad quick math was 190 billion square feet for the first half of 2025 so pretty big fall off yeah

15:43Thank you.

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17:33Make every journey more rewarding with a$300 annual travel credit and access to a network of airport lounges, whether you're looking for pre-flight productivity or time to rest and recharge. Chase Sapphire Reserve for Business. With over$2 ,500 in annual value, it's the car that gives back all you put in. Learn more at chase.com forward slash reserve business. Chase for Business. Make more of what's yours. Accounts subject to credit approval. Restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank and a member FDIC. What's happening with prices? And so obviously, right, so measuring square feet is one thing.

18:11What is happening with prices? Well, the pricing discussion is one that is sure full of controversy. So what drives pricing? Is it truly supply and demand? Is it something that's more cost-based? For many, many years in the U.S., it was supply-demand-based, where mill operating rates would hit 96%, inventories would get real low and they would raise prices. Or the opposite, mill operating rates would go below 90%, inventories would rise and prices would fall. But for the last year and a half, we've actually seen none of those fundamentals hold up. So mill operating rates have barely been 90%, inventories hit five weeks at the end of the first quarter and yet prices still went up.

18:51Five weeks is a lot of inventory. Five weeks is a lot of inventory. Historical averages are around four weeks. to kind of set the floor there, three and a half weeks, gets a little dangerous when it's a little lighter than that. We start worrying about supply chain issues. About half of the container board is made out of paper mill and shipped by rail to a box plant. And rail isn't quite as fast and efficient as an LTL or will actually be a full truckload, but you can carry more rolls by rail than you can by a truck. So you kind of have to have a little bit more of that time to allow for the transit for those roles.

19:27What's your take on why paper companies are actually increasing prices, even when inventory seems to be high and demand is going down? Well, it's funny you ask that. So four years ago, I started trying to figure out if we could read the tea leaves, so to say. And we put together a mix of inputs. And having worked in the industry, we kind of know how the sausage is made. And what we did was we put together this series of inputs, and we correlated it back to historic movements. And our algorithm explains 93 % of the reasons why prices have moved. For Bloomberg Terminal clients - Wait, so Bloomberg has a box pricing algo?

20:05Yeah, so BCBCI Index for people who are on the terminal. Oh, yeah, I'm pulling this up right now. BC, keep going. BCB, wait, what is it? BCI. BCBCI. It stands for Bloomberg Corrigated Box Cost Index. and up until this year when we did our the last multiple regression analysis it had a 93 percent r square so it was really good right well pricing in the industry diverted from our index this year where prices went up even though costs are going down and that's actually not a complete anomaly We did see this in our index a few years back in 2017, 2018, but it wasn't quite as pronounced. Oh, sorry.

20:51Just to be clear, because I want to get this right. The index that I'm looking at is the box cost index. So it's not so much that it's measuring the cost of box. So box prices can go up even though this line on the chart is rolling over. This is important. Yeah. And some might call this kind of organic margin expansion. Others have more colorful words for it. But in the U.S., 90 % of the industry is vertically integrated. And what that means is they have their own paper mills. They move that paper to their own box plants and sell it to their own customers. And so there really isn't much of an open market the way there is in other regions.

21:31In other regions, like in Europe, they don't have that vertical integration level. And so there is a much more robust open market and it drives prices down because of normal supply demand fundamentals. If you do have just an absolute blood of inventory, prices are going to fall. Our best data says globally, we have around 50 million tons of oversupply of container board. Now, we don't have that just in the U.S. That's a global number, but that does kind of alter your frame of consciousness. Tracy, by the way, this is just so fantastic. Everyone should go to Bloomberg Terminal because now I'm reading the PDF that describes the methodology.

22:13The weights, by the way, are the cost of diesel, the cost of caustic soda, natural gas price, U.S. recycled fiber price, corn price index, repair and maintenance, average truck rate, U.S. average hourly earnings. And this is how they derive the cost of what a box. It walks through all the methodology. It's really fantastic. It's so funny to think that corn is an input into boxes. Yeah, a 7 % weight according to the Bloomberg methodology. The biggest weight is the U.S. recycled fiber price of 37%. Makes sense. Just on the inventory, how much of the decline this year in terms of box shipments is just an inventory glut?

22:48Do we have like a good read on that versus demand? From a box standpoint, we don't have a good read on that. Okay. If we're thinking about the grocery store, those boxes turn over very quickly. having worked in the industry the box is going to get made at the box plant it's going to go to a customer we're going to think like general mills and kellogg's and hershey's and all of the big brand names that we know it's not going to necessarily sit in their facility for very long it will maybe get back into the system within 30 days in fact i've been to the grocery store and my kids hate it when we go to the grocery store because i'm always turning over boxes to see who made them but sometimes they will date stamp the boxes as to when they were produced and i've seen as quick as 30 days in the store and oftentimes when smurfit kappa bought westrock i was able to see a brand new smurfit westrock bmc within 90 days of that transaction so it's just an interesting little like tidbit and if you find yourself turning boxes over from now on you're gonna start doing that.

23:52How stable is the relationship between square footage of boxes and the actual goods sold in boxes? And the reason I ask this is, you know, I remember the first several times that I ordered groceries, for example, online and I would get these deliveries as like this seems really inefficiently packed. Like you get a box and there's two tomatoes in there. And it's like, was this really did they really need to just have this or Amazon is a classic example. But I imagine that Amazon doesn't love this either. I imagine they're always trying to optimize for box capacity such that, you know, you buy a new remote control for your Kindle Fire or whatever.

24:28It doesn't come in a big box. Is their progress always being made on the efficient use of the cubic footage space within these boxes? Yes. All right. So let's talk about two things first. First, we're going to talk about who the consumer is. And second, we'll talk about right sizing. So first, when we think about consumers, Walmarts, Targets, Amazon, Home Depot, they are consumers. And the majority of boxes that are made are intended for them, not for us. In fact... That's why they call them big box stores. Right. So we can get into this later, but this old box actually has its own aftermarket in which probably 80 % of the stuff that we recover comes from those stores, not from our doorsteps.

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25:14So when we think about consumers, we really need to think about the big stores first, because that's who the main consumers of these boxes are. And so when you think about the changes that we're seeing, if we're seeing significant changes at those stores, we may be thinking about things like shrinkflation or companies altering the size of their products and then having to alter the size of the boxes that hold them. So I think while it's an important idea, it's probably less significant than what we get at our homes. And Amazon, for instance, let's talk about traditional e-commerce, or I think I may start referring to this as cart to carton commerce.

25:52Oh, very good. Because e-commerce today, or digital sales as some people talk about it, can also include things like Uber Eats or Instacart. It could also include a buy online pickup at the store. So a cart to carton commerce might be a better way to think about it. Or like a, I don't know, maybe you can come up with a new term. I'll think about it. So Amazon, from our best guesses, represents about 8 % of all of the boxes made in the U.S., at least in 2024. And what we're seeing from a lot of these companies who do that kind of traditional e-commerce or the cart to carton, we're seeing a right sizing.

26:32So you may have gotten an Amazon box that looks a little bit weird, right? It's lightweight, real paper. It's folded in on itself. It's got that zipper pull on it. And it just doesn't quite look like this box on the table that's been taped up. And it's a regular slotted carton. You may have seen that. Or you may have gotten a paper mailer. And Amazon has really been forging the way in mailers and packaging technology. Wait, what's a paper mailer? A paper mailer is a bag that is made from paper. Oh, I've only ever gotten the plastic ones of those from Amazon. I don't think I've gotten a... Oh, wait, no, I probably have with the bubble wrap inside.

27:12Some of them don't even have bubble wrap anymore. Ah, I haven't gotten one of those. Okay, but this reminds me, if I am working in the procurement department of an Amazon or, I don't know, a Walmart or someone like that, What are the factors that go into me deciding what boxes I actually want for the business? That's going to be a reflection of what your product is. And every product has its own specification or what kind of box it needs. So if you're making a widget, you will determine how many of those widgets are going to go into a box. And that's going to be a function of its weight and fragility and what kind of other internal packaging you might need.

27:53Let me ask this question in a different way. Why does Amazon, at least historically, seem to like big boxes? Well, I don't know that I can answer for Amazon on that one, but it does seem to be maybe at the discretion of people who are packaging at their packing stations and what their available inventory of boxes might be like. I've seen some of these things in action. It's just a small packaging desk of sorts with some overhead bins that have knocked down flat boxes in them. This must be an interesting sort of engineering problem because I might at the end consumer level say, look at this inefficient use of box space.

28:32I got a box and all has a little remote control. On the other hand, maybe the optimization occurred because the packer has four boxes to choose from. And if they had more choices, maybe they could have had a more efficient space to good ratio. But then that would have taken up more warehouse space and made that whole process less efficient. So there's probably all kinds of algorithms that I'm not even thinking about as the end consumer here. There are lots of algorithms. And when you think about boxes and packaging in traditional e-commerce, they are looking to optimize not just from a packaging standpoint, from a pricing position, but really from a cube in the shipments.

29:11right so we have to think that amazon's going to process all these orders or chewy or whatever the e-commerce platform is they process the orders they're going to go through their distribution centers and if you're amazon you have your own trucks you want to make sure that you can put as many of those things on a truck as possible

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32:15Every order is backed by 4imprint's 360-degree guarantee, so you can be 4imprint certain. It arrives on time, exactly as intended, and handled with care. Explore gifting with purpose and certainty at 4imprint.com. 4imprint, 4certain. You know, when we're talking about broader macroeconomic data these days in particular, there are a lot of questions about the degree to which the aggregates are missing part of the story. And specifically in a lot of commerce these days, anytime there's some retail CEO, things are holding up well, but it's really being driven by the high end. The high end is keeping it afloat.

32:51The middle consumer is getting squeezed. Lower income is getting squeezed. You know, all kinds of things. You know, we're talking in aggregates when you when you talk about box square footage having been shipped. But is there more granular data that one could look at in terms of the quality of cardboard, et cetera, that can tell us different things about what's strong within the economy, even if the big numbers are declining? The fancy boxes. The fancy boxes, not really. So one of the problems that our industry faces is that we don't have great data. Having worked in the industry and having provided that data, it's a chore that no one really double checks.

33:27So you've brought on a new customer. right and you're submitting all your paperwork for the new customer one of those things is a classification of their NAICS code the North American industry code well no one ever checks to make sure that's proper right you just kind of wing it you look it up and see if they've maybe followed it with the secretary of commerce or something like that and and that's it so the granular data is murky at best but it is insightful and it is consistent because there is a cost to changing your supplier. Like we do see it happen. And for very big box customers, they don't like changing.

34:07You have a longstanding relationship, typically many, many years. You have lots of SKUs. And if you're a really big company and you have operating facilities all over the place, you don't want to go through that. So the data, while murky might be consistent, and we do see some of those things, like in 2024, for instance, we saw that manufactured food fell like by 3.7%. So if you combine that with beverage, it was a little over a 4 % decline in box usage. Now, how do we describe that? Did those companies see similar falls in their volume? I think the data would suggest that that's probably very close.

34:46Corrugated packaging does have some known trade-offs. One of those things is a returnable plastic container. That is mainly being pushed right now towards produce. Walmart, specifically Sprouts Market, have been pushing some of their people to adopt returnable plastic containers as a viable option. It reduces waste. They're building supply chains around these things to help carry them around. So that is one of the things that we've seen kind of cut into box consumption. We don't know that it's a big thing yet, but it is out there and it is a thing. The other thing that we've seen is a movement to larger format boxes, some that are the size of a pallet, 48 inches long, 40 inches wide, and maybe 40 inches tall.

35:30A great playhouse for your young kid. I remember doing that with huge boxes, turning them into houses. Why would anyone invest in this space currently? Because when you describe this enormous glut in supply, and then the fact that demand is going down, maybe it's because of the tariffs, maybe if the U.S. starts manufacturing more goods domestically, it'll start to pick up again. But it seems like most of the lines are kind of trending in the wrong way. What exactly is the allure of this industry? That's a great question. I wish I knew the answer. Other than they do have dividends that they have been paying and consistently paying.

36:14So it's considered a fairly stable dividend? Very stable dividend. I think it's a pretty safe investment. We do see, I mean, it's very popular from a terminal standpoint. I get Bloomberg clients that reach out all the time. They're looking to figure out if this is still a good investment. And while we don't do buy, sell, hold recommendations, we still see a lot of traffic in these lanes. Does it just depend on how big your company actually is and how much pricing power you have in the market? Well, see, I think that's a myth. I think there really isn't pricing power. If there were pricing power, we wouldn't see some of the actions that we're seeing in the world today.

36:53And what I mean by that is there are some mills that make a really robust paper. It performs really, really well. And there are scientific properties to that paper that set it apart from anything else. And yet they aren't getting the premium that they should be getting because there is an alternative. And it's like wanting a Ferrari and selling for a Mustang. They're both great. But one obviously has the allure and one has its client base too. And when you can buy a Mustang and it works, you're not always going to want to buy that Ferrari. Well, actually, this sort of gets me to where I want to go.

37:35First of all, what would be the name of the biggest box or packaging expo in the United States that gets it together somewhere? Yeah. In big round terms for packaging, pack expo. Where's that? Vegas? This is going to be in Vegas this year. Maybe we'll go one day. All right. So setting aside the volume and pricing trends, which we take for granted, everyone is curious about, what would be the hot topics right now that would be discussed at PAC Expo? Ooh, sustainability has been a really big topic for a long time, and it's matched with extended producer responsibility laws. So this is a state by state initiative to basically shift the burden of recycling away from its residents and onto the companies who are creating the waste.

38:21How does that work exactly? So right now we have a handful of states who've actually passed legislation. Oregon's the first one that is really kind of enacting this. And they've set up a fee schedule. They've measured how much waste their state produces in a month or in a year. And they've allocated a certain number of dollars per pound or cents per pound for each one of those commodities. And if you're selling something into the state, they are essentially placing a fee on the waste that you're sending in their state. And you have to pay a check to them. Can you talk a little bit more about the economics of recycling?

38:57Because I put a lot of the cardboard I use into the proper bin. The economics of recycling. But like, yeah, like I'm always and this goes with any recycling, really, which is that when I think about the labor that actually when I think about a the degree of diligence that people and I would say I'm probably higher than average diligence about proper bin allocation. But I know I'm not perfect. But when I think about the degree of diligence and inefficiency and then the labor and all of this stuff and then talk to us, like when is it actually economical and when is it just sort of some sort of cargo cult type?

39:33behavior that people engage in where there's no real purpose? Well, most of the time, the recycling fees are paid by taxes. My street, for instance, that was not the case. And I had to pay$25 a quarter for a bin. Not terrible, but I had to pay for it. The economics in big round numbers work like this. It costs anywhere from about$400 a ton upwards to$700 a ton to go out and do the collections and processing for recovered materials. All of that stuff. So you'll see a truck come and pick up your recyclables. It goes to a facility called a Murph, a municipal recovery facility. And there it's processed.

40:11And they have lots of lines that sort things out, plastics and metals and papers and all of that stuff. And then they produce bales. So a compact cube of sorts of these materials. And then they get sold. so if we were to just use a big round number and say 500 a ton the net ton that comes out of the only has a street value between 100 to 140 a ton yeah am i listening hearing that right that's terrible that's terrible and the craziest thing is the corrugated box yeah is what really makes household recycling even work because we know from from data and this is something we i challenged several years ago, our best data says that we recycle about 66 % of the corrugated boxes in the US.

40:59It's a pretty good number. The industry used to say 93 % of boxes got recycled. There's no way that's possible, but we don't have the data to say it's lower than 66%, but we do have a methodology that we use to kind of get there. It was actually supported by the National Renewable Energy Lab. You can probably shoot some holes in some of their stuff too, but big point is we know that about 60-some percent of these get recycled. And we know they have a very robust aftermarket. We process about 35 million tons of old coordinated cartons almost every year. About a third of them are going to go overseas.

41:37There are a lot of other countries that want the virgin fiber that we produce here. Now that we've revealed the depressing truth about recycling, let me ask a slightly more positive question, which is, have there been any cool technological developments when it comes to box making? They are constantly patenting boxes, making new equipment to make them faster, improving the way we make the paper. We're trying to make stronger paper that's lighter in weight. So if you think about some of these, we'll go back to the EPR laws for a second. Those fees are based on the weight of what you're consuming.

42:13So if the companies can buy a lighter weight material, then their fees go down. So there is a push now to see if we can lightweight the paper, make it as strong, but with less weight. And so these are things that we're going to see really take some shape in the next five to 10 years. You know, I'm glad you mentioned export. One of the things that I've noticed whenever I am traveling abroad, even to fairly rich countries, but I definitely notice it when I'm in poorer countries, is that the quality of packaging materials is distinctly worse than here. So the example that I often notice is, you know, you buy a bottle of water in a US grocery store, it's nice, it's sturdy, it holds its form very well.

42:54You buy a bottle of water at say a grocery store in Guatemala, where I was a couple of years ago, or Mexico, it's crinkly, it smashes over easily, you could tell that it's a less durable plastic. Is there similar, you know, if I hadn't, if we were to look at the cardboard boxes running through a developing economy such as Guatemala, et cetera, would we see that this is noticeably different than the quality of cardboard that we're seeing here? It really depends on what the technical term is going to be furnish, right? So what are you using to make the boxes? The U.S. has historically been a maker of virgin craft liner board, meaning they cut down trees, they chip the trees, they turn those chips into new virgin paper.

43:36That's actually been declining and reversing, we've seen more and more recycled capacity come online. And because we've still had a very good virgin base, the recycled paper here in the US has been very good. Now in other countries, they may not have Southern yellow pine. So they are buying our OCC or they're using their own OCC, OCC is old corrugated cartons, sorry. So they're just going to repulp the stuff that they have. And if they start with a low quality box, then they're going get a low quality paper on the back end. And so sometimes they are going to have a lower grade paper. And in other areas of the world, they actually have different definitions for that kind of paper.

44:14So they would have different grades of it. And so, yeah, sometimes you get the low grade paper because it's a commodity and it'll work. So I just have one more question just to wrap it all up. Ah, that's a packaging joke. Okay. Wrapping it all up, summarizing, What's your prediction for the second half of the year in terms of box shipments? We think they're still going to be very challenged. For a year, we're saying they're probably going to be down 2.5%, maybe as high as 3%. It really depends on what happens. A lot of this is stemming from tariffs and policy coming out of the White House. So it really depends on how much confidence some of these companies have as they look forward.

44:56We've seen the number of containers coming into the U.S., like the cargo ships, was front-loaded, right? And now that the tariffs are kind of here or maybe they're not here, they've been kind of tapering off a bit. It will be very curious to see what happens. But to maybe think about it another way, most Americans buy stuff when they have money. And when they don't have money, they put it on credit cards. And we're seeing a record amount of credit card debt. And that's not a great sign for if people are going to spend money. So we don't really think that that's a really hot outlook for even the for the holidays.

45:33Are Americans going to spend money? Probably. Is it going to look exactly like it did in prior years? Probably not. All right. Ryan Fox, containers and packaging analyst at Bloomberg Intelligence. Thank you so much. Thanks for having me.

45:58Joe, I learned a lot about boxes. That guy was great. Yeah. I love Ryan. You know, one thing I really like about Ryan and people like that is when they trot out all the numbers off the top of their head. Yeah. That was really impressive. That was no notes. No. And he had answers for pretty much everything. If someone had asked me how I thought they would measure box shipments, I might have guessed cubic feet rather than square feet. But yes, I would have, you know, all this covering the world stuff. Yeah, it's pretty cool. Yeah. And I guess the question over how useful a macroeconomic indicator boxes actually are, it still kind of lingers because we did have retail sales data for the past two months that are available.

46:40Well, that came in like pretty resilient, pretty strong, despite the decline in box shipments. What was the term he used? Cart to cart in commerce. Yeah, I really like that because it's true, right? What is e-commerce that now encompasses so many different things? So there is this sort of classic e-commerce where you go on a website and you buy a thing and it comes in a box. But then there is, of course, you know, buy and you pick up at the store and that's a slightly different variation. Or maybe you get food delivered in a cardboard box, etc. So I like the idea of, OK, e-commerce is so broad that if we want to have like for like trajectories of some of these use cases for cardboard boxes, we have to maybe get a little bit more granular.

47:20Well, that reminds me, actually, I think one thing that's still really underappreciated about the packaging industry is how much it feeds into broader inflation. Yes, yes. And this is something I remember some economists bringing this up during the post pandemic era. But the interesting thing is now, even though box shipments are going down, prices still seem to be kind of sticky and even going up. So what does that mean for inflation? I always think about this and sometimes it maybe gets a little metaphysical. But when you buy a thing in a grocery store, let's say you buy an avocado. What are you buying when you buy the avocado?

47:53Right. Because, OK, there is the physical avocado that you might cut open. But then you're buying the time it's spent in a refrigerated space. You're paying rent to those owners of refrigeration. Transportation. You're buying the transportation, et cetera. It's interesting to think about any good that you buy, period, ahead of lettuce, et cetera. How little is the lettuce? Whatever even the lettuce means, because there is labor that went into the planting of the lettuce and there is the land of the lettuce, et cetera. to the idea of what are you buying when you're buying something. Often that includes packaging, but often it's just never really clear at all what it is, except this bundle of goods and services.

48:28I'm buying an entire slice of the economy. You literally are. OK, now that we've gotten into a metaphysical discussion about boxes, shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Wiesenthal. You can follow me at The Stalwart. Check out Ryan's stuff at Bloomberg Intelligence. A lot of fascinating stuff there. Follow our producers, Carmen Rodriguez at CarmenArmond, Dash O 'Bennett at DashBot, and Kale Brooks at Kale Brooks. For more OddLots content, go to Bloomberg.com slash OddLots where we have a daily newsletter and all of our episodes.

49:02And you can chat about all of these topics 24-7 in our Discord, discord.gg slash OddLots. And if you enjoy OddLots, if you like it when we talk about boxes, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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From the publisher

Almost everything we buy nowadays has been in a box at some point. Goods are shipped in boxes. Products ordered online arrive at our doorstep in boxes. Boxes are so ubiquitous that some strategists use them as an unconventional macroeconomic indicator to gauge retail spending. Now, shipments of boxes are falling dramatically. At the same time, prices for boxes have actually been going up. So, what's going on? And what does it suggest about the health of the US consumer and the broader economy? In this episode, we speak with Ryan Fox, containers and packaging analyst for Bloomberg Intelligence. We talk about the box industry overall, how companies choose their packaging, and what makes the perfect box.

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