Box Makers Struggle to Pass on War Costs

(Emily Elconin/Bloomberg)

Packaging producers can’t catch a break as the conflict in the Middle East deals the latest blow to the industry’s protracted downturn.

Box producers have been facing a slump ever since the pandemic e-commerce boom eased, as consumer demand weakened due to inflation and then tariffs hit. Now the industry is facing more pressure, this time as the blockage of the Strait of Hormuz raises energy prices.

It’s a double whammy for packaging companies: Higher costs have pushed the industry to raise prices at a time when demand was already weak, and U.S. consumer sentiment in April only fell further to a record low in part on higher gasoline prices.

“The consumer is being overall more hesitant,” Andy Silvernail, CEO of International Paper Co., said on an earnings call last week. “We expect that to continue for a little bit of time as the uncertainty is out there economically, kind of broad-based uncertainty that was first driven by trade and tariffs, and now the conflict in the Middle East.”

The pullback in demand, driven both by consumer behavior and a longer-term shift toward other packaging materials, has already forced plant closures across the industry. Shipments of the corrugated material that is used in boxes and store displays in 2025 were the lowest in 10 years, according to data from the Fibre Box Association. First-quarter shipments this year were also at the lowest seasonal levels since 2015.

Silvernail said while the company has not seen “abrupt changes in order patterns,” market demand in both North America and EMEA markets has been softer than expected.

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An International Paper plant. (Paul Taggart/Bloomberg News)

One of the biggest impacts on the industry from the war is higher transportation costs. In the U.S., natural gas prices have remained stable on ample domestic production, but the cost of retail diesel touched record seasonal levels in mid-April.

Sonoco Products Co. CEO Howard Coker said higher input prices had an impact of “under a few million dollars” in the first quarter and is set to add another $8 million to $10 million in costs in the second quarter, with most of that coming from freight.

Packaging giant Smurfit Westrock Plc now sees energy having a $270 million to $290 million impact for the year, up from the $80 million year-over-year increase that the company would have guided prior to the conflict, Chief Financial Officer Ken Bowles said in an earnings call last week.

The situation has become so dire that benchmark prices for linerboard, the outer layer of corrugated cardboard, were raised in both March and April, marking the first back-to-back increases in five years.

The move from Fastmarkets RISI, whose price assessments are used as a reference for some packaging contracts, has since been followed by a wave of containerboard price increases including from International Paper and Packaging Corp. of America.

Those actions risk further hitting demand, especially as major consumer goods companies are also struggling with the same dynamics, said Adam Josephson, the founder of Sakonnet Research and a former sell-side analyst for the paper and packaging sector.

Smurfit Westrock ranks No. 3 on the Transport Topics list of top paper/office products carriers. International Paper ranks No. 6.