CORRUGATED cardboard box maker Corrpak Jamaica will spend $50 million to buy machinery and convert land previously utilised as a

gas station adjoining

its Kingston plant, management indicated.

The Marcus Garvey Drive-based company expects the investment to increase its capacity by some 40 per cent to production of 1.1 million cartons a month. One of the key machines includes a five-colour printer set for installation next month.

The investment comes on the heels of a previous round of investment totalling $50 million to build a warehouse at its Kingston plant.

“We are in the middle of an expansion programme [to] the physical infrastructure. [We] finished most of it at $50 million, then we are spending another $20 million for an additional physical extension and we have purchased new equipment from China at a cost of $30 million which should be here by July,” said Corrpak’s executive chairman, Howard Mitchell, on a tour of the factory on Thursday with representatives from the media, the Jamaica Manufacturers Association and the International Monetary Fund (IMF).

Financing for the investment came from loans and the company’s cash flow. After eight years in the carton business, Corrpak earns annual revenues of close to $600 million. Despite a lacklusture economy the company improved its profit performance due to implementing new internal measures and controls.

“Using 2013 as a benchmark we increased revenues by 42 per cent and increased profit by over 120 per cent,” he said. “Maybe it’s luck — but part of it is a reorganised management structure, a new production team and efficiencies.”

One efficiency measure included reducing its number of customers from 400 to roughly 100 in order to increase volumes and reduce waste from its large machinery equipment.

The company gave up on its long-held hope of acquiring an acre of land towards the west of its plant from the Factories Corporation of Jamaica (FCJ). That deal failed to materialise when the FCJ decided it did not want to sell. Against that background, in 2013 Corrpak expanded some 20,000 square feet within its premises, including acquiring a 3,000 square-foot building — described as the second oldest J Wray & Nephew bar — that it had rented from the rum manufacturing giant. Corrpak planned to use the FCJ lands for major diversification into other packaging products. The company now operates on some 77,000 square-feet of space.

Corrpak converts paper sourced from overseas into cardboard through its corrugator machine. It then prints and converts the carboard into packaging cartons. Cardboard imports dominated the economy up to the mid-2000s. However, the higher cost of shipping and handling packaging material opened the door for the local players to compete on price. Currently Corrpak and other local players, including the listed company AMG Packaging, control some two-thirds of the market.

“I estimate that the total value of packaging at the current level of the economy is $4 billion. In terms of market share the local producers control roughly 60 per cent,” he explained.

Effect of depreciation

Energy costs and instability in the foreign exchange market remain challenges for the industry, Mitchell noted.

“I am not opposed to devaluation. It has assisted us in being more competitive, but it has wreaked havoc on my human capital,” he said. “It has made Corrpak more competitive but it has punished my workers.”

Mitchell wants a study done to examine the impact of depreciation to the local economy.

“I believe in the exchange rate as a tool for economic growth. I am in broad terms in support of the policy of exchange rate management that has taken place. But I have difficulty that we haven’t stopped and studied what that impact is on various parts of the economy.”

Corrpak’s energy costs total some $3 million monthly with $1.3 million for electricity costs and the remainder on fuel it buys to run its boiler. Electricity costs dipped from highs of $1.5 million monthly, based in part on energy-saving methods and reduction in the cost of oil.

“We used to run at US$0.40 per kilowatt hour but now we are somewhere at US$0.28,” he reasoned.

Corrpak plans to export its products to Belize, Suriname, Cuba, Haiti and Central America.