The history of corrugated carton industry in Sri Lanka goes back to many decades. Initially, companies started manufacturing boxes with double facer machines and with the expansion of other industries and markets, corrugated machinery was converted into fully automated lines. At present, there are over thirty corrugated carton manufactures on the island, out of which seven companies account for than 70% of the market.
The packaging industry is an integral part of a supply chain. The corrugated packaging industry is vital in the economy, as it caters to the needs of many sectors in the economy, be it the Food and Beverages, Fast-moving Consumer Goods (FMCG), Industrial, Pharmaceuticals and many more.
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 & short lead times is the key deliverables and customer promises in this industry. The appearance and the strength are dependent on the quality of the paper being used for manufacture & the printing facilities of the individual manufacturer.
A few decades ago, the machinery was imported to Sri Lanka from Japan, however, some of which 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 the machinery from China.
Two decades ago, Chinese machinery was considered as of inferior quality but, whereas today, the Chinese machinery is of a comparable standard with European machinery.
There were many small-scale corrugated cartons manufacturers & many of them use the double facer corrugating machines.
In these companies, two layers are produced separately & thereafter the layers are pasted manually. Hence, the volume being produced by these companies were 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, whilst a few others acquired automatic box manufacturing plants. Consequently, 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, few companies expanded production capacities adding extra automatic box making plants. With this initiative, the manufacturing facilities in the country has been significantly increased & 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, 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 bursting strength of the box, not the variety or the grammage of paper being used. Unfortunately, in Sri Lanka, most of the customers are demanding grammage & the variety of papers, 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 in locally too.
The same companies in India they 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, Test Liner, Fluting Paper, Semi-Chemical Fluting & white Liner represent 95% of paper being used by the industry. Kraft Liner is much expensive as it is made out of Virgin Pulp.
Test Liner is made out of Waste Paper & sometimes a certain amount of Virgin pulp is added to produce Test Liner, which is termed No.01 Test Liner.
Most of the 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 for seven times on an average.
The main challenge face by the players in Sri Lankan Corrugated Carton industry is the frequently fluctuating material prices.
At present due to Covid-19 Pandemic, there is a huge shortage of paper globally. Many Paper manufactures in the world are experiencing disruptions in business and supply chain.
Many paper manufacturers are operating below the normal production capacity & due to low consumption of commodities, the waste paper availability has badly diminished. Consequently, the pulp prices have been escalated by around 45-50%.
On the other hand, as the Coronavirus outbreak continues to evolve, e-commerce business in West and Europe has grown swiftly & demand for corrugator cartons continues to grow unabated.
The presser on freight is also contributing to the price upsurge of paper. Accordingly, the paper prices have escalated by over 25% and it is further in increasing trend. Sri Lankan Corrugated Carton industry is predominantly into B2B market.
Thus, the industry is working with very thin margins due to heavy competition among the manufacturing companies & the corrugated carton industry in Sri Lanka operates with perfect market conditions.
Hence, the demanding capacity of companies is 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.
Sri Lanka, as a developing country and in the way forward, it is a high time to pay the right attention to packaging operation along the whole supply chain.
With the commitment of the current government for the development of local industries, the industry has very positive expectations that the industry could be reviewed with anticipated economic growth and given a sustainable opportunity to grow so that the corrugator industry could also take a part of this journey.
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