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Box demand slumps as Americans refrain from discretionary purchases

Q1 earnings point to continued unexpectedly strong downward pressure on consumer spending

Corrugated box demand continues to disappoint the largest producers as Americans run short on cash. (Photo: David Curetean/Shutterstock)

During the busiest Q1 earnings week (42% of the S&P 500 market capitalization is reporting this week according to Goldman Sachs), several companies involved in the box market, which is among the best leading/coincident economic indicators depending on how one defines leading, have reported downbeat results and cut guidance. 

The consistent theme has been intensifying pressure on U.S. consumer spending, with no end in sight as many leading indicators (yield curve, ISM new orders, building permits, bank lending standards, etc.) are pointing to further weakness. FreightWaves has written about this issue when discussing Costco’s recent results and recent box demand trends, and indeed, companies exposed to the box market are feeling the pain like they haven’t in a long time.

UPS cut its 2023 guidance based on weaker consumer spending, as its volume deteriorated throughout Q1 from down 3% in January to down 7% in March, with April stable at the March exit rate. 

The company noted that spending on food as a percentage of household budgets has risen from 7% a couple of years ago to 9% in Q1 as Americans are increasingly strapped. Said UPS, “U.S. discretionary sales are lagging grocery and consumable sales and disposable income is shifting away from goods to services.” 


Costco said much the same in early April when discussing its March sales; its food sales were up considerably while its sales of all manner of discretionary items were down.

Echoing these themes were two of the three largest containerboard/box producers in North America: International Paper and Packaging Corp. of America. On Monday, Packaging Corp. reported a historically steep (~13%) decline in its box shipments in Q1 as consumer spending deteriorated throughout the quarter. On Thursday morning, International Paper reported an 8.5% box shipment decline in Q1 as consumer spending was “focused on non-discretionary [items] and value,” and took a historically large amount of production downtime to adjust to the low demand. 

Partly as a consequence of the pronounced demand weakness, IP cut its full-year adjusted EBITDA guidance by nearly 15% at the midpoint. As with Packaging Corp. and UPS, IP’s volume trends worsened throughout the quarter, with March shipments down about 12% versus the 8.5% Q1 decline. IP doesn’t expect box demand to improve until the second half of the year, given that inventory destocking persists. 

Packaging Corp. has been surprised by how weak its box demand has been in each of the past three quarters, highlighting its and other boxmakers’ lack of visibility and inability to foresee the degree of pressure on consumer spending.


Packaging Corp. has been far from alone in that regard in the packaging industry. The label manufacturer Avery Dennison (~80% of whose sales by end-market category are to staples, and some of whose labels go on boxes) experienced weaker-than-expected demand in Q1 after having negatively preannounced its results in Q4 for the same reason, and consequently substantially reduced its full-year organic sales forecast from 1-5% growth to flat to down 2%. 

And the glass bottle manufacturer O-I Glass experienced an 8% volume decline in Q1 compared to its expectation of a low-single-digit decline and reduced its full-year volume forecast from flat to up 1% to down low- to mid-single digits.

The demand weakness is far from limited to the packaging industry. Less-than-truckload carrier Old Dominion reported a 12% shipment (LTL tonnage) decline in Q1 and a 15% decline thus far in April, saying that the economy has been worse than anticipated.

For those companies expecting a near-term demand recovery despite the aforementioned negative leading indicators, they might be well served to read Visa’s earnings call transcript. In the U.S., its payments volume growth notably decelerated in March and remained at similar growth levels through the first three weeks of April, with the primary driver being lower ticket sizes. 

Why is that happening? Visa partly attributed the slowdown to lower inflation, but also to price discounting among U.S. retailers and possibly to the drag from lower income tax refunds this year. Regarding the latter, Visa noted that based on IRS data through April 14, tax refunds were down 11% year to date. Lower tax refunds equal lower spending. 

Not discussed on any call that we listened to was the potential ending of student loan forbearance later this year, which would be another drag on spending if it occurs.

Adam Josephson

Adam Josephson is a senior vertical expert at FreightWaves. He was most recently a paper & packaging analyst at KeyBanc Capital Markets for the past 10 years, presented at numerous paper industry meetings/conferences. His insights were quoted in publications like The Wall Street Journal. His work focused on the drivers of box demand (including the impact or lack thereof from e-commerce growth, contrary to popular belief), accounting issues pertaining to his industry, and other topics. If you’d like to get in touch with Adam, please email him at ajosephson@freightwaves.com or adamjosephson@gmail.com.