Kaunain Shahidi, Contributing Editor, Packaging MEA, takes a close look at what’s causing the current rampant price rise, and how the packaging industry can mitigate it
Packaging played a primary role in protecting and delivering products safely to consumers during coronavirus lockdowns and also helped health workers fight against the pandemic. The effective use of packaging in pharmaceuticals, personal protective equipment and other specialist items for infection control is commendable. The versatility of packaging has been proven more than ever. And then the Russia- Ukraine war created many other challenges for the packaging fraternity.
Climate change, natural disasters and conflict all create various challenges in accessing food and other basic items. The good news is that different packaging solutions for non-refrigerated food allow relief agencies to safely distribute it. Technologies used for perishable foods include aseptic packaging, retort packaging, microwave-assisted thermal sterilisation, and integrated intelligent packaging with RFID/NFC.
But the cost of packaging materials has risen recently, with predictions of continuing price hikes. On top of this inflation, it has been noted that over the past two years, there has been a sharp increase in the CAGR in retail, with goods requiring extra packaging, and demand for most packaging materials and formats exceeded growth, resulting in both scarcity of materials and higher operating costs.
PAPER: Since 2020, the price of paper-based packaging has increased by nearly 15%. For European producers, increasing energy costs have created massive uncertainties, and with a further potential increase in crude oil prices, there will be at least a 4–5% increase in energy costs for paper packaging. Because of the expected increase in logistics costs, production costs are also expected to increase by another 2-3%. Fortunately, the cost of fibre will not be impacted in some of the countries which are shielded from the impact of the Russia-Ukraine war.
PLASTIC: The price of oil has a direct relationship with the price of resins and plastic. The market has experienced a wide flip-flop in oil price, and it is expected this will settle at $100+ per barrel, impacting plastic packaging costs. Not only packaging materials but everything made out of plastic will get costlier. Since most plastic materials are made with PP or PE, and the basic building blocks of these are propane and ethane, an increase in the price of oil has a direct effect. Fortunately, the GCC has shown resilience, largely due to the strong presence of local resin producers.
METAL: Prices of metals used in car manufacturing, construction and packaging have fallen by more than 12% from their record March high. The market is quite stable, so unless further restrictions on trade are imposed in Russia or there is major news regarding peace talks, the war does not influence the commodity market. We can say that metal is, at present, least affected by inflation compared to other packaging formats. The price of aluminium, has been rising because of supply disruption. Global aluminium output fell as producers curtailed capacity because of rising energy prices. Supply has been further affected by the war and an energy cap implemented by China to reduce emissions.
GLASS: The glass packaging supply chain is energy-intensive and is expected to be heavily impacted by rising energy costs. Transport costs for glass are always higher than other packaging materials, and the sector is likely to face ongoing challenges as a result of Russia’s invasion of Ukraine. Tight supply, particularly for wineries, distilleries and craft brewers, as well as higher costs, are expected in the coming year.
WHAT CAN YOU DO?
Fortunately, there are a number of ways that cost increases can be mitigated to some extent For brand owners, ensure you have optimised specifications for all materials. Second, review your entire packaging operations, and identify pinch-points and opportunities to lower costs and reduce emissions. In most cases, packaging costs are hidden, and these costs to your business are also costs to the environment. Once you know why costs are rising, it is easier to address this.
- Materials: Optimise specifications; reduce material waste; achieve CSR goals.
- Supply chain: Examine all potential gaps.; negotiate well; have smart contracts.
- Storage: Free up space; reduce storage costs/pallet handling; reduce the impact on goods-in.
- Transport: Increase delivery fleet utilisation; lower carbon emissions.
- Damages and returns: Reduce product waste; reduce administration and handling; reduce transportation, reduce waste; improve customer experience.
- Productivity: Make informed decisions on pack costs; reduce labour costs, or reallocate time. Since packaging has proven its role during challenging times, there is wider acceptance of its importance. It, therefore, has the support and understanding of end consumers, and we must all, as consumers ourselves, support the industry during this difficult time.
As this analysis and report is a series, we will continue this analysis in the upcoming editions. If you have some thoughts and experiences on this important topic, please feel free to share them with us and we will be glad to share them with all our readers in the upcoming reports. editorial@packagingmea.com