FUTURE BUSINESS MODELS FOR THE GLOBAL INDUSTRIAL PACKAGING INDUSTRY

Presented by

Paul W. Rankin, PresidentReusable Industrial Packaging Association

To

15th International Conference on Industrial PackagingVancouver, B.C.

5 June 2015

Future Business Models for the Global Industrial Packaging Industry

Good afternoon.

I am delighted to be here with you in what I believe is one of the most beautiful and livable

cities in North America and, perhaps, the world, Vancouver, B.C.

In just a few minutes, a distinguished panel of international industry leaders will present their

views on future business models for the global industrial packaging industry. I fully expect to

hear different points of view on this topic and, like you, I can’t wait to find out if our panelists

really can predict the future.

This afternoon I will present a brief description of the various business models found in today’s

global industrial packaging industry, and then moderate the panel discussion. The business

model descriptions are not intended to be comprehensive in scope – that would be a nearly

impossible task. Rather, they are intended to give you a general idea of how the businesses of

some of the leading manufacturing and reconditioning companies are organized. It will be up

to our panelists to talk in more detail not only about their own company’s business model, but

also what they believe were the key factors in their business choices along the way and how

current or emerging market conditions will impact the future of their companies.

As Mr. Murphy noted in his remarks yesterday about the history of the industry, the revered

wooden barrel was the cornerstone of our industry for nearly 2,000 years. Indeed, it was not

until the late 1800’s - when steel drums began to be produced in Europe and, soon thereafter,

in many other parts of the world – that wooden barrel usage began to decline and then virtually

disappear.

In the 18th and 19th centuries, the cooperage industry was composed almost exclusively of

family-owned companies, a trend that continued in the reconditioning industry all the way to

recent times. This was true the world over. The coopering trade – that is, the production of

both new wooden barrels and the repair of used barrels - was passed down through the

generations, often along with ownership of the company.

The new steel drum industry followed a somewhat different path to its success. Initially, these

firms were also family-owned businesses, but over time they gradually became subsidiaries of

the large steel manufacturing firms. Over time, in many parts of the world, the steel producers

gradually spun-off the drum makers. This is not the case in Japan, however, where new steel

drums are still made almost exclusively by subsidiaries of steel producers. Today, however, the

world of industrial packaging manufacturing is mostly dominated by large, multi-site corporate

entities.

In North America and Europe, for instance, an overwhelming percentage of industrial packaging

production come from the “Big Three” producers, i.e., Greif, Mauser and Schuetz, although

there remains plenty of market space for smaller single- and multi-site corporate producers,

such as The Bodtker Group in Canada and Berenfield in the U.S.

Until fairly recently, with a few exceptions, the businesses of reconditioning and new container

manufacturing remained separated all over the world. However, despite the fact that the two

industries were fiercely competitive and often even antagonistic, reconditioners often worked

with manufacturers to distribute large quantities of new containers to smaller accounts. This

cautious but mutually beneficial relationship continues to this day.

In the early 1990’s the businesses of industrial packaging manufacturing and reconditioning

entered a new era. Following several mostly unsuccessful attempts to consolidate significant

portions of the reconditioning industry in North America and Europe, and several efforts to

merge reconditioning with manufacturing, the concept of multi-plant national reconditioning

conglomerates finally took hold. Industrial Container Services (ICS), American ContainerNet

and National Container Group in the U.S and The Bodtker Group emerged in North America as

leading multi-plant reconditioning entities. More recently, Total Container Group has embarked

on a similar strategy in the U.S.

While the reconditioning industry was consolidating for growth and competitive reach, two

interesting trends were taking place amongst new container producers. First, several large

manufacturers began buying up their competition as a means of rationalizing an overcrowded

market place. Secondly, manufacturers entered the reconditioning business with the purchase

of strategically located reconditioning plants. Mauser, for example, now owns National

Container Group in the U.S., RTQ in Canada, several firms in South America, and a number of

other reconditioning entities globally. EarthMinded, which is affiliated with Greif, owns several

reconditioners in the U.S. and in Europe, including pack2pack. Schutz purchased a

reconditioning facility in the U.S. and has since opened several plants that re-bottle IBCs. The

Bodtker Group has been buying up both new production facilities and reconditioners across

Canada.

Japan and its sister nations in Asia and China have not followed this path. Reconditioning and

manufacturing remain essentially separate operations. It will be interesting to find out if our

panelists believe this is the way things will remain in that part of the world – we will likely find

out in just a few minutes.

In summary, the global industrial packaging industry is now operating under several broad

business models, as follows:

(1) Family-owned local or regional reconditioning companies. This model remains the norm

for reconditioners in much of the world, including Japan and China. However, these firms must

deal with not only the ordinary competitive problems any small business faces, but also

pressure from large, highly capitalized corporate reconditioners as well as reconditioners that

are owned by or affiliated with manufacturers.

(2) National or global reconditioners with sufficient size to bid on large corporate contracts.

This model exists in Europe, North America, Mexico and South America. These firms, several of

which are owned by private equity firms, are able to compete in either manufacturing or

reconditioning at just about any level – local, regional, national or in some cases international.

(3) Stand-alone manufacturing companies. This model is still common in the global

industry, but rapid consolidation of the manufacturing business is quickly reducing the number

of firms operating under this model.

(4) Blended manufacturer/reconditioner companies. Mauser, Schuetz, Greif, The Bodtker

Group and several other manufacturers own or are closely affiliated with substantial

reconditioning and/or reprocessing operations. A number of these firms possess global reach

with their manufacturing operations and appear to be trying to create a parallel opportunity in

the reconditioning side of their businesses. Not only do such firms possess superb access to the

capital markets, they are able to work closely with their reconditioning affiliates to offer

customers blended purchasing opportunities.

With this as background, it is now time to ask our panel members to step up and try their hand

at the difficult business of predicting the future. After each panel member provides you with a

brief outline of their own business model, I will ask them to respond to some questions about

the future of the industrial packaging business.