From the mega-merger announcement of packaging giants to downward-trending market demand, the global containerboard market stands at a crucial turning point as it faces the winds of change. What are the opportunities and challenges lying ahead for the industry?
In our interview with Joachim Klein, managing director at StepChange Consulting, we discuss the impact of the current demand situation on the industry, the role of talent management and the potential for mergers and acquisitions (M&A) in 2024. We also touch upon the urgent need for innovation and the opportunities for cost and efficiency improvements.
Watch the full interview or read the summary below.
The current demand situation is undeniably challenging. There is a general sense of unease about the slow demand, especially with an influx of new capacities entering the European market. This has created a significant concern for our industry.
However, it is important to remember that in recent years the industry has been quite profitable. Even less competitive capacities have been able to generate profits. But the present circumstances are putting these less competitive capacities under pressure.
We can anticipate that with declining margins, some capacities will inevitably fall away. This, in turn, should help to somewhat re-balance supply and demand in the future. So while the current situation is concerning, there is potential for a natural market correction that could stabilize things moving forward.
The current focus is predominantly on volume. Many are trying to capture some volume due to the demand situation. There is also an inward look in terms of cost reduction and efficiency improvements.
Although strategic topics like sustainability may seem like they are on the back burner, they implicitly remain a need due to their sustainable advantage that makes selling our products easier on the packaging market.
From a European perspective, the first will be M&A and consolidation. Despite the current downturn in demand, decrease in profitability and rise in interest rates, M&A remains an opportunity for any financially sound company with a strong balance sheet and ample cash reserves.
We have seen this through the mega-merger between Smurfit Kappa and WestRock, which will probably drive further M&A activity. It is important to note that the European market is much more fragmented than the US, which can be considered a benchmark despite not being 100% comparable due to the market structure and players in Europe.
The other opportunities are in cost and efficiency improvements. It is crucial to tap into untouched topics, drive change process innovation and make more radical changes due to the economic situation. To achieve the next level of improvement, it is essential to support these endeavors with cutting-edge technologies like AI. This is particularly important when aiming to capture cost and productivity benefits efficiently.
Talent management and attraction are crucial to our industry and have always been a focus. However, we are facing multiple challenges at this point. In Europe, for instance, we have an aging workforce. Many individuals have dedicated decades of their lives to this industry, often staying in the same paper mills or converting plants for upwards of 10, 20, or even 30 years. As these seasoned professionals retire, we are experiencing a talent gap.
Our industry has a compelling selling point and we can and do attract talent. However, we must overhaul our existing work models. The next generation of workers is less inclined to work long overtime hours or adhere to outdated shift systems and we are dealing with higher churn rates.
This shift is forcing us to confront an evolving reality and I believe this is an opportunity for the industry to reinvent itself. We need to find ways to do more with fewer resources, to break down traditional boundaries and to leverage technology effectively.
Automation is one answer to these challenges. It is already making headway in areas where there is a shortage of both qualified and unskilled labor. But automation alone isn’t enough. We also need to make jobs in the industry more appealing to future generations. This combination of strategies will not only help us manage the current talent gap but also ensure our industry’s continued growth and success.
Learn more about Fastmarkets’ short-term and long-term forecasts for the European paper packaging industry and how we can help your business excel in 2024 and beyond. Speak to our team today.
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