EPR/Cardboard Commerce Today Episode 133
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Joshua: [00:00:00] Hi everybody. Welcome to this episode of Commerce Today. Do you know what regulations and laws are good for and why I love them? 'cause it makes for great podcast episodes, or at least for information that I know that everyone out there, whether y'all like it or not, in the e-commerce world, y'all need to know about these new laws.

So talked earlier in our last episode about privacy laws. Now here's a really fun one, packaging laws. So EPR, extended producer responsibility is starting to sweep through the United States, and it's gonna impact really every e-commerce business out there. So if you don't know what EPR is, extended producer responsibility, it's a policy approach.

That says that producers should be responsible for the end of life of their products and packaging. It's something that the EU has had for a long time and that certain industries, certain types of products in the US have had for [00:01:00] a little bit. So think lithium ion batteries, especially if you manufacture tools that use lithium ion batteries, there are certain rules about making sure that those can be recycled and don't end up in the landfill, but.

EPR takes it a lot further than that. And what California, who is leading the way on this as usual with regulations what they've done goes a lot further. So they basically say that you companies are gonna have to fund or manage recycling programs for the packaging they put out there into the market.

So it's a really big shift from consumers or municipalities bearing all the costs. For e-commerce brands, packaging is the prime target for the EPR laws, so boxes, mailers, and the interior packing materials. Way back in 2022, California passed State bill 54. This is a landmark law that created a comprehensive EPR program around all single use packaging and plastic food ware.

It's one of the biggest packaging regulations in the [00:02:00] US and it's aimed to drastically reduce plastic waste. And I think a lot of people in the e-commerce world didn't really notice it back in 2022. Everybody really talked about the plasticware component of this law and not the other single use packaging component.

This law says that by 2032, so you got some time that all packaging in California has to be recyclable or compostable. And that plastic packaging has to be cut by 25% and they wanna see 65% of all plastics actually recycled. Not, could be recycled, but actually recycled. It also establishes a $5 billion fund to support recycling and help the communities that they say are burdened by this pollution.

That $5 billion comes from the industry, and it's gonna be paid over 10 years. So this law is gonna directly impact any brand selling products into California. That's most e-commerce companies in the us. Beyond California, though, there are four [00:03:00] other states that are also passing laws and quite a few more states are debating them as we speak.

Maine, Oregon, Colorado, and Minnesota have enacted their. Packaging, EPR laws, Washington and Maryland actually, I believe just now passed some laws as well. They just haven't been enacted yet. Basically they are coming for our cardboard boxes, y'all. And it is important, I'm making fun of it, a little bit making light of it because we're talking about cardboard here.

I have to do something to make it interesting. But packaging does make up over 50% of landfill in California and in most states, honestly. Lawmakers, were looking for a solution for that. They see it as a big waste, a big cost, a problem. And this is how they wanna solve it. So this means we now have new compliance requirements.

You may have to register with the PRO, the producer responsibility organization. You might have some new reports around packaging usage. And probably some new fees on your [00:04:00] packaging that either you're going to be paying directly to the states or that the people you buy the packaging from will be paying.

And of course, pass it on to you. So we're gonna break it down, see what this law means exactly to you, how it may increase costs, and what you may wanna do with your packaging now before some of these laws actually go into effect over the next few years. SB 54 is the first and probably the biggest impact for most of y'all.

So we're gonna talk about it specifically. So I mentioned the PRO that is the producer Responsibility organization, and I say the, there actually could be many. The law basically said that producers had to form a state approved organization to run the program. There's been one so far. The first one is called the Circular Action Alliance, the CAA.

And that has been approved by the state. So that is the first official PRO. So if you're a producer under the law, you must register with A PRO, which right now that means the CAA [00:05:00] and pay their fees. Producer is the brand or manufacturer of the product for online sales. It can also include the importer of the product or the e-commerce retailer that is shipping the product.

If you're selling your own brand of coffee makers on your website to California customers, you as the brand owner are responsible for the actual. Coffee maker's packaging. So think the product carton that you would ship it to a retailer or to an individual customer in, if you use Amazon to fulfill your orders, then Amazon's gonna be on the hook for the outer shipping box.

So if they take your coffee maker that's already in a box and put it in another box, Amazon's responsible. They're a producer under the law. That is gonna have to join the PRO and pay those fees as well. And then you will just pay the fee for the inner box. In that example the fees actually start in 2027.

So producers will be paying fees based on the amount and type of packaging material they sell into or ship into California, and those fees are designed to reimburse the [00:06:00] recycling cost, improve the recycling infrastructure. It's that $5 billion that I mentioned. This is where it's coming from. the exact fee per material will depend, and they're still setting some of that.

But basically, the harder it is to recycle, the higher the fee is gonna be. So if it's plastic, it is going to cost more. And if it's a type of plastic, there's wonderful numbers that are on plastics, 1, 2, 3, 4, et cetera. Some of those are much harder to recycle than others. The harder to recycle ones will carry a higher fee.

If you ship with a lot of plastic packaging, your costs are gonna go up greatly due to these fees. If you're using cardboard so far, they like cardboard and so the fees for cardboard are lower. So there's actually a study, 'cause Canada also has a lot of these EPR laws. And in Canada the per product impact, if you're using cardboard or a compostable material.

Is super low. It is not even 4 cents, it's four 1000th of a cent [00:07:00] per product. So if you're using again, cardboard or an easily recycled or composted material, the fee is not as bad. So I would definitely recommend look at your packaging, see how eco-friendly it is, how easily recycled it is.

Also look at how much packaging you're using. I gave that example earlier of how Amazon likes to put a box in a box. Lots of times when they do that, they use a really big box for a small product. The size of the box, the amount of material also impacts the fee. So really big products, lots of packaging, lots of non eco-friendly, non-recyclable packaging.

Then your fee is probably gonna start turning into pennies per product instead of thousands of pennies per product. And again, that's gonna add up for the bigger retailers especially. Another thing that's gonna really hit you, if maybe you say, oh, we don't sell that much in California. Our products are small.

We'll just keep using the plastic packaging because it's [00:08:00] really it's gonna be five orders a month. We don't really care. They thought of that. They're they're coming for you and for your plastic packaging by 2032, all packaging in California. Has to be reusable, recyclable, or compostable, and it has to be actually reusable, recyclable, or compostable.

There's a lot. I have some friends on LinkedIn that actually work in the compostable flatware and silverware, I guess flatware world. And they have opened my eyes to, there's a lot of quote compostable spoons out there that aren't actually compostable. So you're actually gonna have to start asking your packaging vendors.

Prove it. Show me how this is recyclable. Show me how this is compostable. We have to meet the California requirements by 2032, and you can't just say, oh, I'll wait till 2032. There's interim targets by 2020 eight. So three years from now, 30% of plastic packaging has to be recycled and it scales to 65%.

[00:09:00] Going as you get closer to 2032. If these targets aren't met, then producers are gonna have penalties and they have said that California will step in with more regulations in that case. So I would say like one big thing to just stop using now or as soon as you can if you're using any expanded polystyrene EPS.

This is a type of foam, most of us actually know it as packing peanuts. If you're using foam packing peanuts, stop it. California says you can't do that anymore. That is actually one of the things that they have targeted. They're requiring that this year it has to be recycled. At least 25% of packing peanuts have to actually be recycled in the state of California, or they will completely and totally ban them immediately.

Yeah, stop using that. As far as reporting and oversight, they have a state agency called Cal Recycle. Cal Recycle has listed all of the covered material [00:10:00] categories. They're gonna be opening up registration for producers of these materials by about August, 2025. And then they're gonna start reporting in November, 2025.

Now, the good news is. The 2025 reports that, and this will be collected through the PRO, which is CAA, which you gotta love all the acronyms. That will actually be for your 2023 data. So great. What fun that is. Go. Produce some reports on how much packaging you shipped into the state of California in 2023.

Good luck. I thought that laws weren't supposed to be retroactive, but somehow this one is. After that, brands will, report annually the amount of packaging material that they introduced into California. How many tons of plastic, how many tons of paper? This, if you don't do this, the penalties for non-compliance are fines or even banning your products from sale in the state of California.

Now something to be aware of. [00:11:00] Amazon is trying to play nice with California. They are a founding member of the P-R-O-C-A-A. So they have actually embraced this. They're getting on board with this. They are I feel like almost like what they did with sales tax. They basically said, this is a regulation we're gonna have to deal with.

We're gonna use our scale to deal with it, and then we're gonna actually. Almost weaponize it and make sure that all the other marketplaces, all the other e-commerce sellers that aren't working with our platform, they all have to comply with it too. And that compliance burden is gonna be a lot for some smaller companies.

The good news is if you're an Amazon seller, they're gonna help walk you through this process. The bad news is if you're an Amazon seller, they're gonna require that you participate in this process. So if you, again, are a smaller retailer and you were thinking, oh, I don't ship that much to California, can fly under the radar, not if you sell on Amazon.

So what is the impact? You can [00:12:00] probably already guess that there's gonna be some impact. So obviously there is some administrative burden and honestly, like this will, it may not be every state. Here in Texas, surely our state is not gonna introduce a regulation like this. We claim to be pro business and not a fan of regulations.

Our most recent legislative session, I might argue we've drifted a bit on that, but again, hopefully not every state will implement this. I do think though that eventually it may become such a challenging patchwork to deal with. The federal government might step in and implement something similar.

So if you're selling nationwide, start tracking how much material you're shipping into each state. You could start and say, we're just gonna track California and then we'll track the other five states that have rolled this out. But soon that'll become 10 states, 15 states. This is gonna be probably at least 20, 25 states over the next few years that implement things like this.

So start that. Now this, [00:13:00] especially for older years, the way California wanted some historical data. This might be tricky. I think you might have to estimate, I saw one example of someone saying, okay. We looked and we saw we shipped 500,000 orders into California in 2024, and we are assuming that each used a 0.2 pound cardboard box and 0.1 pounds of plastic padding.

They did the math and that's how they did their report. You do have to pay a fee for that. There are, thank goodness, some small business exemptions. However California set their exemption for under $1 million in revenue. Now that's $1 million in revenue in California. So you could be a five, $10 million company as long as you haven't sold more than a million dollars into California.

Colorado and Oregon, their laws will exempt you if you have under 5 million in revenue, but I believe theirs are total revenue. So again, this is gonna be such a patchwork. So if you're a really small Etsy seller out there and listening. You [00:14:00] probably, hopefully won't have to worry about this, but pretty much everybody else that is an e-commerce business.

Yeah, you're gonna have to do this. I suspect that just there were so many software and SaaS products that were launched for sales tax compliance, whenever it became a nationwide requirement for all e-commerce sellers I think we're gonna see some software for this, some SaaS for this. So maybe the administrative burden won't be that high, but you're gonna have yet another SaaS you're gonna have to pay for.

Also your packaging costs will go up. So especially if it's a package type that is not easily recyclable or in practice isn't being recycled. So that's gonna increase your packaging unit costs. Again, switch to more recyclable items, but you're gonna have to do the math. So some of those items that are more easily recycled, cost more to produce.

So your total cost, even after the fees that are levied on them, might be lower. So start at least setting aside some time in your schedule and your planning with your [00:15:00] finance team to start modeling this and deciding do you need to make a change in your packaging? Also sometimes some brands out there they are trying to deliver things as fast as possible and it results in overpackaged deliveries.

Amazon's a great example of this where to go as fast as possible. They have fewer box sizes, they'll use a larger box Lots of times you now have. A incentive to optimize your packaging. You might want to use smaller padded mailers instead of a box and filler when you can, or start designing your actual product packages to minimize the void space in the package.

And again, customers also, been shifting this direction, so a lot of y'all have already been working on. Lowering your carbon footprint, lowering your impact on the environment. So you may have already done some of this but these states are pushing you to do more and to do it faster to control the costs.

Look at how you can make your packaging lighter or smaller. The fees are almost always tied to weight, not [00:16:00] to dimensions. So lighter packaging means less fees. Obviously though you don't want to have a bunch of products damaged because you made your product packaging so lightweight, so small. But maybe look at, stop using all those individual inner plastic wrap within your product packaging.

If you have opened a board game lately, especially like a board game for a young kid like I've been doing for my daughter, you probably had 10, 15 different little plastic baggies of inner wrap that's gonna cost you a lot of money in these fees. I've noticed that Lego, actually, again, from personal experience with the kids Lego is shifting to where their inner packaging is paper-based and not plastic based in large part thanks to these fees.

And that's actually my next suggestion is start substituting materials shift from those difficult to recycle plastics. PVC Clamshells are another good example. If you've ever had a product that has one of those lots of times can't be recycled, are almost [00:17:00] never recycled shift from using things like that to paper or other things that are easier to recycle.

Also. You can all this applies only to single use packaging, so you can save some money and save some compliance burden by using reusable packaging, send products and returnable containers. The PRO is looking at incentives for brands that actually shift to reusable packaging, so definitely explore that if it makes sense.

Also if you're using a three pl provider. Collaborate with them, start talking to them about this. They probably have a lot of insight and can help you out. So now with that, I just want to talk a little bit about the big picture here. All of this really is about waste and about reducing waste and taking care of the environment.

There was a stat actually from Cal Recycle that Californians throw away the equivalent of 290 Olympic swimming pools of plastic [00:18:00] every day that's being thrown into landfills, not recycled. So that's what got the lawmaker's attention we're gonna have a problem if we don't do something about this now.

So they are really looking to, basically force some innovation in packaging so that now we can reduce the amount of packaging we're using and shift to better materials. Now there's packaging analysts. What an interesting job. And I've been reading some of their reports and one of their biggest concerns is how the costs are gonna be handled.

Especially with all the inflation we've had over the past few years, there's a lot of concern about cost just being passed directly to the consumer if it's just basically gonna raise prices. Again, Canada has had a program like this for quite some time. And analysts that studied that found no correlation between the implementation of those EPR fees and higher consumer prices, just because the extra costs were often fractions of a penny per [00:19:00] item.

So basically brands are increasing packaging efficiency and just having a new cost that is appearing on their p and l, but it is not large enough to actually increase prices. It's just. Slowly chipping away at profit margins. Now California, they did an economic analysis on this. They said, yeah, it might cause $40 billion in new costs, but we're gonna see $19 billion in income growth from new recycling jobs.

So if you're located in California and have a side business in recycling. Maybe there's some upside there. However, they're also looking for it to encourage the circular economy. We talked about that once long ago on Commerce Today. You can go back and find that episode about commerce where brands that will encourage people to resell their products.

So there's a lot of fashion brands that'll do this now where you can take your products you no longer want, no longer fit, you no longer your style, and you can actually sell [00:20:00] them. Through a marketplace on the brand's website to other fans of that brand. They're looking at trying to encourage more things like that.

So again, this isn't all bad news. It can align with some of the other initiatives that many brands that y'all are trying right now to respond to the shift in consumer demand for more eco-friendly and more eco-conscious behaviors. Marketplaces. Are definitely gonna have an impact here. I already mentioned how if you're selling on Amazon, they're gonna make sure you comply with this.

It does make marketplaces in some ways a little more attractive because if you're selling only on Amazon and you are using Amazon's compliance program for this, your compliance burden's gonna be a lot lower than the small businesses that aren't selling on Amazon. So yeah, let's take better care of the environment.

Let's look at reducing how much packaging we're putting out there in the world. And let's especially look at is that packaging recyclable [00:21:00] again. It sounds like this is far off. The 2030s sounds so far away, but there are certain aspects of this law that take effect this year, next year, the next few years.

So please don't wait. Don't put this off. I know for most of y'all you haven't heard anything about this. I know here in Texas the brands I talked to this was all news to them and they hadn't realized that a new law in California was gonna add some fund compliance burden. For their business here in Texas.

So please be aware of it, start thinking about it. But there's no need to panic. I think for most of y'all, if you just get a little bit smarter about your packaging. This'll be a fairly small to negligible impact. But it is something you need to be aware of and I think it's a, an opportunity for innovation.

I've been talking a lot about generative ai. Had to at least mention it. But this is a good reminder that there are a lot of areas in your e-commerce business that you can innovate in, even sometimes something as simple as your product packaging. And I think we forget about those [00:22:00] areas and we just keep.

The status quo going. So I would recommend that you stop and really take a moment to see how could you innovate on the customer experience through your product packaging. And that's it for today, and hopefully that's it for compliance and legal related episodes for a while. My name is Joshua Warren.

I'm the CEO of creativity. You can find me on LinkedIn. Look for the Joshua Warren that says creativity and has a gold background behind my headshot because there are a lot of Joshua Warrens out there. If for some reason you really want to talk about cardboard or another e-commerce challenge, you can use the book an appointment link on my LinkedIn profile to grab 30 minutes on my calendar, and I will sit down with you for free and talk through whatever e-commerce challenge you're having, even if it is about your cardboard packaging.

Thanks, and I will see y'all next week for another episode of Commerce Today.