Overcapacity isn’t a temporary headache in paper and packaging – it’s a recurring structural condition. The real cost is not just lower prices; it’s the strategic behaviour overcapacity forces: price undercutting, underinvestment in advantaged assets, and prolonged operation of structurally uncompetitive mills – until only a few players can consistently make money.
A key reason overcapacity persists is planning optimism. A multi-industry analysis found many management teams implicitly plan to grow profits at ~4× the market rate, yet only ~7% of industrial companies achieve that. In capital-intensive sectors, that optimism often translates into excess capex and persistent oversupply.
What leading operators do differently
1) Build a “risk and exposure” fact base by grade, mill, and lane
High performers start by quantifying the supply–demand balance for each grade in both the short and long term, then overlaying their fully landed cash cost per ton (including geography-dependent transport effects).
Two practical outputs matter most:
- Break-even curves by mill and grade (price and volume thresholds).
- True end-to-end profitability by product/customer/region – not just contribution margin (because overhead allocation, logistics, and service costs decide real economics in oversupplied markets).
Why it matters: utilization shifts can be the difference between stable pricing and margin collapse; for example, European containerboard operating rates were reported below ~85% across parts of 2022–2024, versus nearer ~90% in stronger periods.
2) Map “offensive and defensive” options – and decide before the cycle forces you
In overcapacity, scale alone rarely creates durable advantage; relative cash cost position typically does.
Leaders explicitly evaluate a full option set, typically including:
Offensive moves (when you can fund them)
- Invest in advantaged capacity/technology (new assets tend to outperform aging assets in structural ways that maintenance spend can’t fully close).
- Invest in efficiency (energy, variable cost, automation, labour productivity) to push the cost curve down without necessarily adding capacity.
- Convert to grades with better demand headroom, acknowledging technical limits of existing assets.
Defensive moves (when parts of the network are structurally uncompetitive)
- Close capacity proactively – hard socially and financially, but often unavoidable for mills that can’t win across cycles.
- Selective curtailments can help manage demand swings in some segments, though long “mothballing” is relatively rare in this industry.
Recent market signals show both sides happening at once: closures/rationalization in some geographies while others continue to add increments of packaging capacity.
3) Turn S&OP into a continuous, AI-enabled “reprioritization loop”
The biggest operational upgrade is moving from periodic planning to continuous planning, where insights are constantly refreshed, scenarios are stress-tested, and decisions stay aligned across sales, operations, and finance.
The practical shift is cultural as much as technical: planners stop debating baselines and start scenario testing and risk-adjusted trade-offs (demand, lead-time volatility, throughput constraints, component availability).
The playbook in one line
Don’t bet on competitors exiting. Build a cost and planning advantage so you can remain profitable even if overcapacity persists – and make capacity decisions early enough that you’re acting, not reacting.
A fast-start 6–8 week operating sprint
- Weeks 1–2: Grade-by-grade supply/demand view + mill cash-cost curve + break-evens (by lane/region).
- Weeks 3–4: Options map by site (invest/upgrade/convert/curtail/close) with system-wide implications (network, logistics, customer service).
- Weeks 5–8: “Continuous S&OP” pilot (one region/grade): probabilistic scenarios, weekly alignment cadence, and explicit rules for allocating volume to the most profitable customers/products/geographies.
