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Veritiv CEO on packaging constraints: ‘The most significant is the labor shortage’

Sal Abbate, Veritiv Corporation CEO, joins Yahoo Finance Live to break down the three key constraints affecting the packaging industry ahead of the holiday season, including labor shortages and raw material shortages.

Video Transcript

AKIKO FUJITA: With record backlog at US ports, consumers are beginning their holiday shopping much earlier than usual. That's creating major headaches for those tasked with packaging and distributing those goods to make sure those gifts get out on time.

Let's bring in Sal Abbate. He is the CEO of Veritiv Corporation, and Sal, it's good to talk to you today. Give me a sense of the challenges you're facing right now. We've heard so much about the delays that are likely to come, come next month, how bad does it look from your end?

SAL ABBATE: Yeah. Well, good morning and thanks, thanks for having me. You know, we're already in the thick of things here and we've started to see these constraints way back from the summer months, and it's really being driven by three key variables.

First is just the unprecedented demand. I mean, we've all seen the inflationary rises and consumers just continue to push right through that. And so we're just seeing record demand across many of our products, but obviously, the packaging products in particular.

But even our print business, which had been in secular decline, is actually booming right now. So you've got unprecedented demand right now, being driven both by the, kind of the pent-up demand from last year, but also the e-comm boom.

The second issue is just raw material prices and shortages. And so, resin-based products, obviously paper, corrugated. We're seeing escalating prices but, again, demand for all those products are very strong and, therefore, we've got the raw material shortages.

And then the third component, and probably the most significant, is the labor shortage. You know, with 2.7 million people still short in the workforce, the number of people per open jobs at half of its normal rates, are down from 2.8 to 1.4.

Those are all leading to the problems we're all experiencing and-- and, frankly, opportunities. But we've really seen the holiday surge start all the way back in the beginning of September. And we anticipate it's going to go through even into the first quarter like it did last year.

JARED BLIKRE: So if labor is your biggest headwind right now, or biggest challenge, and those costs. I'm wondering if you're able to pass those costs onto consumers? And, also, how you're confronting that labor challenge. A lot of firms are just turning towards automation, trying to beef up their procedures, make things more streamlined. Any comments there?

SAL ABBATE: Yeah. So the labor shortages I was referring to are mostly in our supplier base. So we're a distribution company and services company and our labor and our turnover has been fairly healthy this year. And better than most. But it's the manufacturing facilities we're having problems with labor.

Obviously, automation is a-- is more of a mid- to long-term solution. I think many of our suppliers are investing heavily in automation to try to combat that as that, that will be a continued issue in the years to come, just based on the-- the shrinking workforce.

But you know, just-- just like many other companies, we're having sign-on bonus incentives, we're also sharing in success with our warehouse personnel, our truck drivers. We do-- Veritiv owns our own fleet and so our drivers are home every night. So it's an attractive role and that's helped us weather the storm here, but, clearly, automation, both in the mid- and long-term, is going to be a solution for suppliers but also for distributors such as Veritiv.

And then, just being ultra-competitive for the war on talent out there, particularly in those frontline jobs

AKIKO FUJITA: Sal, you mentioned the challenges you're facing in sourcing the raw materials you need. I mean, talk to me a bit more about that and what does that ultimately mean for your ability to package and distribute these products then to get out?

SAL ABBATE: Yeah. So I'll break that down in two ways, because you've got our domestic supply and then our international supply. Thankfully, Veritiv is more domestic supply-based, and so a large majority of our products are coming from North America. And that is in a little bit better shape than the international supply chain. And so, you know, many companies, many suppliers will put their distributors on allocation. We have to be creative around that.

Now, we are the largest packaging distributor in the US. So, you know, we have the-- the advantage of doing things like building inventory and we have very strong partnerships with our suppliers. But our domestic supply is actually in better shape than some other folks who are more dependent on international supply.

And you know all of the constraints that we've seen at the ports and then just trucking, getting-- getting the goods off the ships and then to their final destination, has been a real problem. The anticipation is that we're getting close to the peak. You've probably heard recent indications that it's starting to crest. We, we hope those are true, but we're planning for constraints, really, through the first quarter of next year.

JARED BLIKRE: Sal, we got about 30 seconds to go. I've got to ask you. When are we finally going to get rid of Styrofoam? I don't get it that much domestically but I still get it from overseas packages. Causes a big ma-- excuse me, a big mess. Are we almost done with it?

SAL ABBATE: Well, there's definitely a sea change going on. You know, several years ago, people used to say folks won't pay for sustainable products. I think that those days are gone. We're spending a tremendous amount of our energy and effort and innovation around sustainable products, sustainable design, sustainable materials.

And I do think that you'll see a real strong push into those sustainable products and replacing things like Styrofoam and some plastics that are not recyclable. So, hopefully in, you know, in the near future and not decades away.

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