Online shopping, manufacturing driving corrugated packaging boom in SE Asia

20, May. 2021

On May 10, 2021, TCG Solutions announced its plan to acquire a majority stake of 75 percent in Intan Group, one of Indonesia's leading corrugated packaging producers. It supplies its corrugated boxes to multinational and local food and beverage businesses. (Photo courtesy of Thai Containers Group)
On May 10, 2021, TCG Solutions announced its plan to acquire a majority stake of 75 percent in Intan Group, one of Indonesia's leading corrugated packaging producers. It supplies its corrugated boxes to multinational and local food and beverage businesses. (Photo courtesy of Thai Containers Group)

By Celine Chen and Chalermlapvoraboon Valaiporn

BANGKOK, NNA - It's always a joy to receive a parcel and open it to unveil the contents inside after it has traveled many miles by land, sea or air.

More often than not, they are packed in a humble but sturdy corrugated paper box sealed with tape. Besides being environment-friendly, it can be recycled easily too.

Players in corrugated packaging are definitely going places as the global corrugated boxes market reached a value of nearly $190 billion in 2020, reported the Research and Markets agency.

It is expected to hit $284.6 billion in 2030, at a 4.3 percent CAGR (compound annual growth rate), said another research firm, P&S Intelligence.

According to the International Corrugated Case Association, the Asia-Pacific region represents the most significant and fastest-growing market globally, accounting for 53.7 percent of production and shipment in 2018.

The boom is particularly impressive in Southeast Asia which contributes almost a third to the global pie.

Represented by key markets like Indonesia, Thailand, Vietnam and the Philippines, the region is expected to see the corrugated market growing at a strong 4 percent CAGR from 2021 to 2026, according to Mordor Intelligence.

There are a host of reasons accelerating the growth, including the dramatic surge in e-commerce driven by pandemic lockdowns across the region since last year.

Primarily, the market drivers are an increasing environmental awareness among urban populations coupled with a demand for sustainable, non-plastic and convenient packaging and a higher consumption of electronic goods, home and personal care products with better incomes and economic development, said the research firm.

The rising penetration of e-commerce in Southeast Asian countries such as Indonesia, Thailand and Singapore, "is paving the way for corrugated packaging in the region," said Mordor Intelligence.

For instance, the number of online shoppers in Indonesia is increasing from 20 million in 2017 to 65 million this year, according to CLSA research firm.

With the outbreak of the COVID-19 pandemic, the demand for corrugated packaging in the region is "witnessing significant" growth due to the buoyant demand for essential goods such as food and other consumer items, medical and pharmaceutical products, and tissue paper and hygiene things.

Mordor Intelligence also noted that e-commerce firms are also drawn to the cost-effectiveness of corrugated packaging and box improvements to suit their needs. They can make savings ranging from 7 to 36 percent depending on box size.

Producers can also come up with customized packaging to widen their consumer base. Boxes can be made more durable with greater stacking strength and crush resistance even with bottom panels being made with lighter materials.

Among the segments, growth in the food and beverage industry is driving the demand for corrugated packaging.

Mordor Intelligence said the growing appetite for convenience and packaged foods due to urbanization, busy lifestyles and the gradual inclination for healthy food are shaping the food industry.

"Also, the fast-paced, fresh-produce sector needs to keep up with the emerging market trends and industry regulations while ensuring that costs are kept at a minimum and productivity remains high. Corrugated packaging helps the market players to effectively use these packaging solutions for price-effective packaging needs as well as to cater to sustainability goals," it added.

The competitive corrugated market is moderately fragmented in Southeast Asia owing to the presence of several regional players. Also, they are forming strategic partnerships and collaborations to boost their presence in the region.

Indonesia is expected to dominate the Southeast Asian market judging from its speedy and widespread adoption of corrugated solutions.

Players in the region are also developing new products and coming together for merger and acquisition activities to expand their presence.

In 2019, Thailand's SCG Packaging bought a majority stake in Indonesian paper packaging firm Fajar Surya Wisesa for about $665 million to expand in Indonesia and the region. Last year, SCG Packaging, which is part of the Siam Cement Group, expanded manufacturing in Indonesia, the Philippines and Vietnam.

It acquired about 94 percent of Bien Hoa Packaging Joint Stock Company (SOVI) in Vietnam last December. Bien Hoa, which produces corrugated box and offset laminated packaging, serves global companies like Unilever, Nestle, Suntory and Schneider Electric.

Last week, SCG Packaging announced it will acquire a 75 percent stake in PT Indonesia Dirtajaya Aneka Industri Box, PT Bahana Buana Box and PT Rapipack Asritama, which collectively, come under the Intan Group.

The purchase will be made by TCG Solutions Pte. Ltd., a wholly owned subsidiary of Thai Containers Group Co., a joint venture between SCGP and Japan's Rengo Co.

Intan Group, one of Indonesia’s leading corrugated container producers, operates in four strategic locations in the country.

Roongrote Rangsiyopash, CEO of Siam Cement Group, said in a filing to the Stock Exchange of Thailand, "The acquisition of Intan Group is an expansion of SCGP’s downstream paper-based packaging across Indonesia, enhancing SCGP’s capability to serve customers, reaffirm commitment and belief in Indonesia’s strong economic growth prospects.”

According to American packaging solutions provider BillerudKorsnäs Managed Packaging, the Asia-Pacific market is growing at an impressive rate. China, which is leading the charge, has consistently ranked among the top 15 countries by corrugated output, along with India and South Korea.

China’s share of the market is expected to expand at a compound annual growth of over 6 percent in the next 10 years, ahead of the global rate by 1 percent.

The packaging firm, which is managing packaging for international brands in Southeast Asia, said many businesses have chosen the region for manufacturing as well as their packaging needs.

As factories in the region offer lower labor and logistics costs, companies could outsource their product and packaging to these operations and avoid the costs of developing an in-house team of designers, engineers and project managers, it said.

"Make no mistake, when companies decide to move manufacturing to Southeast Asia, they also outsource their packaging to the product manufacturer. In large systems that utilize many OEM and product factories, it pays to consolidate the development and implementation of packaging," said the website of BillerudKorsnäs Managed Packaging, which has operations throughout Southeast Asia, China and India.

Indeed, more and more companies, which made China their base, have diversified production by setting up operations in Southeast Asia in recent years, due to increasing labor costs, quality issues and supply concerns arising from exacerbating American trade pressures on the communist giant.

The COVID-19 pandemic, which was first reported in China in end-2019, accelerated the move to Southeast Asia to reorganize supply chains impacted by severe lockdowns.

The demand for packaging is fueled by growth in Southeast Asia manufacturing which saw continued recovery in April amid improved external demand.

Malaysia's manufacturing PMI (purchasing manufacturing index)rose from 49.9 in March to 53.9 in April, the strongest expansion since July 2012, according to market analyst firm ICIS.

Indonesia's manufacturing PMI posted 54.6 in April, up from 53.2 in March and hitting a new record high for the second successive month.

Andrew Harker, economics director at IHS Markit, said the Indonesian manufacturing sector ended the first quarter of the year on a high, with firms ramping up production in response to "the strongest influx of new orders".

He said, “Indonesian manufacturing production continued to ramp up in April amid super strong expansions of new orders. Encouragingly, total new business was supported by a first rise in exports since the COVID-19 pandemic hit as international demand shows signs of improvement.”