The history of the corrugated carton industry in Sri Lanka goes back many decades. At present, there are over thirty corrugated carton manufacturers in the island and of which, seven companies account for over 70% of market share.
Packaging is an integral part of a supply chain; thus, the corrugated packaging industry is a vital industry in the economy, as it caters to the needs of many sectors in the economy. E-commerce is also another key trend that has created a huge impact on corrugated carton demand. Hence the growth of the corrugated packaging industry is not independent, but correlated with the growth of the other industries and GDP growth.
The appearance of the box, strength and short lead times are the key deliverables and customer promises in this industry. The appearance and the strength are totally dependent on the quality of the paper used and the printing facilities of the manufacturer. A few decades ago, the machinery was imported from Japan, however, some were reconditioned machines. With the development of the Chinese machinery manufacturing industry, where they have customized machine technology embedding robotic packaging automation, many local companies sourced their machinery from China.
Two decades ago, Chinese machinery was considered as inferior quality but, whereas today, Chinese machinery is compatible with European machinery.
There are many small-scale corrugated cartons manufacturers and many of them use the Double Facer corrugating machines. In these companies, two layers are produced separately and thereafter the layers are pasted manually. Hence, the volume produced by these companies was low and the quality was not up to the expected standards. Consequently, the cost of production was also high and the delivery lead time too high in these companies. Hence, many companies had to quit the business, while a few others acquired automatic box manufacturing plants. Today, many Sri Lankan manufacturers now possess automatic plants.
The annual total carton production in the country is approximately 150,000 MT. However, no adequate growth was visible in the industry due to either slow or no growth in the economy in the recent past. However, a few companies expanded production capacities adding extra automatic box making plants. With this initiative, the manufacturing facilities in the country has been significantly increased and the industry is geared to accommodate new opportunities with anticipated economic growth in the country.
Another key factor of the industry is that the cartons manufactured in Sri Lanka are of high-quality consequent to sourcing quality materials from Europe, the American Sub Continent, Australia and various other parts in the world compared to other Asian countries.
In developed economies, when customers purchase corrugated boxes, they more or less look for the strength of the box, not the variety or the grammage of paper used. Unfortunately, in Sri Lanka most customers look at grammage and paper type, instead of box strength. Eventually, in most instances, the corrugated packaging produced in Sri Lanka is over specified. Sadly, this is the case with many multinational companies operating locally too. In India, the same companies use Test Liner on Outer Ply, while they demand Kraft Liner paper for the same in Sri Lanka.
The type of paper used for production is very important to maintain the quality of the box. Kraft Liner is expensive as it is made out of virgin pulp.
Most Sri Lankan companies demand Kraft Liner on Outer Ply, whereas the developed world is always promoting recycled paper as it is considered eco-friendly. The Kraft Liner paper made out of virgin pulp can be reused seven times on an average.
The main challenge faced by the players in the corrugated carton industry is the frequently fluctuating price of raw materials. At present due to Covid-19 pandemic, there is a huge shortage of paper globally. Many paper manufacturers in the world are experiencing disruptions in business and the supply chain. They are operating below the normal production capacity and due to low consumption of commodities, and waste paper availability has badly diminished. Consequently, the pulp prices have escalated by around 45-50%.
On the other hand, as the Coronavirus outbreak continues to evolve, e-commerce business in the West and Europe has grown swiftly and demand for corrugated cartons continues to grow unabated. The presser on freight is also contributing to the price upsurge of paper. Paper prices have escalated by over 25% and the trend is continuing.
The Sri Lankan corrugated carton industry is predominantly into the B2B market. Thus, the industry is working with very thin margins due to heavy competition among the manufacturing companies and the corrugated carton industry in Sri Lanka operates with perfect market conditions. Hence, the demanding capacity of companies are comparatively low. Many firms are unable to insulate themselves against the threat of price escalations will face significant challenges with their financial performance and may face the threat of business closer. Attention must be paid to packaging operations along the whole supply chain.