The packaging industry is experiencing a disproportionate negative impact from a range of factors including Brexit and the pandemic. The current turbulences have created the perfect storm that is likely to last for the foreseeable future. In this article we explore the causes, the effects, and how to mitigate through these turbulent waters.
The underlying causes
Now with Brexit confirmed and UK legislation in place, more paperwork and processes are required for working with businesses in the EU. These changes have potentially caused a significant amount of waste for those who have stocks of EU compliant packaging as well as many companies have stockpiled material at the end of 2020 due to the uncertainty about a deal. The unified territory for packaging materials and products will be divided which will mean significant challenges for brands and their packaging supply chains. The Office for National Statistics reported that after the Brexit transition period ended, UK goods exports to the EU plummeted 40.7% in the month of January and imports dropped 28.8%. These falls in imports and exports are the largest monthly declines since comparable records began in 1997 and contributing to significant delays in lead times.
Currently, a combination of both Brexit and coronavirus has resulted in increased demand for certain products which has led to shortages in the packaging industry. UK online sales grew 74% year-on-year in January 2021, this is the largest rate of growth since the start of the first lockdown in March 2020. The steep rise in ecommerce during the pandemic meant that many businesses had to suddenly adapt their e-commerce model to meet the steep increase in demand for home deliveries. Looking at the recent statistics this is continuing to be the case for 2021, which will only further impact the shortages packaging industries are currently facing.
Delays in online deliveries have already risen due to the shortages of cardboard. The increase in demand for online deliveries has caused many firms to blame the online marketplaces such as Amazon and eBay for the cardboard shortages. Amazon have been buying up huge supplies of cardboard which has led to further difficulties for smaller retailers who feel that the larger businesses are taking more than their fair share.
On top of the rise in demand, manufacturers still have the added pressure of balancing social distancing with the increased production. As you can imagine, this has led to further difficulties in increasing capacity.
Global shipping crisis
Worldwide there has been an imbalance in container shipping flows, leading to containers not being in the right place for moving cargo. Continuous trade slowing, stopping, and starting due to the pandemic, has now caused widespread disruption to usual trade movements. This means the delays in ports and extensive shortages of containers has caused significant increases in handling and logistics costs. This imbalance has affected the costs of shipping which has proven to be a challenge for businesses in all types of industries. Sea freight costs increased by over 400%.
Shift in consumer behaviour
Sustainability is definitely still one of the top priorities with consumers. More awareness for our environment is being raised by initiatives such as the B-Corp movement. Companies are listening and acting upon this with many having clear KPI’s set to ditch plastic. To do this companies and even entire countries are switching over to paper-based materials, which is creating even more pressure on an already struggling corrugate market.
Due to the shortage in the corrugate industry, some retailers have now switched back to plastic solutions, however with a particular focus on recyclability. For instance, home baking became so popular during the pandemic that corrugate egg boxes were switched to plastic to simply keep up with demand.
The changes in consumer habits are also having an impact on the recycling schemes. According to the Recycling Association, the circulation of newspapers was down by 20 to 30% which has an impact on the composition of waste entering the recycling facilities. In addition, with so many people having packaging in their homes or in their garages, there is a particular challenge of getting this paper back in the recycled network and back into the mills so it can be converted and reused.
The CEO at The Recycling Association said that with 84% of Europe’s cardboard being made from recycled fibre, they can see the demand of recycled fibre being a critical link in the supply chain. They revealed it would be a challenge for processors to secure all the fibre they need due to the huge global demand for paper for producing packaging.
The effect on corrugated cardboard
Due to the ongoing surge in home deliveries driven by the pandemic, partnered with the world’s lockdown measures, corrugated cardboard seems to be this year’s ‘toilet paper’ when it comes to shortages. As you may have heard, demand for corrugated cardboard has surpassed the capacity of papermills. This has caused substantial delays as well as challenging market conditions. It is expected to continue for the remainder of the year, with most leading corrugated plants now booked out until August. Also, the smaller converting plants are regularly having their allocation of board short shipped by up to 30% which compounds supply of end product.
It has been named ‘the hunt for beige gold’ as the surge in home deliveries has led to cardboard shortages. Many industries have been impacted, including the food and drink sector where wine deliveries have also experienced the impact. Particularly affected after experiencing a rise in demand following the closures of pubs and restaurants, some wine deliveries have not been able to deliver wine on time because of the unexpected shortage of cardboard.
A further part of the food and drink industry that has been affected are the supermarkets. The rise in egg sales during lockdown has led to shortage of cardboard pulp for boxes. Most companies have been trying to reduce the amount of plastic they use due to it not being as environmentally friendly, but with the cardboard shortages, it has meant that some businesses like supermarkets have had to temporarily replace cardboard packaging with plastic boxes instead. This has resulted in some criticism from customers over on social media.
When supply is low, and demand is high, it inevitably leads to price increases. There has been a universal rise in paper costs and other essential operating costs too which has now started to spread into prices of new boxes. It has been reported that since the start of 2021, there has been a paper price rise of at least £40 per tonne for both kraft and recycled liners. Significant increases have now also been communicated for March and most likely April.
The effect on wood and steel for pallets
Another challenge the packaging industry is the shortages in wood and steel for pallets. Currently we are in a period of the biggest timber shortages our sawmills have ever seen. The Timber Packaging and Pallet Confederation has warned that raw material price rises, and lack of availability will affect the packaging and pallet market until at least the middle of this year. These issues combined with the global shipping crisis has caused significant increases in handling and logistics costs.
Through the tensions on the global trade, the UK sawmilling industry are facing additional challenges. In 2020 China imported 93.74 million cubic metres of logs and converted timber. To put that in comparison, the UK sawmilling industry only produces 5 million cubic meters per year. The USA are also importing timber and are paying 3 times more than the UK average. With less imported timber available, it means enormous pressure on UK demand.
The construction industry is especially impacted by the timber shortage. With construction material shortages, self-builders, renovators and DIYers being warned that delays and disruption to their projects are highly likely. The growing Brexit queues and problems at customs have escalated which could cause delays when trying to import building materials into the UK. This is on top of the ongoing plaster and plasterboard shortages, and dwindling supplies of key materials such as timber and roof tiles.
Most businesses who rely on these materials, have already warned to expect unavoidable rises in price for the foreseeable future. To deal with the current shortages, it has been suggested to either consider alternative materials such as plastic pallets or re-use the pallets and packaging you already own.
The effect on adhesive tapes
If you thought adhesive tapes are spared from the challenges, you would be wrong. There are now unprecedented increases in raw material for oil derived products due to the severe shortage of products available globally.
These increases have resulted in some of the leading adhesive tape manufacturers closing their order books for the near term, driving demand elsewhere. We have seen increases of 25% on oil derived products because of this.
How is Swiftpak handling these challenging times?
In a crisis like this, our main priority is to maintain supplies to keep customers operational and keep up service levels. Strong relationships are absolutely key in weathering the challenges.
For over 40 years, Swiftpak has built strong and longstanding relationships with suppliers. This loyalty is now pivotal and means Swiftpak has a secure supply chain.
On top of that strong relationships with customers are now more important than ever. One of Swiftpak’s core values is trust which allows for transparent conversations. Through transparency and open communication, the right solutions can be found for our customers to help sustain their operations. Whether that be creating a more efficient box side or shape, by using new packaging materials or simply by forecasting stock levels to get the orders in earlier than usual. We highly encourage to have open conversations with your key account managers as the team are working extremely hard to mitigate any supply chain issues.
Although price increases on cardboard, wood, and imported goods are inevitable, at Swiftpak we are committed to staying the reliable packaging partner you can trust and count on.
We continue to do our utmost to mitigate these input cost increases whilst doing our best to ensure uninterrupted supply. Swiftpak will continue to strive to help your businesses grow and make your packaging operations as productive and stress-free as possible in 2021 and beyond.
If you have any questions or want to open up that transparent conversation on how to mitigate the challenges, contact your key account managers today. Together we are stronger.