Box market share showdown: the clout of integrateds and national accounts is slowly squeezing independent converters out

Paperboard Packaging, Oct, 2004 by Mark Arzoumanian

"I'm not coming back. I'm done. I'm done playing games." Richard Parrette, president, Packaging Logic, an independent sheet plant in LaPorte, Ind., is angry and frustrated. Since 1995 he had been providing Federal Mogul's Michigan City, Ind., auto aftermarket parts plant with about $90,000 worth of corrugated boxes annually. A lot of the business was odd lot: 100 boxes for this or 500 for that. This Federal Mogul plant's biggest supplier was (and still is today) Smurfit-Stone Container Corp. (SSCC).

A few years ago, half of this plant's box business went to Mexico, a trend that U.S. box makers know all too well. It was around this time that Federal Mogul, which last year had revenues of $5.5 billion, decided to put all its corrugated box business up for auction on the Internet. SSCC won the contract; Packaging Logic was out.

According to Parrette, SSCC only bid on the high volume items: the top 20 percent that makes up 80 percent of Federal Mogul's total box business. And it guaranteed that whatever it saved on this business it would meet on all other pricing. SSCC placed much of this business in its Dalton, Ill., and Milwaukee box plants. From April 2002 until last November these two operations produced many of Federal Mogul's boxes. But the box buyer at the company's Michigan City operation was not happy with the quality of service.

"The buyer over there, a guy named Larry Stanley, calls me last November and says, 'Would you be willing to look at our business again?'" Parrette says. He looked over the business, negotiated, met some numbers (some he couldn't meet), and got all the tooling back. Shortly afterwards, Smurfit closed its Dalton and Milwaukee plants and moved the Michigan City Federal Mogul business to its Mishawaka, Ind., plant. So from November 2003 until last April, Packaging Logic provided boxes to Federal Mogul's Michigan City plant. But everything changed when SSCC's two-year contract came due last April.

"In February, Smurfit went in, reduced [box prices] 8 percent more across the board, and guaranteed the pricing," Parrette states. "I get a letter from Federal Mogul telling me to turn over all the tooling, Smurfit's back in. And the buyer over there [Stanley] is just fit to be tied. But he said, 'What can I do? They're corporate.'"

Blame Corporate

"Federal Mogul is a global organization," Purchasing Analyst Stanley says. "For the most part corrugated boxes are considered a commodity and there is a commodity team at corporate [headquartered in Southfield, Mich.] that negotiates national agreement pricing. It wasn't our plant doing this; it was corporate Federal Mogul working with Smurfit to develop a national agreement from which all plants could participate.

"Corporate negotiates the deal and then tells you to manage it, basically. They expect the plants to work with it as best they can. And they do this with not just corrugated, but with a lot of different commodities. Some national agreements work well and some don't. Some Smurfit plants may provide tremendous service and some may not be as suited to supply the requirements."

SSCC's 8 percent reduction started in mid-April. But a month later the company increased Federal Mogul's box prices by 5 11/42 percent, negating part of the decrease. At press time SSCC hadn't successfully implemented any further increases. But now it has more of Federal Mogul's business.

Although a SSCC spokesperson wouldn't comment on the company's box price strategies, an executive at the Mishawaka box plant who didn't want to be named says the plant was assigned the account, no quotations; it was a Federal Mogul corporate edict.

"I don't even know the guy at Packaging Logic," he says. "To be doing a job for somebody and all of a sudden lose the business... I would be upset as well."

The Fight Intensifies

The fight for corrugated box business isn't new; it has been going on for years. But a Packaging-Online.com survey of independent box makers conducted earlier this year reveals that in the past few years the battle has intensified, as integrateds aggressively go after any and all business. What's behind this? Since 1999 the amount of business available to U.S. box makers has declined steadily.

The Fibre Box Association's (FBA) latest annual report illustrates this nicely. In 1999 corrugated shipments totaled 405.1 billion square feet; last year shipments stood at 379.9 billion square feet. That's a 6.2 percent drop. Most of the missing 25.2 billion square feet of corrugated boxes is now made overseas. So it's that much more difficult for U.S.-based box plants to keep busy consistently.

"Ten or 15 years ago integrated companies would price themselves out of orders that were less than 50,000 square feet," says Ken Rohleder, president of the Rohleder Group, a Louisville, Ky.-based industry consultant. "Now most integrateds are happy to get regular, reoccurring monthly business of 10,000 square feet. That has dramatically changed the landscape for independents. Integrateds are carrying inventory; they didn't used to do that. They're savvier about design and boutique equipment, which used to be the venue of independents only."