E-commerce helps the packaging industry

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CARACHI:

Pakistan’s thriving e-commerce industry has simultaneously proved to be a boon for the packaging sector, which has witnessed phenomenal growth in recent months.

Topline Securities research analyst Mehroz Khan pointed out that the sector, which included flexible packaging, film packaging, paper and board, etc., was likely to be one of the main beneficiaries of improving economic activity in Pakistan, driven by consumer demand and the e-commerce boom.

“Rising youth population, urbanization, per capita income, consumer awareness and e-commerce revolution are driving demand for the packaging industry,” he said.

Companies in the pharmaceutical and home appliance sectors are the packaging industry’s main customers, he added.

In a report, the analyst forecast the flexible packaging industry to grow at a five-year compound annual growth rate (CAGR) of 15%, which was in line with the previous five-year CAGR.

“We also expect the paper and paperboard sector to grow by 5% over five years (FY22-FY26), compared to a previous CAGR of -2% over five years,” the report added.

Flexible packaging, due to its specific characteristics, was growing at a much better pace than the rest of the industry, Khan pointed out.

“It also offers higher margins compared to the rest of the industry because much of the raw material used by the flexible packaging segment is sourced locally.”

He mentioned that the volumetric growth of the paper and paperboard sector remained moderate, but that the reduction in the prices of raw materials (waste paper) during the 2015-21 financial year helped to increase its margins.

In addition, the imposition of anti-dumping duties in FY 2018 in a range of 2-36% for five years helped contain imports of paper and paperboard products (finished and semi-finished).

“Currently, waste paper prices are hovering around $300 a ton due to the global increase in raw material prices, which poses a major risk to the sector,” Khan said.

Regarding film packaging, the analyst mentioned that “Biaxially Oriented Polypropylene (BOPP) film and Cast Polypropylene (CPP) film are two key products used in the manufacturing of the packaging industry. “.

BOPP films are used in food packaging, while CPP films are used in food and non-food packaging.

“In Pakistan, BOPP film usage per capita remains well below 0.28 kg compared to 1.38 kg globally,” he said, adding that the domestic market for BOPP films grew at a CAGR by 6% over the last five years (2015-20).

CEO and Managing Director of Arif Habib Commodities, Ahsan Mehanti, opined that the packaging industry has grown as consumption boomed after the third wave of Covid-19 in the country.

In addition, the recent depreciation of the Pakistani rupee has boosted export orders for the packaging sector, he said, adding that soaring container freight costs could, however, impact his exports.

Citing recent studies, the President of the Employers’ Federation of Pakistan (EFP), Ismail Suttar, pointed out that the e-commerce sector in Pakistan has witnessed a massive increase, “accounting for an annual growth of 33.3% during the 2019-2020 fiscal year alone”.

In this context, he recalled that only 3% of respondents preferred online shopping in 2014, when a survey was conducted in which approximately 2,681 people were interviewed.

However, recent surveys have shown a nice increase in this percentage, showing a growing trend towards online retail systems.

“Due to changing trends, environment and climate, many people are turning to an easier and more convenient way to shop,” he remarked.

He was of the view that the rise of e-commerce had given the necessary impetus to many industries including the packaging sector in the region.

The estimated market size of the global packaging industry was $917 billion in 2019, with an expected 10% increase during the pandemic, Suttar said.

The industry has seen significant growth in food packaging, delivery and takeout, particularly due to global urbanization, fast-paced consumer lifestyles and the adoption of e-commerce, he said. he assures.

Suttar pointed out that the convenience, competition and trust factor in the industry has made him more susceptible to customer reviews and negativity. The packaging element of the e-commerce industry has not only grown in quantity but also in quality, he noted.

“It is safe to say that the sector foresees further growth in the region, particularly due to government support, the availability of low-cost labor and the growing trend of urbanization, consumption and e-commerce,” Suttar said.

He suggested that the local packaging industry, despite its strengths, should learn, analyze and adapt according to consumer needs, in order to compete with the international packaging industry.

Published in The Express Tribune, March 19and2022.

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