Joe Weisenthal (2:32)

That's right. That's right. It's a box. And that is core to Odd Lots. But, you know, now we're going to talk about literally when you think box, you don't often first think magic money box, Ponzi scheme. And when you think box, you often don't necessarily think of a container ship, which is often called a box, as in the book the. But I think when people think about a box, they think about a cardboard box, corrugated or not now is a.

Tracy Alloway (2:56)

Very good time to be thinking about boxes, by the way, because there's been some commentary about this, but we've basically had a sort of box apocalypse in the States. Are we still having one Jury's kind of out and we'll get into that in the discussion. But US Box shipments. So boxes of boxes, which I find funny sort of box exception. Anyway, US box shipments have fallen to the lowest standard second quarter reading since 2015. That's according to the Fiber Box Association.

Joe Weisenthal (3:26)

So these are probably like. Probably like they're like folded up. Yeah, yeah. So you. A bunch of them. They're maybe wrapped in plastic or something like that. So shipments of those lowest since like 2015.

Tracy Alloway (3:36)

Yeah. And I think there are some other numbers we can get into that are like the worst since the financial crisis and things like that. And obviously the concern is boxes tend to contain products that people are buying. Right. So if no one's buying boxes, what does that say about retail spending, the health of the consumer and the direction of the broader economy? That's when you get into the macro indicator stuff.

Joe Weisenthal (3:59)

You know, I love E commerce, but I hate breaking down boxes. I know, I know so much. And then you like, rip it up. There's no. It's never quick. I would like to see some innovation on the ease of collapsibility.

Tracy Alloway (4:12)

You know what I did, because I buy a lot of. I trained my dog to rip apart Amazon boxes.

Joe Weisenthal (4:17)

Oh, that's amazing.

Tracy Alloway (4:18)

But then he kind of went on strike and stopped doing it.

Joe Weisenthal (4:20)

Oh, that would have been cool.

Tracy Alloway (4:21)

Get your kids to do it. Yeah, put them to work. Okay, Well, I am happy to say we do in fact have the perfect guest. We're going to be speaking with Ryan Fox. He is a containers and packaging analyst for Bloomberg Intelligence. So, Ryan, thanks so much for coming on Odd Lots.

Ryan Fox (4:36)

Thanks for having me.

Tracy Alloway (4:38)

It's so nice to actually meet you in person because we've been IB ing for a while talking about boxes. I don't know how this became so interesting to me. Probably because of the decline that we've been seeing. Walk us through the numbers. Like how bad is the actual fall in boxes of boxes? Shipments of boxes.

Ryan Fox (4:57)

Yes. So when we think about box shipments, they are shipped, like you said, knock down flat or KDF for short.

Joe Weisenthal (5:03)

KDF stands for. Oh, knockdown. Knockdown flat. I already learned something.

Ryan Fox (5:07)

And so they're shipped sometimes on pallets, but they're going to in the US End markets like food manufacturers, beverage manufacturers, people who make industrial products. About 50% of the boxes that we consume in the US are going to go through a grocery store. So that's a really good way to think about it. What we've seen, box shipments have fallen in the first half about 2.3%. And this is largely due to uncertainties that are stemming from tariffs. We saw a big ramp up during the pandemic, where box shipments grew the first year of the pandemic by about three and a half percent, actually 2.4%, then 3.5% the following year. When we think about it in concrete terms, we talk about box shipments in terms of billions of square feet. And when we talk about billions of square feet, like 400 billion square feet would wrap around the earth, like 30 times or something like that. It's a very big number.

Joe Weisenthal (6:01)

So what exactly is being measured here?

Ryan Fox (6:03)

Right. So if you were to take this box here and we were to tear it all apart, and there's. So, by the way, this is a regular slotted carton.

Joe Weisenthal (6:12)

Okay.

Ryan Fox (6:12)

This is a double wall box.

Joe Weisenthal (6:14)

Does that mean it's not corrugated?

Ryan Fox (6:15)

No, this is corrugated. So let's take a little quick parenthetical thought here. So cardboard is actually not this. This is a corrugated fiberboard box. For all you box nerds out there. This box has. This particular one is a double wall. So there's five layers. The flat sheet is called liner. The wavy part in the middle is called medium.

Joe Weisenthal (6:32)

Are you, like, in heaven right now?

Ryan Fox (6:33)

I am so much in heaven right now. You don't even know.

Joe Weisenthal (6:37)

Keep talking about it. No, you don't have to stop.

Ryan Fox (6:39)

So if we were to. If we were to unfold this thing, separate the glue seam and lay it out flat, and you just do basic math, or you take your tape measure and you go width and length. So that would measure it in terms of square footage. And this box right here, it's been cut down so it doesn't look as big as it really is, but it's probably somewhere around 20 square feet. We could measure it if we wanted to, but we won't. But if you were to do that for every single box, that's how they will measure it. What's really kind of important is these boxes are made on a variety of different machines. And one of the reasons why it's called a corrugated box is it's made on a corrugator, and that's a machine that takes different kinds of paper, and it laminates together. They stick together with typically cornstarch or some other starch product. So one of the mechanisms is called a corrugator roll. And it's a, it's a roll with these little wrinkles in it. They steam the paper and it forms those little arches. And that's what gives the board its strength. There are different sizes of these little things. Like then they're called flutes, but you can't play them. They don't make any music.

Tracy Alloway (7:42)

It's so interesting.

Joe Weisenthal (7:42)

It's super interesting. Let's just keep talking about this box. What is it about the corrugation process that makes it stronger?

Ryan Fox (7:47)

So from a physics standpoint, it's what gives the box its shape and substance. And there is a lot of science that goes behind this. In fact, we now have ways to predict how the box will perform in real world situations. Just mathematically.

Tracy Alloway (8:02)

Do we do box testing where we like beat up a box?

Ryan Fox (8:04)

Absolutely, yeah. And so for a lot of companies, they have to go through the ista, International Safe Transit Authority. They actually test the box to make sure it will hold up against UPS or FedEx or in some instances, they go so far as to make sure that no matter what happens, it's going to survive. And those tests can cost thousands of dollars. So it's a very robust process.

Tracy Alloway (8:31)

What's the best box before we go, before we go into what's happening right now?

Ryan Fox (8:36)

Everyone has their favorite box. I mean, as adults, you've really gotten into adulthood when you get that box and you're like, that's a really good box.

Joe Weisenthal (8:47)

Anything that's easy to collapse.

Ryan Fox (8:48)

Anything that's easy to collapse is one way.

Tracy Alloway (8:50)

No, Anything that's easy to open. I like the zippers.

Ryan Fox (8:53)

The zippers, yeah. A lot of people like the zipper pulls. There are some boxes that are very elaborate and they don't require much at all to set them up. They kind of fold and lock in on themselves.

Joe Weisenthal (9:05)

Oh yeah.

Ryan Fox (9:05)

We call those die cut boxes. They are made from a cutting die that looks like a big cookie cutter. And they will make any shape that you want to make. The most popular style is what we call a Roland box. And they can tuck on the inside, they can tuck on the outside, but this is really a nice box. It's a box that you might see if you were to buy something online. And they're really trying to go for that wow factor because they're going to get for that. Ta da. Kind of open the box and show off the product.

Joe Weisenthal (9:36)

Let's talk more about this box on the table here. Are you learned enough in the space? You could say like, oh, I think this came from X mill or X Year or like you have any other insights.

Ryan Fox (9:46)

Okay, so this box doesn't have it.

Joe Weisenthal (9:49)

Okay.

Ryan Fox (9:49)

That I can see. But on most boxes that are made in the usa, there is a small little stamp on the bottom of the box. It's round and it's called a box makers certificate.

Joe Weisenthal (9:58)

Okay.

Ryan Fox (9:59)

There are around 1100 facilities in the US that make corrugated boxes. And that little stamp on the bottom will tell you what company made the box and where it's located. And more specifically, it will tell you what the stuff is made of. You might go, well, that's kind of a stupid detail, but it goes back over 60 years. Actually goes back over 100 years to when boxes were first starting to come around. Most people don't know that corrugated boxes are only 130, 140 years old. Only implemented in the late 1890s.

Joe Weisenthal (10:32)

I'm trying to think of before this. Someone said, joe, when do you think the first corrugated box? As if I would have been even begin to have a guess. Anyway, keep going.

Ryan Fox (10:39)

So right after the turn of the century, in the early 1900s, companies were looking for ways to ship their product. The only mechanism they had in that time, we. We didn't really have 18 wheelers. We had trains. And so the rail companies, as they were making new rails, they're cutting down forests. They had lots of wood to do something with. So what did they do? They made crates.

Tracy Alloway (11:01)

Huh.

Ryan Fox (11:02)

But crates were very expensive and they were very heavy. And so people were looking for alternatives and they came up with a corrugated box. It actually goes back. Funny New York story. The Dumbo area is home to the Gehr building. And Gehr was one of the early pioneers of paper packaging. And he kind of discovered by accident that you could score paper and create these nice little boxes.

Tracy Alloway (11:28)

I will never look at Dumbo the same way again. Okay, actually, that reminds me. So who are the actual big players in the paper industry? Because I don't think I could name single one off the top of my head.

Joe Weisenthal (11:41)

I can.

Tracy Alloway (11:42)

Oh, who?

Joe Weisenthal (11:42)

International Paper and what used to be Smurfit Stone.

Tracy Alloway (11:45)

Oh yeah, Smurfit. Okay, that's good.

Ryan Fox (11:48)

So you're exactly right. International Paper recently got even bigger. They acquired DS Smith out of.

Joe Weisenthal (11:54)

There was one named Crown.

Ryan Fox (11:56)

Crown was also. Well, they're still.

Tracy Alloway (11:58)

Why do you know this?

Joe Weisenthal (11:59)

I actually, in the brief time when I was a equity Analyst over about 20 years ago, I think I did a little research into this space.

Tracy Alloway (12:07)

Box analyst. A fellow box analyst.

Joe Weisenthal (12:09)

All right. Very brief dabble in Bach. Anyway, keep going.

Ryan Fox (12:12)

Yeah. So International Paper recently Bought DS Smith, they got even bigger. They were keeping pace with Smurfit Kappa, based out of Dublin, Ireland, who bought Westrock, who's here in the US they became kind of the first global, like, mega company. IP followed suit. So they're the two biggest in the US and the biggest in the world. Packaging Corporation of America is number three in the US Followed by Georgia Pacific, Pratt Industries, and a variety of smaller independents.

Joe Weisenthal (12:40)

Now, the other thing, one of the other boxes come from trees, right? Or lumber comes from trees. You know, we've talked about lumber a lot on the show, and one of the things that we learned, you know, there's been consolidation in the lumber space, but also, particularly after the great financial crisis, there was a lot of reduction in mill capacity. Now, that's related to housing specifically, which was ground zero. But what is the story of American mill capacity over the last 20 years? From prior to the great financial crisis to the 2010s to now, we really.

Ryan Fox (13:08)

Didn'T see a whole lot of new mill capacity come along. Like 20 years ago, there was some investment. There were some new mills that would come along. I actually spent 10 years working in the corrugated packaging industry before coming to Bloomberg and worked for one of those integrated companies who has their own paper mills. The mills that I worked for were 100% recycled, and so some of their investment would have shown up in that last 20 years. They've built many of the most recent mills over the last 20 years, but we really saw an explosion of growth right around the time of the pandemic. So in 2023, two and a half million tons of new 100% recycled container board making capacity came online. And now containerboard is a technical term. It's the big term for the paper that goes in these boxes. So container board means liner board and or the medium. So that's this big term.

Tracy Alloway (14:03)

So everyone's shipping flour for their, like sour dough or something during the pandemic, or buying new ovens to remodel their houses while they can. Just going back to the idea of the box as a macroeconomic indicator. I mean, I do see people talking about, like this idea of boxes as a leading indicator every once in a while. It is unconventional, but some people do it. How valuable are box shipments or tracking the box industry in terms of trying to figure out what's going on with the consumer?

Ryan Fox (14:34)

Very important for the consumer. Like I said, about 50% of box consumption is going to go through a grocery store. So when you start to see box shipments slip, we probably need to be looking at grocery stores and CPG companies to see what's going on there. And we have seen a very challenged consumer environment over the last two years. My personal opinion, I would say we're in a consumer goods recession because of what we've seen. First half of 2025 box shipments were down 12% from the height of the pandemic. That's a massive fall off. So earlier we talked about how we would measure these things in billions of square feet. Well, in 2021 we hit 416 billion square feet. The first half was right around half of that. So like about 208. It was really bad. Quick math was 190 billion square feet for the first half of 2025. So pretty big fall off. Yeah.

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Joe Weisenthal (17:29)

And so obviously right. So measuring square feet is one thing. What is happening with prices?

Ryan Fox (17:36)

Well, the pricing discussion is one that is sure full of controversy. So what drives pricing? Is it truly supply and demand? Is it something that's more cost Based for many, many years in the US it was supply demand based where mill operating rates would hit 96%, inventories would get real low and they would raise prices or the opposite. Mill operating rates would go below 90%, inventories would rise and prices would fall. But over the last year and a half, we've actually seen none of those fundamentals hold up. So mill operating rates have barely been 90%. Inventories hit five weeks at the end of the first quarter and yet prices still went up.

Joe Weisenthal (18:13)

Five weeks is a lot of five.

Ryan Fox (18:14)

Weeks is a lot of inventory. Historical averages are around four weeks to kind of set the floor there. Three and a half weeks gets a little dangerous. When it's a little lighter than that, we start worrying about supply chain issues. About half of the the container board is made out of paper mill and shipped by rail to a box plant. And rail isn't quite as fast and efficient as an LTL or. Well, actually it'd be a full truckload, but you can carry more rolls by rail than you can by a truck. So you kind of have to have a little bit more of that time to allow for the transit for those rolls.

Tracy Alloway (18:49)

What's your take on why paper companies are actually increasing prices, even, you know, when inventory seems to be high and demand is going down?

Ryan Fox (18:57)

Well, it's funny you asked that. So four years ago I started trying to figure out if we could read the tea leaves, so to say, and we put together a mix of inputs and having worked in the industry, we kind of know how the sausage is made. And what we did was we put together this series of inputs and we correlated it back to historic movements. And Our algorithm explains 93% of the reasons why prices have moved for Bloomberg terminal clients.

Tracy Alloway (19:25)

Box pricing algo.

Ryan Fox (19:27)

Yeah. So BC BCI index for people who are on the terminal.

Joe Weisenthal (19:31)

Yeah, I'm pulling this up right now. BC Keep going. Wal. Bcb. Wait, what is it?

Tracy Alloway (19:37)

Bci.

Ryan Fox (19:38)

BCBCI stands for Bloomberg Corrugated Box Cost Index. And up until this year when we did the last multiple regression analysis, it had a 93% R square. So it was really good. Right? Well, pricing in the industry diverted from our index this year where prices went up even though costs are going down. And that's actually not a complete anomaly. We did see this in our index a few years back in 2017, 2018, but it wasn't quite as pronounced.

Joe Weisenthal (20:12)

Oh, so sorry. Just to be clear, because I want to get this right, the index that I'm looking at is the box cost index, so it's not so Much that it's measuring the cost of box. So box prices can go up even though this line on a chart is rolling over?

Ryan Fox (20:27)

Correct.

Joe Weisenthal (20:27)

This is important.

Ryan Fox (20:28)

Yeah. And some might call this kind of organic margin expansion, others have more colorful words for it. But in the US 90% of the industry is vertically integrated. And what that means is they have their own paper mills. They move that paper to their own box plants and sell it to their own customers. And so there really isn't much of an open market the way there is in other regions. In other regions, like in Europe, they don't have that vertical integration level. So there is a much more robust open market and it drives prices down because of normal supply demand fundamentals. If you do have just an absolute glut of inventory, prices are going to fall. Our best data says globally we have around 50 million tons of oversupply of container board. Now, we don't have that just in the US That's a global number. But that does kind of alter your frame of consciousness.

Joe Weisenthal (21:27)

Tracy, by the way, this is just so fantastic. Everyone should go to Bloomberg Terminal, because now I'm reading the PDF that describes the methodology. The weights, by the way, are the cost of diesel, the cost of caustic soda, natural gas price, US Recycled fiber price, corn price index repair and maintenance, average truck rate, no US Average hourly earnings. And this is how they derive the cost of what, a box. And it walks through all the methodology. It's really fantastic.

Tracy Alloway (21:52)

It's so funny to think that corn is an Input into box.

Joe Weisenthal (21:55)

7% weight. According to the Bloomberg methodology, the biggest weight is the US recycled fiber price at 37%.

Tracy Alloway (22:02)

Makes sense just on the inventory. How much of the decline this year in terms of box shipments is just an inventory glut? Do we have like a good read on that versus demand from a box standpoint?

Ryan Fox (22:14)

We don't have a good read on that.

Tracy Alloway (22:15)

Okay.

Ryan Fox (22:16)

If we're thinking about the grocery store, those boxes turn over very quickly. Having worked in the industry, the box is going to get made at the box plant. It's going to go to a customer. We're going to think like General Mills and Kellogg's and Hershey's and all of the big brand names that we know. It's not going to necessarily sit in their facility for very long. It will maybe get back into the system within 30 days. In fact, I've been to the grocery store and my kids hate it when we go to the grocery store because I'm always turning over boxes to see who made them. But sometimes they will date stamp the boxes as to when they were produced. And I've seen as quick as 30 days in the store. And oftentimes when Smurfit Kappa bought Westrock, I was able to see a brand new Smurfit Westrock BMC within 90 days of that transaction. So it's just an interesting little like, tidbit. And if you find yourself turning boxes over from now on, you can just start doing that.

Joe Weisenthal (23:15)

How stable is the relationship between square footage of boxes and the actual goods sold in boxes? And the reason I asked this is, you know, I remember the first several times that I ordered groceries, for example, online and I would get these deliveries. I was like, this seems really inefficiently packed. Like, you get a box and there's two tomatoes in there. And it's like, was this really, did they really need to just have this or.

Tracy Alloway (23:39)

Amazon is the classic example of this.

Joe Weisenthal (23:41)

But I imagine that Amazon doesn't love this either. I imagine they're always trying to optimize for box capacity such that, you know, you buy a new remote control for your Kindle Fire or whatever, it doesn't come in a big box. Is their progress always being made on the efficient use of the cubic footage space within these boxes?

Ryan Fox (23:58)

Yes. All right, so let's talk about two things. First, first we're going to about who the consumer is. And second, we'll talk about. Right. Sizing. So first, when we think about consumers, Walmarts targets, Amazon, Home Depot, they are consumers. And the majority of boxes that are made are intended for them, not for us.

Tracy Alloway (24:20)

In fact, that's why they call them big box stores.

Ryan Fox (24:23)

Right, Right. So we can get into this later. But this old box actually has its own aftermarket in which probably 80% of the stuff that we recover comes from those stores, not from our doorsteps. So when we think about consumers, we really need to think about the big stores first because that's who the main consumers of these boxes are. And so when you think about the changes that we're seeing, if we're seeing significant changes at those stores, we may be thinking about things like shrinkflation or companies altering the size of their products and then having to alter the size of the boxes that hold them. So I think while it's an important idea, it's probably less significant than what we get at our homes. And Amazon, for instance, let's talk about traditional E commerce, or I think I may start referring to this as cart to Carton commerce.

Tracy Alloway (25:14)

Oh, very good.

Ryan Fox (25:16)

Because E commerce today, or digital sales as some people talk about, it can also include things like Uber Eats or Instacart. It could also include a buy online pickup at the store. So a cart to cart in commerce might be a better, better way to think about or like a, I don't know, maybe you can come up with a new term.

Tracy Alloway (25:34)

Anyway, I'll think about it.

Ryan Fox (25:36)

So Amazon, from our best guesses, represents about 8% of all of the boxes made in the US at least in 2024. And what we're seeing from a lot of these companies who do that kind of traditional e commerce, or the cart to carton, we're seeing a right sizing. So you may have gotten an Amazon box that looks a little bit weird, right? It's lightweight, real paper. It's folded in on itself. It's got that zipper pull on it and it just doesn't quite look like this box on the table that's been taped up and it's a regular slotted carton. You may have seen that or you may have gotten a paper mailer. And Amazon has really been forging the way in mailers and packaging technology.

Tracy Alloway (26:20)

Wait, what's a paper mailer?

Ryan Fox (26:21)

A paper mailer is a bag that is made from paper.

Tracy Alloway (26:26)

Oh, I've only ever gotten the plastic ones of those from Amazon. I don't think I've gotten a. Oh, wait, no, I probably have with the bubble wrap inside.

Ryan Fox (26:34)

Some of them don't even have bubble wrap anymore.

Tracy Alloway (26:37)

I haven't gotten one of those. Okay. But this reminds me, if I am working in the procurement department of an Amazon or, I don't know, a Walmart or someone like that, what are the factors that go into me deciding what boxes I actually want for the business?

Ryan Fox (26:54)

That's going to be a reflection of what your product is. And every product has its own specification or what kind of box it needs. So if you're making a widget, you will determine how many of those widgets are going to go into a box. And that's going to be a function of its weight and fragility and what kind of other internal packaging you might need.

Tracy Alloway (27:16)

Let me ask this question in a different way. Why does Amazon, at least historically, seem to like big boxes?

Ryan Fox (27:24)

Well, I don't know that I can answer for Amazon on that one, but it does seem to be maybe at the discretion of people who are packaging at their packing stations and what their available inventory of boxes might be like. I've seen some of these things in action. It's just a small packaging desk of sorts with some overhead bins that have knocked down flat boxes in them.

Joe Weisenthal (27:46)

This must be an interesting sort of engineering problem because I might at the end consumer level say, look at this inefficient use of box space. I got a box and all has a little remote control. On the other hand, maybe the optimization occurred because the packer has four boxes to choose from and if they had more choices, maybe they could have had a more efficient space to good ratio, but then that would have taken up more warehouse space and made that whole process less efficient. So there's probably all kinds of algorithms that I'm not even thinking about as the end consumer here.

Ryan Fox (28:17)

There are lots of algorithms and when you think about boxes and packaging in traditional e commerce, they are looking to optimize not just from a packaging standpoint from like from a pricing position, but really from a cube in the shipments, right? So we have to think that Amazon's going to process all these orders or Chewy or whatever the E commerce platform is. They process the orders, they're going to go through their distribution centers. And if you're Amazon, you have your own trucks. You want to make sure that you can put as many of those things on a truck as possible.

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Joe Weisenthal (30:37)

You know, when we're talking about broader macroeconomic data these days in particular, there are a lot of questions about the degree to which the aggregates are missing part of the story. And specifically in a lot of commerce these days and anytime there's some retail CEO like things are holding up well, but it's really being driven by the high end. The high end is keeping it afloat, the middle consumers getting squeezed, lower income is getting squeezed, you know, all kinds of things. You know, we're talking in aggregates when you, when you talk about box square footage having been shipped. But is there more granular data that one could look at in terms of the quality of cardboard, etc. That could tell us different things about what's strong within the economy even if the big numbers are declining?

Tracy Alloway (31:18)

The fancy boxes.

Ryan Fox (31:20)

The fancy boxes, not really. So one of the problems that our industry faces is that we don't have great data. Having worked in the industry and having provided that data, it's a chore that no one really double checks. So you've brought on a new customer and you're submitting all your paperwork for the new customer. One of those things is a classification of their NAICS code, the North American Industry Code. Well, no one ever checks to make sure that's proper. Right. You just kind of wing it, you look it up and see if they've maybe followed it with the Secretary of commerce or something like that. And, and that's it. So the granular data is murky at best, but it is insightful and it is consistent because there is a cost to changing your supplier. Like we do see it happen. And for very big box customers, they don't like changing. You have a long standing relationship, typically many, many years. You have lots of SKUs. And if you're a really big company and you have operating facilities all over the place, you don't want to go through that. So the data, while murky, might be consistent. And we do see some of those things. Like in 2024 for instance, we saw that manufactured food fell like by 3.7%. So if you combine that with beverage, it was a little over of a 4% decline in box usage. Now how do we describe that? Did those companies see similar falls in their volume? I think the data would suggest that that's probably very close. Corrugated packaging does have some known trade offs. One of those things is a returnable plastic container that is Mainly being pushed right now towards producers. Walmart specifically Sprouts market have been pushing some of their people to adopt returnable plastic containers as a viable option. It reduces waste. They're building supply chains around these things to help carry them around. So that is one of the things that we've seen kind of cut into box consumption. We don't know that it's a big thing yet, but it is out there and it is a thing. The other thing that we've seen is a movement to larger format boxes, some that are the size of a pallet, you know, 48 inches long, 40 inches wide and maybe 40 inches tall. A great playhouse for your young kid.

Tracy Alloway (33:40)

I remember doing that with huge boxes, turning them into houses. Why would anyone invest in this space currently? Because when you describe this enormous glut in supply and then the fact that demand is going down, maybe it's because of the tariffs, maybe if the US starts manufacturing more goods, it'll domestically it'll start to pick up again. But it seems like most of the lines are kind of trending in the wrong way. What exactly is like the allure of this industry?

Ryan Fox (34:13)

That's a great question. I wish I knew the answer. Other than they do have dividends that they have been been paying and consistently paying.

Tracy Alloway (34:21)

So, so it's considered like a, a fairly, like stable, very stable dividend.

Ryan Fox (34:26)

I think it's a pretty safe investment. We do see. I mean it's very popular from, from a terminal standpoint. I get Bloomberg clients that reach out all the time. They're looking to figure out if this is still a good investment. And while we don't do buy, sell hold recommendations, we still see a lot of traffic in these, in these lanes.

Tracy Alloway (34:44)

Does it just depend on how big your company actually is and how much pricing power you have in the market?

Ryan Fox (34:50)

Well, see, I think that's a myth. I think, I think there really isn't pricing power. If there were pricing power, we wouldn't see some of the actions that we're seeing in the, in the world today. And what I mean by that is there are some mills that make a really robust paper. It performs really, really well. And there are scientific properties to that paper that set it apart from anything else. And yet they aren't getting the premium that they should be getting because there is an alternative. And it's, it's like wanting a Ferrari and selling for a Mustang. They're both great, but one obviously has the allure and one has its client base too. And when you can buy a Mustang and it Works. You're not always going to want to buy that Ferrari.

Joe Weisenthal (35:39)

Well, actually, this sort of gets me to where I wanted to go. First of all, what would be the name of the biggest box or packaging expo in the United States? Like that get together somewhere.

Ryan Fox (35:50)

Yeah, in. In big round terms for packaging Pack Expo.

Joe Weisenthal (35:54)

Where's that? Vegas.

Ryan Fox (35:54)

This going to be in Vegas this year?

Joe Weisenthal (35:56)

Maybe we'll go one day. All right, so setting aside the volume and pricing trends, which we take for granted, everyone is curious about what would be the hot topics right now that would be discussed at Pack Expo.

Ryan Fox (36:08)

Ooh, sustainability has been a really big topic for a long time, and it's matched with extended producer responsibility laws. So this is a state by state initiative to basically shift the burden of recycling away from its residents and onto the companies who are creating the waste.

Tracy Alloway (36:28)

How does that work exactly?

Ryan Fox (36:30)

So right now we have a handful of states who've actually passed legislation. Oregon's the first one that is really kind of enacting this. And they've set up a fee schedule. They've measured how much waste their state produces in a month or in a year, and they've allocated a certain number of dollars per pound or cents per pound for each one of those commodities. And if you're selling something into the state, they are essentially placing a fee on the waste that you're sending in their state, and you have to pay a check to them.

Joe Weisenthal (37:01)

Can you talk a little bit more about the economics of recycling? Because I put a lot of the cardboard I use into the proper. Into the proper bin.

Ryan Fox (37:09)

The economics of recycling.

Joe Weisenthal (37:10)

But like. Yeah, but like I'm always. And this goes with any recycling, really, which is that when I think about the labor that actually, when I think about a. The degree of diligence that people. And I would say I'm probably higher than average diligence about proper bin allocation, but I know I'm not perfect. But when I think about the degree of diligence and the inefficiency and then the labor and all of this stuff, and then talk to us, when is it actually economical and when is it just sort of some sort of cargo cult type behavior that people engage in where there's no real purpose?

Ryan Fox (37:43)

Well, most of the time the recycling fees are paid by taxes. My street, for instance, that was not the case. And I had to pay $25 a quarter for a bin. Not terrible, but I had to pay for it. The economics in big round numbers work like this. It costs anywhere from about $400 a ton upwards to $7 ton to go out and do the collections and processing for recovered materials, all of that stuff. So you'll see a truck come and pick up your recyclables. It goes to a facility called a mrf, a municipal recovery facility. And there it's processed. And they have lots of lines that sort things out, plastics and metals and papers and all that stuff. And then they produce bales, so a compact cube of sorts of these materials and then they get sold. So if we were to just use a big round number and say $500 a ton, the net ton that comes out of the MRF only has a street value between 100 to $140 a ton. Yeah.

Joe Weisenthal (38:44)

Am I listening, hearing that right? That sounds terrible.

Ryan Fox (38:47)

That's terrible. And the craziest thing is the corrugated box is what really makes household recycling even work. Because we know from data, and this is something I challenged several years ago, our best data says that we recycle about 66% of the corrugated boxes in the U.S. it's a pretty good number. The industry used to say 93% of boxes got recycled. There's no way that's possible. But we don't have the data to say it's lower than 66%. But we do have a methodology that we use to kind of get there. It was actually supported by the National Renewable Energy Lab. You can probably shoot some holes in some of their stuff too. But big point is, we know that about 60 some percent of these get recycled. And we know they have a very robust aftermarket. We process about 35 million tons of old corrugated cartons almost every year. About a third of them are going to go overseas. There are a lot of other countries that want the virgin fiber that we produce here.

Tracy Alloway (39:49)

Now that we've revealed the depressing truth about recycling, let me ask a slightly more positive question, which is have there been any cool technological development developments when it comes to box making?

Ryan Fox (40:01)

They are constantly patenting boxes, making new equipment to make them faster, improving the the way we make the paper. We're trying to make stronger paper that's lighter in weight. So if you think about some of these, we'll go back to the EPR laws for a second. Those fees are based on the weight of what you're consuming. So if the companies can buy a lighter weight material, then their fees go down.

Tracy Alloway (40:25)

Right.

Ryan Fox (40:25)

So there is a push now to see if we can lightweight the paper, make it as strong, but with less weight. And so these are things that we're going to see really take some shape in the next five to 10 years.

Joe Weisenthal (40:36)

You know, I'm glad you mentioned export. One of the things that I've noticed whenever I am traveling abroad, even to fairly rich countries, but I definitely notice it when I'm in poorer countries, is that the quality of packaging materials is distinctly worse than here. So, and the example that I often notice is, you know, you buy a bottle of water in a US grocery store, it's nice, it's sturdy, it holds its form very well. You buy a bottle of water at say a grocery store in Guatemala, where I was a couple years ago, or Mexico, it's crinkly, it smashes over easily. You could tell that it's a less durable plastic. Is there similar. You know, if I hadn't. If we were to look at the cardboard boxes running through a developing economy such as Guatemala, et cetera, would we see that this is noticeably different than the quality of cardboard that we' seeing here?

Ryan Fox (41:26)

It really depends on what the technical term is going to be. Furnish. Right. So what are you using to make the boxes? The US has historically been a maker of virgin craft liner board, meaning they cut down trees, they chip the trees, they turn those chips into new virgin paper that's actually been declining and reversing. We've seen more and more recycled capacity come online. And because we've still had a very good virgin base, the recycled paper here in the US has been very good. Now in other countries they may not have southern yellow pine, so they are buying our OCC or they're using their own OCC's old corrugated cartons. Sorry. So they're just going to re pulp the stuff that they have. And if they start with a low quality box, then they're going to get a low quality paper on the back end. And so sometimes they are going to have a lower grade paper. And in other areas of the world they actually have different definitions for that kind of paper. So they would have different grades of it. And so yeah, sometimes you get the low grade paper because it's a commodity and it'll work.

Tracy Alloway (42:29)

So I just have one more question just to wrap it all up. Ah, that's a packaging joke. Okay, wrapping it all up. Summarizing, what's your prediction for the second half of the year in terms of box shipments?

Ryan Fox (42:41)

We think they're still going to be very challenged full year. We're saying they're probably going to be down 2.5%, maybe as high as 3%. It really depends on what happens. A lot of this is stemming from tariffs and policy coming out of the White House. So it really depends on how much confidence some of these companies have as they look forward. We've seen the number of containers coming into the US like, the cargo ships was front loaded. Right. And now that the tariffs are kind of here, or maybe they're not here, They've been kind of tapering off a bit. It will be very curious to see what happens. But to maybe think about it another way. Most Americans buy stuff when they have money, and when they don't have money, they put it on credit cards. And we're seeing records amount of credit card debt. And that's not a great sign for if people are going to spend money. So we don't really think that it's a really hot outlook for even for the holidays. Are Americans gonna spend money? Probably. Is it gonna look exactly like it did in prior years? Probably not.

Tracy Alloway (43:46)

All right, Ryan Fox, containers and packaging analyst at Bloomberg Intelligence, thank you so much.

Ryan Fox (43:51)

Thanks for having me.

Tracy Alloway (44:05)

Joe. I learned a lot about boxes.

Joe Weisenthal (44:07)

That guy was great. Yeah, I love Ryan.

Tracy Alloway (44:09)

You know, one thing I really like about Ryan and people like that is when they trot out all the numbers off the top of their head. Yeah, that was really impressive. That was no notes. And he had answers for pretty much everything.

Joe Weisenthal (44:22)

If someone had asked me how I thought they would measure box shipments, I might have guessed cubic feet rather than square feet. But yes, I. I would have. You know, all this covering the world stuff. Yeah, it's pretty cool.

Tracy Alloway (44:35)

Yeah. And I guess the question over how useful a macroeconomic indicator boxes actually are, it still kind of lingers because we did have retail sales data for the past two months that are available that came in, like, pretty resilient, pretty strong, despite the decline in box shipments.

Joe Weisenthal (44:53)

What was the term he used? Cart to carton commerce. Yeah, I really like that because it's true. Right. What is E commerce that now encompasses so many different things? So there is this sort of classic E commerce where you go on a website and you buy a thing and it comes in a box. But then there is, of course, you know, buy and you pick up at the store, and that's a slightly different variation. Or maybe you get food delivered in a cardboard box, et cetera. So I like the idea of, okay, E commerce is so broad that if we want to have like, for like, trajectories of some of these use cases for cardboard boxes, we have to maybe get a little bit more granular.

Tracy Alloway (45:27)

Well, that reminds me, actually, I think one thing that's still really underappreciated about the packaging industry is how much it feeds into broader inflation.

Joe Weisenthal (45:35)

Yes, yes.

Tracy Alloway (45:36)

And this is something I remember some economists bringing this up during the post pandemic era. But the interesting thing is now, even though box shipments are going down, prices still seem to be kind of sticky and even going up. So what does that mean for inflation?

Joe Weisenthal (45:51)

I always think about this, and sometimes it maybe gets a little metaphysical. But when you buy a thing in a grocery store, let's say you buy an avocado. Like what are you buying when you buy the avocado? Right? Because, okay, there's the physical avocado that you might cut open, but then you're buying the time it's spent in a refrigerated space. You're paying rent to those owners of refrigeration, transportation, you're buying the transportation, et cetera. It's interesting to think about any good that you buy, period, ahead of lettuce, etc. How little is the lettuce? Whatever even the lettuce means, because there is labor that went into the planting of the lettuce and there is the land of the lettuce and et cetera. So the idea of what are you buying when you're buying something? Often that includes packaging, but often it's just never really clear at all what it is except this bundle of goods and services.

Tracy Alloway (46:35)

I'm buying an entire slice of the economy.

Joe Weisenthal (46:38)

You literally are.

Tracy Alloway (46:39)

Okay, now that we've gotten into a metaphysical discussion about boxes, shall we leave it there?

Joe Weisenthal (46:43)

Let's leave it there.

Tracy Alloway (46:44)

This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

Joe Weisenthal (46:50)

And I'm Joe Weisenthal. You can follow me. Hesteworthy Check out Ryan's stuff at Bloomberg Intelligence. A lot of fascinating stuff there. Follow our producers, Carmen Rodriguez at Carmenarmondasho, Bennett at Dashbot and Kalebrooksalebrooks. For more Odd Lots content, go to Bloomberg.com OddLots review the Daily newsletter and all of our episodes. You can chat about all of these topics 24. 7 in our Discord Discord GG oddlots.

Tracy Alloway (47:16)

And if you enjoy Odd Lots. If you like it when we we talk about boxes, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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