In recent months, manufacturers across the globe are increasing packaging prices. As a result of the COVID-19 pandemic, consumers are spending more money on e-commerce, take-out food and grocery store products, and as businesses begin opening up, retail spending is expected to rise as well.
As this global demand remains steady, a volatile combination of external forces is causing packaging prices to increase by upwards of 30-50%. SBS paperboard has doubled since October from $1,000 per ton to $2,000 per ton. Kraft paper is up 43% at $1,000 per ton, and corrugated cardboard jumped from $650 to $1,000, an increase of 53%.
The pandemic has also caused global shipping prices to increase by as much as 80 percent since last November. Due to container shipping delays and air freight providers raising prices during this high demand atmosphere, packaging prices are upwards of three times higher than the normal price.
Unfortunately, manufacturers must transfer these costs to companies that need premium and luxury product packaging.
The Chinese Paper Monopoly
Recently, China’s largest paper manufacturer, APP-China, merged with another large conglomerate, resulting in 51% control of the market. The Chinese government has yet to indicate if they will step-in to break-up this monopoly.
This comes at a time when manufacturing capacity across Southeast Asia, Europe and the United States has decreased, especially after the coronavirus pandemic. Yet China’s manufacturing sector has been resilient throughout COVID-19, forcing businesses across the world to become increasingly reliant on their capabilities.
APP-China is leveraging their newfound market control and international demand as an opportunity to raise prices, forcing smaller manufacturers to follow suit.
China’s Waste Paper Bans
In 2018, China shocked the recycling industry with a plastic and mixed-paper import ban. China would no longer accept the world’s garbage, and countries like the United States would have to send their plastic elsewhere.
The Chinese government extended the ban to cover all recycled fiber beginning in January 2021. Paper manufacturers rely on recycled cardboard to create paper pulp, which becomes packaging materials like molded pulp, SBS paperboard, kraft paper and cardboard. Chinese companies are subverting the recycled paper ban by importing paper pulp—not covered in the restrictions—and investing heavily in their own waste paper recycling facilities and paper mills.
During the transition period as factories adjust to new waste paper sources, packaging material prices will rise. According to the secretary-general of the China Resource Recycling Association Waste Paper Branch, “The price will rise slightly, as many paper makers will increase storage time and hike their inventory of waste paper because of the ban.”
Global Logistics Problems
As consumer demand soars, sea and air cargo companies are seizing the opportunity to raise shipping costs even while major global logistics problems frustrate businesses. As the Evergreen cargo ship is freed after blocking the Suez Canal for nearly a week, the world is getting a rare peak below the deck, revealing a fragile global shipping network and a supply chain still struggling with the coronavirus pandemic.
Due to overwhelming inbound deliveries and land-side logistical issues, major ports throughout the US, especially on the West Coast, are clogged with ships waiting to unload and receive goods. This February in San Pedro Bay, dozens of container ships were anchored for upwards of 11 days before unloading at the Port of Los Angeles. And COVID continues to affect every level of the supply chain, including the labor force. The International Longshore and Warehouse Union (ILWU) announced that a thousand of their members had tested positive by the end of January.
Many companies are looking to the skies to solve their shipping woes. According to the online logistics marketplace Freightos, “Healthy demand has pushed global air cargo volumes back to pre-COVID levels.” Space on passenger jets is still limited though. While the products may arrive on time, companies should expect to pay more than expected as airline companies keep prices elevated in this high-demand market.
When Will Packaging Prices Drop?
As society emerges from the pandemic, the hope is that manufacturing expands and demand stabilizes.
While the waste paper ban will likely stay in place for the foreseeable future, major Chinese paper companies like APP-China and Nine Dragons are investing billions of dollars in material processing technology. This new infrastructure will likely minimize the impact of the raw material restrictions.
As ports address traffic jams and airlines increase daily flights, global shipping prices will eventually stabilize as well.
Until then, planning ahead is more important than ever. Work with your packaging manufacturer to set realistic deadlines and source materials, and stay in close contact with your freight forwarder.
Stay posted to the Zenpack Blog for updates on global packaging prices.
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