The past few years have been a difficult time for many. Not only has the Coronavirus pandemic caused economic and social difficulties that the world is still recovering from, but the recent conflict between Russia and Ukraine has inevitably made matters worse. Supply chains are once again being tested, which has without question changed the foreseeable future.
Packaging is one of the many industries affected by this crisis and the price impact is already being felt. But that’s not all. Concerns around paper supply distributions are being echoed, which could lead to a paper packaging shortage and drive costs through demand even higher.
In this article, we explore the further reasoning behind yet another paper packaging price increase and if it can be mitigated.
1. Raw material increase
Previous lockdowns and supply chain issues due to COVID-19 have caused paper to become less obtainable across the world. This is due to a rise in costs for paper packaging that started back in 2020. Unfortunately, we are still being affected.
The troubles caused by Russia in Ukraine have accelerated these issues and caused the cost of raw paper materials to be at an all-time high.
In fact, let’s put things into greater perspective with some numbers.
Since the outbreak of Coronavirus in 2020, the price of pulp, used as a raw material for producing paper, has risen from £500 per tonne to £750-£900 in the world market.
But the beginning of a Russia-Ukraine war on 24 February, saw another 20-25% increase to this price. Meaning, in the space of just a few years, the price for raw material used to make paper has roughly doubled.
2. Greater energy costs
The production of paper packaging is an energy-intrusive industry. It consumes energy in the form of power as well as fuel, which is especially the case for the production of recycled grades.
At the start of 2022, we saw energy prices stabilising somewhat after months of increases. But again, the Russia-Ukraine crisis has had a detrimental effect.
This means that currently, the industry is in a situation where energy costs are higher than the full sale price of paperboard a year ago.
Because of this significant increase in energy costs, many EU paper mills have had no other choice but to shut. In turn, paper packaging capacity has lowered, even with the demand so high.
3. Growth in ecommerce demand
Another factor that has influenced the rise in paper packaging products comes with the surge in demand for online shopping.
As a result of the pandemic, many consumers were stuck at home, which caused a huge influx in online shopping orders. This meant that virtually all businesses selling online had an increased need for ecommerce packaging in order to fulfil orders and keep customers on board.
And which material is most commonly used for ecommerce packaging? That’s right, paper. Typically, ecommerce packaging consists of paper-based materials such as corrugate or cardboard. Meaning a huge increase in demand for ecommerce solutions, saw paper become even heavier on the price front – it’s the simple economics of supply and demand.
4. Plastic packaging tax
As of 1st April 2022, the UK Government introduced a new plastic packaging tax law, affecting roughly 20,000 businesses. This means that businesses using or importing plastic packaging with less than 30% recycled materials will incur a penalty of £200 per tonne.
Because of this, businesses are looking for alternative packaging solutions with the aim of staying well away from plastic tax penalties.
To no surprise, this has caused even more demand towards paper packaging solutions. With an already limited supply of paper, the newly introduced plastic tax laws certainly aren't helping the situation with paper prices.
For more information on this topic, visit our dedicated plastic tax packaging page which includes the recording of our latest Plastic Packaging Tax Webinar.
Can inflated paper packaging prices be mitigated?
Unfortunately, the honest answer is no. With the whole paper industry being affected, there is no real way to get around the price increases directly.
Although there are some ways to improve efficiencies and reduce costs, overall, the inflated prices of paper packaging are simply unavoidable.
At Swiftpak, we’ve built a secure and reliable supply chain over the last 45 years in trading. While price increases are inevitable in the current climate, we are doing all we can as a business to support our customers and keep their operations running.
For any paper-based packaging requirements, or further information on how we can support your packaging needs, please contact our team today – we’d love to work alongside you and help get the most from your packaging.