The world of packaging has experienced a drastic change as more and more companies and brands have shifted to eco-friendly packaging systems. Due to environmentally-friendly policies around the globe, many brands – especially in eCommerce – now use paper packaging.
Over time, paper mills’ demand for raw paper materials has reached the point where demand begins to exceed supply. This has led to the unexpected rise in the price of paper…the cost of shipping a paper container has risen from an average of $1700 to an average of over $6000!
There are many factors causing this rise including raw material price increases, transportation costs increase, freight increases, and more. As a brand owner, it is important to know the reasons for this increase in detail and the steps you can take to cushion these extra production costs.
Reasons for the Changes in Paper and Packaging Pricing
The continuous rise in the price changes in packaging can is attributed to many things, some of which include:
1. Increase in the Price of Paper and Raw Materials
The rise in the price of raw materials like pulp has made it difficult to access paper for packaging purposes. According to the U.S Bureau of Labor Statistics, the PPI and pulp cost, allied products, and raw materials for corrugated boxes have increased by over 25% in the previous 12 months.
The COVID-19 pandemic has no doubt played a part in restricting the availability and distribution as there are fewer people to scout and retrieve these materials. Therefore, the boomerang effect is paper-producing companies going the extra mile to access their raw materials and inevitably reflecting it in their supply costs. The Bureau of Labor Statistics states a fact in its Producer Price Index for Corrugated and Solid Fibre Box Manufacturing that the index measuring cardboard costs increased from 342.1 in May 2020 to 369.4 in May 2021.
You can use Paper and Cardboard materials can before packaging in the following forms:
- Folder boxes
- Cardboard boxes
- Tubes and spirals
- Bags and cases
- Fiber barrels
2. Supply and Demand
The increased demand for paper and corrugated packaging is a result of the thriving eCommerce sector. The surge in demand is directly correlated to the pandemic as we find many customers stuck at home while making online orders. The consequence of this is the need for businesses to start selling online and thus increasing the demand for paper or cardboard boxes to ship their orders. The pressure to increase supply by the paper manufacturers often meets difficulties caused by the unavailability of raw materials and finished inventory. The unexpected changes also led to businesses stockpiling their orders and supplies. Due to the delay in supply by these paper-producing companies, many eCommerce brands have tripled their demand for bulk orders to ensure a continued supply of products.
3. Cost of Transportation
Transportation is another major factor causing the increase in packaging costs. Crude oil has risen to 40% since the year’s commencement, and its prices are expected to continue to rise to $80 per barrel. As the nation gradually emerges out of the lockdown, more people who have resumed driving and flying are bound to feel its effect. The fuel increase adversely affects distribution costs as many brands strive to keep up with constant production.
Also, with the heavier workload facing transportation workers due to incense in-home deliveries, packaging costs take the high road.
4. The Workforce
One of the most overlooked causes of the rise in packaging prices is the labor cost effect. In 2021, we see many businesses booming but with constant complaints of insufficient workers to fill up vacant job openings. Workers are fearful of resuming work and contracting the Coronavirus. Additionally, elder care people avoid nursing homes due to the virus and child care due to home-schooling.
5. Manufacturers Inefficiencies
Though it might not be linked directly to inflation, how your packaging manufacturer operates can affect the cost of your packaging. It is more adverse if your supplier’s costs and general overheads keep rising. Many packaging suppliers tend to run inefficiently due to pressure to meet increased demand and erratic supply. Some of these suppliers joggle customer requirements, thereby influencing how tasks are prioritized rather than efficiently performing jobs. We can also consider the cost of running a machine (power and labor increases). Suppose your packaging goes through two or three passes – e.g., folding, secondary scoring, printing, or stitching – then a little increase may multiply by three-fold.
The best thing to do while dealing with high labor costs is to confirm that your packaging is done in the most efficient means and remedy it if not.
6. Aging Equipment / Machinery
The equipment used to manufacture your packages could be a major factor in prices. With the pandemic and economic fluctuations, some packaging manufacturers have difficulty upgrading their machinery. The consequence of this lack of investment on the manufacturer’s part is the inefficient production of your packages. You can checkmate this by verifying if the manufacturers can simplify the manufacturing processes. If they cannot and keep increasing costs, you might have to look for new supplies.
7. Wrong Packaging
A completely avoidable issue that most brands face is using over-specified packaging that is not suited for particular markets or products. You should note that if you cannot reduce your packaging cost, you can use less of the packages.
You may not realize it sooner, but it could be possible that your business is using excessive packaging, known as secondary packaging. For instance, if a brand decided to switch from tape packaging to self-locking cartons, the cost of package supply instantly doubles. You could consider changing your box sizes to reduce the number of empty spaces needed and additional costs. It could also reduce the voluminous shipping costs and let you acquire more items per pallet while saving costs.
In short, consider if your brand products are over-packed and see if you can combine and eliminate certain elements.
8. Sub-Contractor or Reselling Costs
The packaging business sector, just like many other businesses, has experienced a significant rise in orders and inquiries. If your brand uses packaging merchants, which is a company reselling commodities manufactured by third parties, chances are they are also experiencing cost challenges. In this scenario, we find that the price increases get passed on to customers. You can avoid this cost transfer by going directly to the manufacturers, thereby eliminating the middleman and attaining favorable pricing.
You should note that the possibility of this option largely depends on your packaging type, its volume, and the adaptability of the packaging.
How Brands Can Manage Production Amidst Packaging Price Changes
To effectively manage your production despite the skyrocketing prices. Here are some recommendations to consider:
It is important to be flexible when making packaging choices. You should know how to work your way around certain unavailable materials and still get an efficient packaging result.
There have been obvious changes in paper pricing within the past few years. In 2021 alone there has been a significant rise in paper and packaging prices, hence the need to make workable budgets at the beginning of each working year.
3. Packaging Size Adjustment
As much as bigger boxes allow for more items, some cases do not require many volumes. In this period of price changes, brand owners should analyze and cut down on packaging excesses to avoid unnecessary production costs.
4. Prior Planning
Brand owners need to communicate with their packaging vendors ahead of time and discuss plans for the remaining quarters of the year. By working early to secure the materials needed for reproduction in advance, you will better understand its impact on your budget and production costs.
Types of Paper Packaging Materials
The major types of paper packaging materials include:
1. Corrugated Boxes
Brands can use corrugated boxes to carry heavy products like electronic goods, appliances, fruit and vegetables, and wine. These can be used mostly as bulk shippers delivering various similar products in the same box. There are different layers of paper fiber that give the corrugated box the sturdy properties it requires. They include a top and down layer called the liner board and a middle layer referred to as corrugating medium. The ripple-like, wavy shape of the medium gives the box its firmness, and it is made out of fiber boxes. Beyond shipping products, you can use corrugated boxes to make partitions, bulk bins, pallets, furniture, gypsum wallboard, etc. They are recyclable and compostable, making them eco-friendly as well.
2. Paperboard Cartons and Boxboards
These are thin, light-weight cartons used to carry single items like shoes, breakfast cereal, crackers, and toys. It doesn’t include the wavy middle layer or corrugating medium toad to the strength of the box. You can also use boxboards as tubes and cores, partitions, graphic boards, and displays. Its other non-packaging uses include top and bottom layers of gypsum wallboard products and children’s art and craft projects.
Most paper boxes are 100% recycled content, made from corrugated boxes gotten from factories or supermarkets. Manufacturers also create them from used writing and printing paper, old boxboards, or old newspapers. Some mills use virgin materials like sawmill residues and woodchips, while others blend them with recycled fiber to make new ones. This paper manufacturing industry is highly dependent on acquiring used boxes for further recycling into new boxes.
3. Paper Bags and Sacks
This type of paper packaging material can come in two forms:
- The paper bags for retail and grocery items
- Multiwall sacks that carry flour and cement content and collect yard waste, leaf, and organics
Paper bags are made from either kraft pulp, recycled pulp, or a combination of both. Some Kraft pulp mills use sawmill residues and wood chips as their main raw material, while others use recycled fibers collected from homes, factories, or supermarkets. Often pulp made from sawmill residues and wood chips is added to the recycled pulp to improve the bag’s strength.
Update for 2023-2024: Recent Developments in the Paper Packaging Industry
As we move through 2023 and into 2024, the paper packaging industry continues to evolve, influenced by various global factors:
- Sustainability Trends: With a growing emphasis on sustainability, there’s been an increased consumer preference for eco-friendly packaging. This trend has prompted further innovation in recyclable and biodegradable packaging materials. Companies are investing more in research and development to find sustainable alternatives to traditional packaging materials.
- Supply Chain Adjustments: The industry has seen improvements in supply chain management post-pandemic. Companies have adapted to the new normal by diversifying their supply sources and leveraging technology for better inventory management. This shift aims to reduce the impact of sudden demand surges and material shortages.
- Technological Innovations: Advancements in technology, such as automation and AI, are being integrated into packaging manufacturing. This development helps in reducing labor costs and increasing efficiency, potentially stabilizing the prices in the long term.
- Global Economic Shifts: The global economic landscape continues to influence raw material costs and transportation expenses. While some regions are experiencing stabilization in prices, others are still grappling with inflationary pressures. This uneven recovery impacts the cost dynamics in the packaging industry.
- Regulatory Changes: Environmental regulations are becoming stricter, with many countries implementing policies to reduce waste and promote recycling. These regulations are prompting packaging companies to adopt more sustainable practices, which can initially increase operational costs.
- Consumer Behavior and eCommerce Growth: The continued expansion of e-commerce and changes in consumer buying habits are driving demand for innovative and sustainable packaging solutions. Brands are increasingly focusing on ‘unboxing experiences’, leading to a demand for customized and aesthetically pleasing packaging options.
- Local Production Initiatives: To counteract global supply chain vulnerabilities, there is a trend towards localizing production of packaging materials. This approach not only reduces transportation costs but also supports local economies and minimizes carbon footprints.
- Energy Costs: Fluctuations in energy prices continue to affect the cost of producing paper packaging materials. Efforts to use renewable energy sources in manufacturing processes are being explored as a means to control these costs.
The paper packaging industry is undergoing a dynamic phase, marked by technological innovation, regulatory changes, and shifts in global economic conditions. Businesses need to stay informed about these developments and adapt their strategies accordingly to manage costs effectively and meet consumer expectations for sustainable packaging.
Paper packaging materials are the most adaptable and established packaging materials brands can access in today’s business sector. Due to their environment-friendly attributes and high recyclable rates, they have become the most sought-after packaging method.
But prices are surging, which can hurt your bottom line.
Once you become aware of the reason behind the price surges in this industry, you’ll be better equipped to plan better for your business success. Remember to always discuss your specifications with your packaging suppliers to cushion your overall cost.
This is a guest blog from our partner Arka. With over a decade of industry experience, the Arka team knows the ins and outs of custom packaging from box materials to dielines to fast prototyping and all the printing tools. Learn more about Arka here.