Baha Naemi, co-founder of CanCorr, walks the production floor of the corrugated sheet manufacture's facility in Surrey, B.C., on March 21. Companies across the supply chain, from paper to corrugated sheets to boxes, are feeling the weight of an impending price increase. due to tariff increases.Jennifer Gauthier/The Globe and Mail
It can take less than 24 hours for a shipment of 3.5 tonne paper rolls to travel from a mill in Washington State to corrugated sheet manufacturer CanCorr in Surrey, B.C.
But in the past two months, Baha Naemi, co-founder and managing partner of CanCorr, has paused orders from the U.S., instead waiting at least 10 days for the same shipment to arrive from Eastern Canada. Or even longer from Europe.
It’s no secret that he’s losing money over the decision, but he says it’s worth it to send a message to his U.S. counterparts and smooth out any kinks in a changing supply chain.
“We all agree that Canada needs to become self-reliant, whether it’s in the packaging industry or any other industry,” Mr. Naemi said.
U.S. President Donald Trump is expected to impose 25-per-cent tariffs on most Canadian goods on April 2. With Canada’s retaliatory tariffs already in place, and another round set to take effect that same day, this could tack a double or even triple tariff onto some corrugated products, such as pizza or packing boxes, owing to the highly integrated nature of the industry that straddles the Canada-U.S. border. It’s not uncommon for products to go back and forth over the border during different phases of production.
From paper to corrugated sheets to boxes, George Perreira, president of the Canadian arm of the Association of Independent Corrugated Converters, said companies all along the supply chain are feeling the weight of an impending price increase.
“You’re looking at upwards of, to the American consumer, potentially a 75-per-cent increase in final costs and on the Canadian side you’re looking at a 50-per-cent increase in costs. It is just not sustainable,” he said.
At the highest level, some of the industry’s biggest members are pivoting and working together – despite domestic competition - to avoid increased costs and keep production entirely in-house.
The majority of the corrugated market in Canada is controlled by a few major players: Cascades Inc., Kruger Inc. and Atlantic Packaging Products Ltd. Together, they own and operate most of the mills and box plants in Canada – and several across the border, too.
Serge Desgagnés, executive director of the Canadian Corrugated and Containerboard Association, said these companies, whose operations are normally very dependent on free trade with the U.S., often meet for discussions about trade. But given the current geopolitical context, those talks have taken on a whole new meaning.
Sean Weir, president of Atlantic Packaging Products, which is headquartered in east Toronto, said about 50 per cent of his old corrugated container (or OCC, used to make recycled paper) stock comes from the U.S. to feed his mills in Canada.
For his competitor, Cascades, the inverse is true. It relies upon an extensive network of sources, such as grocery stores, across the Greater Toronto Area for its OCC, which it then ships to its mills in New York for processing.
Now, he said, the two rivals are negotiating to swap their supply bases and avoid having their materials cross the border.
In a February earnings call, Cascades said it was working pro-actively to protect the approximately 15 per cent of its annual revenues exposed to tariffs. These steps included changing where they source raw materials from and redistributing production to cut down on inter country shipping.
A CanCorr employee works on the production floor on March 21. At the highest level, some of the industry’s biggest members are pivoting and working together to avoid increased costs and keep production in-house.Jennifer Gauthier/The Globe and Mail
But while rejigging supply chains is possible, Mr. Weir said it’s no small feat – especially when it’s unclear how long the levies could last.
“If the tariffs are here forever, then these decisions are a no-brainer, but if the tariffs are just a short-term negotiating tool, then this is a complete and utter waste of money and people’s time,” he said.
For the independents that Mr. Perreira represents in the industry, he said the underlying sentiment is anxiety. Many of them rely heavily upon U.S. customers to buy their finished boxes and if Mr. Trump’s tariffs go ahead as planned, layoffs are a real concern.
“We are probably looking at thousands of jobs lost,” he said.
As the threat of Mr. Trump’s tariffs looms, Chris Bartlett, president of Brampton, Ont.-based Tencorr Packaging Inc., said his only concern is if Canada doesn’t maintain countertariffs on the product coming in from the U.S.
Despite 40 per cent of his paper coming from U.S mills, he said countertariffs are necessary for the major players in the industry to follow through on shifting their supply chains to Canada.
The result, he said, would be a levelling of the playing field on either side of the border, and his U.S. contracts getting fulfilled by a Canadian supplier.
“It will stabilize the market,” he said.
Mr. Naemi is also counting on Canada to retaliate. CanCorr typically does about $60-million in sales to the U.S. annually, but if the tariffs go both ways, he expects to be able to make up those sales in the Canadian market within six months.
“We believe Canada will be slightly better off, in this industry only,” Mr. Naemi said.
In the meantime, Mr. Bartlett has been stockpiling as much paper roll as he can – which is only about two months’ worth. If the countertariffs don’t come, he will be left fighting to get out of contracts that typically require three years’ notice to end.
“Everybody is scrambling around for something that may or may not happen,” he said. “It’s just becoming very difficult to grow your business at this point in time and put these strategic plans together.”
Void of any certainty, the corrugated industry is left at a standstill, Mr. Weir said, with many CEOs saying they’ve put a pause on making major decisions.
As an industry that is often looked to for indications of broader economic trends, he added, the outlook isn’t great.
“We are certainly seeing a slowdown on both sides of the border.”