Are carton prices rises on the way?

DS Smith, the UK-based recycled packaging supplier, has indicated its intention to buy its Swedish competitor SCA Packaging in a deal that will be worth Euro 1.6 bn.  The two companies are already the second and third biggest European suppliers; the acquisition will allow the new company to rival the market leader Smurfit Kappa for top slot. 

The acquisition will set alarm bells ringing in the European moving industry.  For many years DS Smith and SCA have been rival suppliers with the competition between them helping to keep prices under control.  Despite this the industry has been fighting price rises for cartons but has nevertheless seen a steady increase.

The three companies held a virtual monopoly on the paper supply for Europe.  Even if you buy from a smaller supplier the chances are the paper comes from one of the big three.  Andrew Simpson of Simpson’s packaging, said that increased prices might well be the result.  “It’s too early to tell yet but this development is likely to put more upward pressure on prices.”

Miranda Hyder, General Manager of BAR Services, commented that if the acquisition goes ahead it will undoubtedly have an effect on the prices of cartons. “It will take out a major competitor and reduce the number of suppliers we have available to us,” she said. Miranda added that DS Smith has not bought SCA’s two Kraft mills so it remains to be seen what affect that will have on prices. “Kraft mills do not usually make much money so if they lose their main support they might close.  That would be even worse news for carton prices.”

David Trenchard was one of the founders of BAR Services.  He was concerned about the impact on the industry of the merger. “Perhaps it’s time for looking at re-usable plastic crates again in huge quantities as with one dominant supplier I can imagine prices will not stand much resistance to increase especially in busy times.”

As the new merged company rationalises its business it appears likely that prices will be forced upwards.  If moving companies are to avoid seeing their profits reduced even further, it’s essential that they pass on any increases in full to their customers.