The strains on the packaging supply chain that supports the beer industry are showing no sign of letting up.
Demand for aluminum cans has far outpaced supply as at-home consumption spiked with the pandemic-forced closure of the on-premise channel last year, and that same rise in home use has also driven up the cost of cardboard packaging.
“What we saw very clearly was a move from bulk items — beer, that would be draft, for example, at the on-premise locations — to packaged items, and many of those packaged items use paper,” said Tim Near, operating partner of Agrowgrate, a procurement and supply chain partner for craft beverage producers. “This is well beyond the beverage industry; corrugated paper board is used for everything from wrapping new refrigerators to moving supplies to consumer products.”
In addition to the shift from on-premise spending to off-premise spending, consumer demand for online shopping and home delivery has also driven up costs.
“That’s a trend that’s not going to stop,” Near said. “It really got a tailwind, because of what happened with COVID, but I think the North American consumer now is familiar with e-commerce and home delivery, and that trend is going to continue past COVID, so that all puts incremental demand on paper.”
Brewers primarily use corrugated and non-corrugated cardboard and paperboard for packaging in the form of 6-pack carriers, 12-pack cartons, 24-pack loose case cartons, mother cartons and trays, to name a few. In 2020, U.S. breweries sold 1.69 billion case equivalents — each using at least one cardboard item but usually more — in grocery stores, mass retailers and convenience stores, according to data from market research firm IRI.
Since October 2020, the cost of paper has increased 15%, Near said. That increase pushes up the price of boxes, which derive 60-70% of their overall cost from paper, he added.
“The single biggest cost of a paper box, not surprisingly, is the paper, so when that goes up 15%, it’s not unheard of to say the price of a box goes up,” Near said.
Corrugated linerboard, the middle layer in thicker cardboard boxes, cost about $765 per ton in the fall; producers tacked on more price increases in 2021 and drove the price to $785 per ton at the end of March, according to the Wall Street Journal. In recent weeks, the cost of corrugated linerboard has reached $825 per ton, Near said.
“If the price of paper goes up, the box manufacturers will likely have to pass that on,” he said.
Unlike the aluminum can industry, which is dominated by a small number of very large suppliers, the corrugated industry is spread out geographically throughout the country, and many breweries have a corrugate facility “within striking distance of your operation,” Near said. These local facilities do business with major retailers, which adds competition for products.
“If you happen to be in a location across town or down the road from where Amazon or Walmart or anybody that’s become a huge user of corrugated is putting in a new facility, you’re going to have tremendous local competition for the corrugated coming out of those local manufacturing plants,” he said.
In addition to the price of paper rising, the cost of ocean freight has tripled in the past year — something Near called a “truly structural change.”
“There’s inflationary pressures on the components of paper upstream and transportation isn’t one that’s changing very rapidly, and is getting much more expensive,” he said.
The Brewers Association (BA) shared suggestions for cutting down on waste, including corrugated and non-corrugated cardboard, in an update earlier this spring and in its Solid Waste Reduction Manual.
Reuses for packaging cardboard include shipping other items, shredding to use as a packing material for shipping fragile items such as bottles, and composting wet cardboard. To reduce use of cardboard, the BA suggests using reusable plastic cases or crates that can be returned and exploring alternative package formats.
“Consider product extensions beyond bottled beer and promote large-pack products, such as growlers or kegs that do not require additional paperboard packaging to keep bottles together,” the manual said.
In addition to the scarcity of cans and price hikes on cardboard, the cost of pallets has increased and their availability has tightened, BA technical brewing projects manager Chuck Skypeck told Brewbound.
The cost of wooden pallets has increased 400% due to increased demand and soaring lumber costs, according to trade publication Supply Chain Dive. However, alternative plastic pallets typically cost three times more than wooden pallets. Shortages of wooden pallets could continue until the end of 2021, the United Fresh Produce Association told Supply Chain Dive.
Additionally, chemical supplies such as cleaning solution and glycol have quadrupled in price in the past few months.
The price of PakTech handles — the 100% recycled high density polyethylene (HDPE) handles for can 4- and 6-packs increasingly preferred by craft breweries as an alternative to cardboard cartons and wraps — increased by 11% earlier this month, a PakTech spokesperson told Brewbound.
Revolution Brewing chief strategy officer Doug Veliky wrote about the impending price increase on Twitter last month, inspiring a conversation on the social network about the recyclability and reusability of the handles.
The price of Paktechs are about to skyrocket for craft brewers this Summer…
— Beer Cruncher 📈📢 (@beercruncher) April 29, 2021
Several breweries have begun collecting PakTech handles from consumers on site, including Portland, Maine-headquartered Allagash Brewing, which launched twin recycling programs for both drinkers and fellow Maine craft breweries earlier this year.
“It is made of plastic that’s able to be recycled, but in most cases, in some parts of the country it doesn’t get recycled at all,” Allagash brewmaster Jason Perkins said on an episode of the Brewbound podcast. “In our area, what actually happens is it’s so light that in the automated separation process at the recycle center, the system assumes it’s paper, so it gets kicked into the paper.”
Demand for Aluminum Cans Outpaces Supply
In the face of a years-long shortage of aluminum cans, Ball Corporation — the world’s largest manufacturer of aluminum beverage cans — announced it’s on pace to add 25 billion units of capacity by the end of 2023, according to the company’s first quarter earnings report published last month.
Ball has added several new plants and added production capacity to other existing plants, but has been unable to keep up with beverage producers’ increased demand for packaging since the pandemic forced consumers to shift their purchasing routines. The company’s new facility in Glendale, Arizona, came online during Q1, and Ball expects its new Pittston, Pennsylvania, plant to come online by the end of Q2. Another new plant in Bowling Green, Kentucky, is expected to begin manufacturing aluminum can ends by the end of 2021.
Credit Suisse analyst Kaumil Gajrawala noted last month that Ball added 7 billion units in 2020 and has plans for 12 billion units this year.
“Ball has stayed firm on the 25 billion of new capacity to be installed by 2023 from the investor day and Ball is likely further along the pathway towards its 45 billion total potential outlined by 2025,” he wrote.
Gajrawala wrote that 2021 is “likely [to] be near a peak install year and thus earnings growth should sharply accelerate by early 2022 as new lines reach scale economics and start-up costs/inefficiencies fade.”
Ball’s North and Central America beverage packaging business division reported Q1 sales of $1.3 billion, up from $1.2 billion in the same period last year.
Although alcoholic beverages have been the primary growth driver in the medium term for Ball, Gajrawala said he expects “a more balanced distribution into 2023-25 as more traditional products and PET water conversion grow.”