It started with the eggs. In the second half of 2020, many of the pulped cardboard boxes that housed supermarket egg supplies were replaced by plastic ones. Just as small bags of flour were replaced by giant, unbranded sacks, the egg situation was a sign that something was awry.
Supermarkets are trying to be more eco-friendly, so ditching cardboard to go back to plastic was a significant move – and one they apologised for. A shortage of the pulp used to make the cardboard, coupled with significant demand for eggs, was to blame.
But the egg box shortage of 2020 was a warning of what was to come. In recent weeks, retailers across the UK have complained that they are unable to source cardboard boxes at all. And Amazon is partly to blame.
Christmas 2020 was a “record-breaking” holiday season for the company, delivering 1.5 billion packages worldwide over the festive period. In the UK, there were an extra 200 million home deliveries over the Christmas period, according to the Recycling Association.
And that has had a knock-on effect on the availability of boxes. Good news for Amazon, bad news for eggs. It’s been widely reported that Amazon and other big retailers have snapped up most of the world’s cardboard supply to fulfil online orders, leaving smaller businesses unable to get their hands on boxes of their own. The price of corrugated cardboard, which is old boxes that can be reused to make new ones, has trebled in the last year from $25 a ton to $75.
But the crunch on cardboard could have been much worse if Amazon hadn’t overhauled its box strategy. The retailer has a massive share of the e-commerce market, last estimated at nearly one-third of all sales. While data is hard to come by, analysts estimate that Amazon shipped 415 million packages in July 2020 alone.
Since 2015, Amazon has been eking out more efficiency from its packaging, reducing the weight of boxes in its average shipment by a third. In the last five years the company eliminated more than a million tons of packaging materials, the equivalent of two billion boxes, in part by introducing the concept of “fit to product” boxing: building boxes on demand to better fit the size of the items being delivered. Until the system was introduced, customers could receive a tiny memory stick in an oversized box.
In April 2019, just under £1 in every £5 spent in UK shops was spent online, according to the Office for National Statistics (ONS). By November 2020, 36.2 per cent of retail sales happened online. The spike in demand at Christmas happens every year, says Andy Barnetson, director of packaging affairs at the Confederation of Paper Industries (CPI), a paper and packaging industry body. “The complication came when a number of other global macroeconomic issues came into play,” he explains.
Those macroeconomic issues were numerous, and not easy to fix. Like the majority of businesses, those involved in supplying cardboard boxes prepared for potential disruption during the end of the Brexit transition period by stockpiling. “We were right up to the limit before Christmas, as you’d expect from the combination of Brexit and very high ordering,” says Alex Manisty, group head of strategy at DS Smith, the UK’s largest cardboard box manufacturer and supplier. The company hopes to alleviate some of the supply strains by building new plants in Italy and Poland to meet increasing demand from online sales.
“We had very big online sales – record online sales – and customers being careful about Brexit,” says Manisty. But the world’s shopping habits were changing due to the pandemic, and that was a problem. “It’s very unusual to have high demand in the US, in Asia and Europe, but because of Covid it’s happened at the same time,” says Manisty. Of the 17 billion boxes DS Smith produced worldwide last year, 84 per cent are sent to consumers, rather than used for industrial packaging.
Our reliance on big brand online retailers like Amazon has increased – and these companies have reportedly been buying up stock to meet demand. Manisty refused to discuss Amazon, which is a DS Smith client, citing a non-disclosure agreement. An Amazon spokesperson says the company “works with a range of suppliers throughout the year to forecast and manage packaging needs”.
DS Smith says the volume of demand is already up by 30 per cent on last year, when it produced 17 billion boxes. In its latest financial results earnings call, the company said October box volumes increased three per cent from May 2020, and six per cent in the month of November. The company’s latest figures show that during the first half of 2020, “large FMCG [fast-moving consumer goods] and e-commerce customer volumes” increased eight per cent – a category likely to include Amazon.
Order volumes to DS Smith’s small business-to-business portal ePack, which supplies boxes to startup businesses run out of front rooms, have grown by a factor of six. “We’ve seen a real explosion in demand from those customers, which to be honest with you, before Covid, didn’t form a huge part of our business,” says Manisty.
The demand during the pandemic is unlikely to wane given that big e-commerce companies like Asos and Boohoo are taking on high street brands. “I think we’re going to see a longer-term trend into increased home delivery,” says Barnetson. If the wave of cardboard boxes landing on people’s doorsteps continues, there will be a further knock-on effect on the cardboard box supply chain, which relies on a large percentage of companies to speedily return any boxes to be recycled and reused.
Around 80 per cent of corrugated cardboard packaging is recycled, according to the CPI. Every newly-made cardboard box is made up of around 75 per cent recycled material. The remaining 25 per cent of new, virgin fibre, is often sourced from abroad, mainly from the European Union – which exacerbated some of the supply chain issues in the immediate aftermath of Brexit. But now, even the recycled share of the humble cardboard box is taking longer to return to the paper making plants that produce boxes.
“In many cases, it was being delivered to a retailer in packaging,” says Barnetson. That packaging would have been recycled back at the store. Now that packaging is going straight to the home.” The average box on a traditional in-store supply chain may be touched eight to ten times; in the e-commerce world, with pickers and packers and delivery drivers, that can balloon to 50, says Manisty. The increase in touch points means there’s more chance something goes wrong with boxes, such as breakages, tears or dents. Boxes can also completely fall out the supply chain if they are thrown in with household garbage. “And there’s obviously more of it, because you’re sending things singly or in small quantities rather than in large quantities through a traditional supply chain,” Manisty says.
Before the pandemic struck, DS Smith recycled the large cardboard boxes it sent items to traditional retailers within two weeks. The firm has contracts with large supermarkets to collect cardboard, bale it up, and deliver it to a paper mill in Kent to produce a new box. Now, more packaging is ending up in households where recycling is slower and lower than in the commercial retail sector. Some councils recycle less than 50 per cent of the cardboard their residents consume. “It is going to gradually reduce the amount of cardboard that ends up recycled,” says Manisty. “We’re very concerned about that.”
Fewer cardboard boxes being recycled in a timely, clean manner means less supply for the manufacture of new cardboard boxes – which was one of the root causes of the hold-up in stock. When that happens normally, it’s bad enough, but the rise in online shopping means we have unprecedented demand for cardboard. Although the Christmas rush is over, online shopping demand has settled at a new, higher normal than before. “We would like councils to have a separate bin,” says Barnetson. “If you can collect paper and cardboard separately at kerbside, that gets the sorting process started. The sooner we can sort cardboard from other materials the better quality we have further down the stream.”
Unlike the US, where the box industry started raising prices in November, UK cardboard manufacturers think they can avoid foisting extra costs on retailers.
“You don’t have to build a giant factory or anything: you can just buy new machines to put into factories. We’re already starting to scale our business to meet demand. It’s been one of those invisible industries,” says Manisty. “Everyone has always taken it for granted, and growth over the last 20 years has been quite calm and steady every year. So it’s exciting for us to see the opportunity here to do something sustainable.”
And that may be important in the months to come. “There’s not a systemic issue – it was a perfect storm,” says Manisty. Eggs are back in cardboard boxes in supermarkets, rather than plastic ones. But we’re not likely to slow down our online shopping habits. “We’ve got the older generation, who if they weren’t online before, certainly are online now, and are making a larger proportion of their purchases online,” he explains. “They’re not going to go back.”
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