Exceptional market conditions
Among many other goods sold in the UK, the cost of paper and packaging seems to be continuously increasing, much to the dismay of businesses who rely on the affordability of these products to keep their own prices steady.
Exceptional market conditions propagated by the lingering effects of the COVID-19 pandemic, the energy crisis propelled by the Russian war against Ukraine, low availability of raw materials and the high demand for these products, among others, are all contributing to the raised prices of paper, packaging and labelling products.
The cost of numerous raw materials required to produce paper has increased, with paper mills unanimously establishing price increases of 8-12%, which will take effect from autumn of this year.
This includes the cost of pulp, which has been at a raised price for over a year, as a result of high demand and low stock availability.
While the price of pulp is rising, the cost of this is exacerbated by the fact that the US dollar is gaining strength as a currency compared to its European counterpart. At the moment, the euro is the least valuable it’s been in the last two decades, with seriously declined buying power compared to the US dollar.
This means that pulp bought internationally is costing more than it would have historically; fewer dollars can be exchanged for the same number of euros when compared with previous years. Consequently, fewer units of pulp can be bought.
Another material cost factor increasing the prices of paper, packaging and labels are the chemicals used to enhance the quality of these products.
Chemicals used to coat thermal paper – such as PVA – are in short supply with demand reaching a level 300% higher than this time last year. Likewise, the cost of stearic acid essential for strengthening the surface of paper has also risen, while the different forms of latex used to produce paper products are enduring price increases of up to 30%.
Increased cost of raw material
In addition to increased cost of raw materials, crop failures affecting the availability of materials such as starch has created a sharp difference in the supply available versus the demand, with prices rising 25% as a result.
Aside from the rising price of materials, logistical components have also contributed to the soaring cost of paper rolls, label and packaging products. These have had an impact on the cost of getting materials – and the finished paper, labelling and packaging products – from A to B, with freight and road travel being significantly affected by a number of global market influences.
Freight lanes cost four times more to use than in pre-covid times.
The covid pandemic had an enormous effect on supply chains, especially freight and shipping. Even now, some freight lanes cost four times more to use than in pre-covid times, largely due to congestion and the skyrocketing demand for freight use following the pandemic, and the shutting of important ports during this time.
The cost of using shipping containers has remained high over the last year, and congestion is still at critical levels in several key ports such as Rotterdam and Hamburg, causing delays in delivery time and preventing demand from falling quicker, as the freight industry attempts to stabilise
Road transport of products is also more expensive when compared with previous years due to the rising cost of fuel, which have been impacted by the conflict between Russia and Ukraine.
Returning to a new normal.
However, the good news is that the long-standing effects of the covid pandemic on logistics are beginning to taper down, as supply chains show small improvements towards recovery, and of returning to a new normal.
One concerning variable yet to show how it will influence market conditions in relation to the paper and packaging industry is the end of Russia’s war on Ukraine.
While the end of the violence is extremely positive, sanctions against Russia may contribute to more highly-priced energy in the short term, since sanctions have included energy products such as crude oil and other petroleum products.
However, these should hopefully stabilise quickly as countries locate and find new, alternative sources of energy.
Although price increases are inescapable at the moment, Fortoak is doing everything it can to keep prices fair for customers and will look for new ways to make products affordable under these exceptional market conditions for the paper and packaging industry.