Conflict in the Ukraine means that energy prices are likely to stick, writes Raj Bhardwaj.

We’re witnessing a significant continent-wide easing in corrugated demand, which is down 20-50% (depending on your market) from the peak of quarter four. Despite this fall, European containerboard prices remained static in early February. So, why aren’t containerboard and box prices falling as they usually do at this time of year?

Indeed, DS Smith have recently announced a €50/tonne recycled containerboard price rise to take effect across Europe, citing rising costs as the root cause. Thus far, their announcement does not seem to have translated into implementation of a price rise as none of their competitors have followed suit. Other paper makers, whose profits were up 88% in 2021, seem to have concluded that their metrics do not yet warrant a price rise. Thus, DS Smith have been alone in coming out of the trenches at this stage…I suspect that momentum will gather as volumes pick up in the Spring. In the meantime, DS Smith have drawn a line under paper price rise requests during the relative lull of February.

It has been worrying to witness the slow-motion train wreck that is Putin’s antagonism towards Ukraine. I’m reminded of a lesson delivered via the military genius of Bronn from Game of Thrones; there’s no cure for being a bad person (you have no idea how much my lawyer needed to paraphrase here before he stopped having palpitations). The democratic world’s leaders seem to have internalised this lesson. Whilst NATO countries will not join a shooting war, they have been galvanised into waging a meaningful economic war upon Russia. For the sake of millions of innocents, one has to pray that Russia quickly reassesses the cost-benefit analysis of their current course of action and withdraws their troops. I note some West Point wisdom at this point…everyone’s got a plan until they get punched in the face. The extent of the economic sanctions that the US, EU, Canada and the UK have agreed is far stronger than Russia will have possibly expected given the previous track record of hand wringing when Georgia and the Crimea were invaded. Western Europe’s new-found determination to support Ukraine and wean itself off Russian gas and oil will cost everyone in Europe rather a lot of money. The attendant rising energy costs are likely to stick for a while and difficulty in accessing Russian Kraft will probably increase your box prices even more.

Circling back to corrugated demand, why has it seemingly returned to pre-Covid levels? Heck, even the juggernaut that is e-commerce sector box demand has fallen off a cliff.

In terms of corrugated demand, it feels like we’ve just got off a white-knuckle ride on a roller coaster and are now stranded on a ship without a breeze. A market situation that could be described as the ‘annual February dead spot’ has returned after a two-year pandemic-related absence. The practical upshot of precipitously falling demand is an overstocked corrugated supply chain, order cancellations and dramatically shortening lead times.

I reflected last week on two days in my working life over the last few months that perfectly juxtapose the changed market. As well as Editing the Know It All packaging newsletter, I’m a packaging consultant and sales agent for seven different packaging businesses – which keeps my finger on the pulse in terms of market developments:

The latter scenario is being played out thousands of times each week across our market, which is returning to what most of us would recognise as normality; a buyers’ market.

Competition has broken out as sales teams have been taken off the bench and asked to apply a full court press in the search for new business. Sales folk are having to once again strain every sinew to win work. Erstwhile keyboard warriors now have to actually go outside, blinking into the light and start knocking on doors again. Forgotten customers are being called, only to find that some have had the temerity to buy elsewhere. Sales meetings are being called and colleagues reacquainted. The notion of sales pipelines is being reintroduced. Phone bills and expense bills will up go for salespeople as actual proactive effort is expended.

Remember though…your competitors are allowed to compete too. Your customers are on their prospects list.

Raj Bhardwaj is Editor of the Know It All newsletter and also runs a software and consultancy business with a focus on the packaging sector. You can contact him via e-mail: raj@knowitall.co.uk

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