The pains of the packaging sector
Most businesses are working through turbulent and evermore unpredictable operational conditions. The manufacturing sector continues to feel the pain with prices increasing month on month, lead times being longer than ever and unavoidable disruption in the supply chain.
Many of our customers have asked for detailed explanations as to why product prices keep on rising, so they can provide the necessary information to their managers and key decision makers. Unfortunately, it’s not an easy question to answer as the contributing factors are multifaceted and far-reaching. The current political landscape is creating a set of complex issues causing a ripple effect across many sectors. Here are some of the key challenges the packaging sector is experiencing right now:
- High energy prices across Europe and the UK due to political decisions and reactive sanctions have a knock-on effect on overhead costs
- A significant reduction in available raw materials from Russia and Ukraine, such as iron ore and coal, is causing shortages and increasing prices
- High oil prices are causing resin/polymer to continue to rise in cost
- Planned maintenance shutdowns of European cracker plants are leading to further pressures on the supply chain for HDPE and other plastic products
- Millions of m3 timber have stopped coming out of Russia, Belarus and Ukraine. Supplies from other countries like Ireland can’t cover the shortfall due to a backlog of new felling licenses. Scandinavian stocks are also being diverted to the US and China to meet their soaring demands
- Auxiliary production for nails and screws is largely located in the political areas, exacerbating the issues within the timber product supply chain even further
- The two points above, greatly impact the production output of wooden pallets, with wooden pallet production now at reduced levels
- Reduced production is not the only issue causing wooden pallet shortages. With Russia being hit with trading sanctions, the number of used wooden pallets in circulation throughout Europe has also dropped, pallets are essential for transporting many different products
- Transportation is also being hit hard with surging fuel prices, increasing costs due to the new EU Mobility Pact and further driver shortages
- A high proportion of drivers are from Eastern Europe, with many Ukrainians returning home to support their country, leading to higher freight costs and delays
- Raw material shortages are likely to worsen. Some manufacturers are already working on an order allocation system, and it is quite probable that more manufacturers will have no choice but to put customers on allocation going forward
- If raw material shortages intensify further, manufacturers may have to revert to cover purchases to ensure the security of their manufacturing. This will of course come at a price as it did during the pandemic
- Many suppliers have been forced to implement fuel and wooden pallet surcharges, adding more costs
- Polymer indices are rising again, with ICIS LOR now higher than any peak during the pandemic. We’ve seen a week on week increase for the last three consecutive weeks, again costs rising further
- Covid staff absences continue to disrupt production and shift patterns
- And finally, changing customs paperwork and Plastic Packaging Tax has added pressure to the sector
As the war continues and if political issues deepen the challenges outlined above will worsen. Price changes are taking place at a rapid rate, sometimes with little or no notice. The manufacturers PurePac works with have already added that prices are more than likely to increase again very soon.
We’re all working through incredibly challenging times, here at PurePac we are doing our very best to support our customers and work together to hopefully weather the storm and emerge to brighter skies in the future, they’re hopefully not too far away.
We hope you found the industry insights useful, please get in touch if you have any questions or need support with your packaging needs.
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