Increasingly, the impact of Covid-19 is driving up supply chain costs and creating material shortages.
We are all familiar with the shortages that have dominated the retail landscape. Hot on the heels of pasta and toilet roll, the UK went crazy for sports and leisure wear, gym equipment, garden furniture… the list goes on.
Next was corrugate. Not even a pandemic can stop us from shopping, we still want all the good stuff but delivered to our front door in a range of cardboard boxes please.
Now it’s the turn of polymer – the raw material for plastic that is found in, well, pretty much everything. Brace yourself for pricing fluctuations.
I’ll sum it up in a sentence. Supply is low, demand is high and prices are soaring. Stop reading now if you like or, if you’d like some context, read on. It’s been an unpredictable mix of unlikely events that you wouldn’t believe if it was a Netflix original.
Covid-19 has driven a worldwide demand for PPE and, it seems, practically every piece of PPE equipment contains plastic. We spent 2019 talking about how to use less of it, then spent 2020 pumping as much as we could into PPE manufacture. From masks and gowns to wet wipes and swabs – there isn’t enough plastic in the world to keep up with demand.
In February Texas was plunged into freezing conditions for 8 days, the longest and coldest weather experienced since 1940. Triggering mass blackouts across the state, the power outages brought the world’s largest petrochemical complex to a standstill. Some remain closed still and it’s predicted that it could be months before all are fully operational again. This is disrupting global supply chains, causing a shortage of the raw materials needed for manufacturing.
Shipping container shortages
The world just cannot get enough shipping containers, which is driving up freight costs considerably. Prices rose 63 percent between January and February 2021 on the Freightos Baltic Index.
China and the Far East recovered more quickly from the pandemic and were able to send freight globally but, as the rest of the world struggles to catch up, they aren’t receiving shipments in return. This means that the estimated 180 million shipping containers in global circulation are in the wrong place to support further shipments from China. Think of all the PPE containers the UK has sitting in storage, then replicate this across practically every country in the world right now.
Manufacturers of raw materials are not operating at full capacity, with many restricted by COVID-related workforce limitations. This, compounded by the shortfall in petrochemical manufacturing, means that there is no consistency in the polymer supply chain. Manufacturers of plastic based products are having orders cancelled by their suppliers, with price negotiations happening on an order-by-order basis.
In terms of tape supply specifically, there has been a reduction in capacity for PVC tape manufacturing following a fire at the Tekni-Plex Gallazzi plant, Northern Italy, in March 2020. Tape manufacturers are also being hit by shortages in Butyl Acrylate, putting acrylic adhesive into short supply.
What does this mean for users of packaging?
If you use plastic tape, stretch wrap, bubble wrap, air bags or any polythene-based product, then the bad news is that prices will rise. Unfortunately, not just once either. The polymer market is expected to fluctuate over the coming months which means prices will follow accordingly.
As there is limited material around, manufacturers will be allocating supply. This means that it will be difficult to combat the increases through stockpiling. This will be an increase that will touch every industry, manufacturing and retail alike.