Since 2020 it has been challenging time for businesses across the world. The impact of the Covid pandemic and Brexit both highlighted just how interlinked supply chains are globally, influencing supply and demand. This was only exacerbated by struggles to obtain raw materials for manufacturing. Consequently, costs increased significantly in many markets and packaging wasn’t immune.
While supply and demand started to stabilise toward the end of 2021 as lockdown restrictions lifted in the UK, the market is now faced with a new set of challenges that are set to inflate the cost of packaging yet again…
So, what is causing packaging price increases in 2022?
Current affairs are creating further instability in global supply chains, driving up energy prices and putting pressure on materials for manufacturing.
The shockwave of events in the Ukraine mean businesses are vetting suppliers to ensure there are no financial links to Russia or Belarus and are looking to resource products from elsewhere in the world. There is also a supply gap on products that have previously been sourced from the Ukraine.
Timber exports from Ukraine and Russia are valued at €12 billion, so this will have a significant impact on the pulp, paper, and corrugate industry. This will put yet more pressure on existing supply chains and could lead to product shortages, as well an increase in lead times.
Sanctions on Russia and embargos on Russian Oil and Gas are leading to extreme increases across Europe, inflating energy costs and driving up the costs of manufacturing, particularly in energy intensive industries such as paper and plastics (which also contains oil). For example, it’s been reported that paper mills in Italy have already suspended paper production due to increased manufacturing costs.
In short – there are less materials to go around, so people are willing to pay more to obtain them. Consequently, packaging prices are expected to inflate throughout 2022.
What else is contributing to packaging price increases this year?
The pandemic created a perfect storm of packaging price increases over the past 2 years.
A huge spike in online shopping pushed corrugate demand through the roof, with the equivalent of 5 years growth in 2020 alone. Beige became the new gold as ecommerce boomed and used the equivalent of 2 papermills worth of corrugated cardboard!
Other factors such as shortages in the supply of softwood material going into mills driven by bad weather, infestation or licencing issues have also played a part in paper (and pallet) production. Furlough drove an increase in home DIY projects, there was a boom in construction and Brexit regulations meant that heat treated pallets were needed for shipments to Europe. There simply wasn’t enough capacity to kiln dry all the heat-treated timber needed to meet demand.
Polymers have also been in short supply as PPE manufacturing increased. All of it seemed to contain plastic – from masks and gowns to wet wipes and swabs. Then in February 2021 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.
A shortage of shipping containers also drove up shipping costs significantly too, driving the average cost from approximately $1500 to $8000 per container, adding another challenge to the market.
This year, the Plastic Packaging Tax is another factor that’s influencing prices and material supply in the UK. It came into effect on 1st April and it means that plastic packaging that contains less than 30% recycled content will be subject to a £200 per tonne tax. The result means virgin material is more expensive and the demand for recycled plastic material could elevate how much it costs.
You don’t need to work in procurement to understand that these factors mean prices everywhere are volatile and the cost of packaging will rise!
How you can mitigate packaging price increases with the support of Macfarlane Packaging
The everyday work that we do at Macfarlane Packaging is all about helping our customers to use less packaging and remove cost throughout their operation.
From re-engineering packaging to use less material, improving palletisation to help fit more goods on a vehicle through to speeding up the time it takes to pack – we can help businesses to achieve more, using less. Some of the ways we can help you combat packaging price increases include:
- Packaging review – we can help you review your entire packing operation from start to finish, identify pinch points and opportunities to lower costs and emissions. Click here to learn more.
- Stretch wrap audit – the price of plastic is going up because of current affairs and the UK Plastic Packaging Tax. Our stretch wrap audit can help you wrap more pallets with less film and cut your packaging costs. Click to find out more.
- The Packaging Optimiser – our ground-breaking tool that can illustrate how small changes to your packaging can save you money and even show you how much CO2 you can remove from your supply chain by comparing packaging solutions. Click to see a demo.
Get in touch with Macfarlane Packaging today to ask how we can help you mitigate packaging price increases by reducing your costs with optimised packaging.