The pandemic
In 2020 over 100 countries went into a full or partial lockdown in an attempt to stop the spread of COVID-19 and reduce pressures on healthcare. This had a butterfly effect on inflation rates and cost of living rises.
With businesses across the world reducing or even shutting down activity, economic activity decreased because industries and households couldn’t produce and spend like they usually would. As households and businesses tightened their belts, uncertainty in financial and job security was amplified and confidence was lost.
As spending was curbed, export and demand was reduced, weakening economic activity and impacting international supply chains. This negatively impacted industry revenue and household income, and therefore inflation rates.
The fluctuation of energy prices
As the world went back to work, the demand for fossil fuels came back at a rapid pace, and power plants struggled to keep up.
On April 1st 2022, the energy price cap was lifted in the UK. This lift was driven by wholesale global gas prices quadrupling in 2021. As a result, more households and businesses will see increased energy bills, as energy suppliers pass on the wholesale costs to their customers.
The Ukrainian war
On 24th February 2022, Russian troops were ordered to invade Ukraine by Russian president, Vladimir Putin. To help Ukraine, the UK government has sent military equipment and 5.29 million items of medical supplies to support casualties of the war. This will indirectly impact taxpayers as this creates budget deficits that must be paid for.
Several world leaders have also placed sanctions on Russia and stopped trading with them, showing solidarity with Ukraine (without further escalating the situation). The aim of this is to strangle the economy and bankrupt their Government so that Putin can no longer fund the war.
This also affects supply and demand, and energy prices, as countries that once sourced goods and oil from Russia need to go elsewhere, placing more strain on demand. For example, many countries get their oil from Russia. If Governments have chosen to sanction Russia, they must source oil from elsewhere, further putting more strain on depleting oil resources and increasing the costs.
Okay, but what has this got to do with packaging?
Every single industry is feeling the pinch, and packaging isn’t exempt. From the energy needed to produce materials, to sourcing raw materials, HGV driver shortages and rising costs, the packaging industry is having to evolve and adapt every single day.
According to pulparnews.com, timber exports from Ukraine and Russia are valued at €12 billion. This is having an extraordinary impact on paper, pulp and corrugate prices and putting even more pressure on supply chains, materials shortages and lead times.
Papermill closures
In 2021, pulp and paper company Stora Enso closed two paper mills in Sweden and Finland due to the drop in demand for paper. Following these closures, Stora Enso moved its product offering more towards biomaterials and cardboard packaging.
As producing paper is energy-intensive, paper mills have also had to temporarily cease operations, due to the fluctuations in energy prices and materials shortages. Italian tissue and packaging producer, Pro-Gest halted production of their six paper mills due to, “rapid escalation of natural gas prices.”
UPM’s pulp and paper mills in Finland faced an unprecedented strike that lasted five months. The strike involved UPM Pulp, UPM Biofuels, UPM Communication Papers, UPM Specialty Papers and UPM Raflatac units in Finland.
“It caused serious issues with the availability of graphic and label papers across Europe.” (Print Week)
Plastic packaging tax
In April 2022 the UK introduced the Plastic Packaging Tax. Any business that manufactures or imports plastic into the UK will be charged £200 per metric tonne of plastic packaging that contains less than 30% of recycled plastic.
This tax has created an increased demand for recycled plastic, paper and cardboard, and the ever increasing rise in online sales has further compounded this. By the end of 2022, ecommerce sales are expected to reach $5.42 trillion. The more people order, the more product packaging is needed, the greater the demand on an already struggling supply.
The HGV shortage
The HGV driver shortage is another fork in the road.
In 2020 the number of EU HGV (heavy goods vehicle) drivers employed in the UK dropped by a third, due to Brexit and COVID-19. IR35 tax further impacted this as drivers in the UK who work as contractors have to pay National Insurance contributions.
However, more and more people turned to online shopping during lockdown, which meant the demand for cardboard packaging increased. Due to the high recycling rate (83% in 2018), the packaging industry relies on labour for production, and HGV drivers to collect and deliver old boxes for recycling.
So demand for everything is nearly outstripping supply.
What materials are impacted?
Paper
Due to the unstable energy prices and material shortages, and how energy-intensive the paper manufacturing process is, around a quarter of paper mills have even closed temporarily. More are expected to close and take this opportunity to complete maintenance.
Corrugated cardboard
With paper shortages and plastic tax coming into play, the demand for corrugated cardboard is going to increase tenfold. There is no more paper capacity coming into the UK market, meaning prices may continue to rise into 2022.
Polythene
Polythene is a raw material and is directly affected by energy price. Current indications show that recycled material is in high demand due to the plastic tax, with no price benefit. Increases keep coming at the moment with prices now only being held for around 7 days due to market volatility.
Label manufacturing
The UPM strike has massively affected the market, having gone on for 112 days meaning the material backlog from them, as one of the biggest manufacturers is around 4 months. Material orders from other manufacturers are being rationed and it's very much a sellers market with increased pricing, long lead times, cancelled orders and inconsistent deliveries.
Stretch film
Prices for stretch film are increasing month on month again availability is tight and the plastic tax further impacting any virgin material prices. We are also hearing UK manufacturers don't have enough recycled material to offer the majority of customers. We believe we can supply grades including 30% recycled material to avoid the plastic tax.
Carton board
The UK carton board market is also in a crisis with severe problems with obtaining materials. Prices are constantly changing and paper merchants are charging high prices due to availability, again prices are only being held for a matter of days.
How to manage packaging price increases
Look at the lifetime costs of packaging
One way to manage the costs of packaging is to look at the lifetime costs of the packaging your company uses and ensure it allows for efficiency and lean production.
For example, if you’re consistently getting customer complaints of products damaged in transit, it indicates that your packaging isn’t protecting your products and needs to be changed.
Damaged packaging also damages brands, alongside incurring additional costs for postage, repacking or wasted product which has to be scrapped.
The boxes or bags being used might be too big or even too small. There may be instances where you can even reduce the amount of packaging used - especially if your packaging process involves excessive packaging. It is always useful to take stock of what’s available on the market and see which types of packaging will suit your needs, time, and budget. Find out how to choose the right packaging for your products.
Consider looking at packaging machinery
If your staff are spending hours packaging products, you’re probably wasting valuable resources and labour.
Automated packaging machinery and packaging equipment such as conveyers, e-Commerce baggers, corrugated packaging systems and pallet wrap machines can revolutionise the process and reduce overheads.
One quick and easy way to reduce costs and streamline efficiency is by switching from manual tapers to water-activated tape machines - they are much more efficient and eliminate the need for plastic, whilst also reducing waste, packaging process can become carbon neutral
Building more stock pre-increases
We expect to see demand for corrugated cardboard, recycled plastic and polythene rise, so it may be worth building your stock levels to get ahead.
Speak to packaging consultants
As the cost of living and raw materials continues to rise and oil prices fluctuate, it’s no secret that packaging market trends are changing daily. It’s important that you work with packaging consultants who not only keep up to date with these packaging trends, but understand the implications.
Businesses such as Titan Packaging will review your packaging process from start to finish and help you transition to a more sustainable, cost-effective packaging process that follows the plastic tax guidance. Speak to one of our experts.
At Titan Packaging, we’ll do everything we can to ensure our packaging services and materials are affordable. Where we can, we’ll pick up costs along the way. But much like our suppliers, our costs may rise.
