Why Are Packaging Costs Going Up?
Coping with inflationary pressures across your packaging supply chain
You have probably noticed it.
Not just at work, but in your personal life as well.
Costs. Going up. Everything from your grocery shopping to clothes, the cost of filling up your car to the stationary you use in the office. Unfortunately for many, packaging is no exception. You may have had packaging price increase notifications in the last couple of months yourself.
But why are packaging costs rising? And are there any ways you can either overcome or mitigate these increases?
Fortunately, there are a number of ways that you can deal with these increases, although having an understanding of just why this is happening first can help when coming up with a strategy that works for your business.
This guide aims to highlight the 7 reasons packaging costs are rising – and how you can beat the increases.
Quick Reference / Contents
Inflationary pressures across all industries
Before we start, however, it is worth noting that it is not only the packaging industry facing the challenge of rising inflation.
In fact, many leading publications have reported recently that whilst companies across the manufacturing spectrum have generally seen a steady increase in order books, inflationary pressures are taking their toll in terms of overall growth.
The director of customer relationships at the Chartered Institute of Procurement & Supply, Duncan Brook, commented
In total, manufacturing activity was subdued, displaying a restrained pace of growth, barely moving from last month’s figure. Though optimism was buoyant, supported by business investment, this levelling of activity growth raises fears of a possible entrenchment developing over the coming months if economic conditions fail to improve.
So although optimism remains high amongst manufacturers, many are reaching the point where unsustainable increases to their overheads are beginning to be passed on to their customers.
01: Price Increases
Are price increases worth fighting?
So the question many are asking is whether the price rises are inevitable and unavoidable, or whether there is any way they can be overcome?
Fortunately the answer – at least when considering corrugated packaging – is that there are a number of ways that cost increases can mitigated.
By making your packaging work harder, ensuring it is the optimum specification and by taking advantages of applicable added value services, it is possible for you to maintain or even reduce overall costs.
However, before doing so, it is important to understand the reasons the average cost of packaging is rising, and the specific ways these can potentially be countered.
02: Seven Reasons
The 7 reasons packaging costs are rising
So what are the factors specific to your packaging that are seeing costs rise?
The list below covers a number of points that relate more widely to the overall state of the UK economy, plus some that are more specific to just the packaging market.
There are also some points that, whilst not directly affecting inflation, are almost certainly seeing a knock-on effect from other areas, and will be contributing to the cost of your packaging
As such, at least a few (and probably more) of the following seven factors are leading to your packaging costs increasing:
- Price of paper and materials
- Labour costs / shortages / minimum wage increase
- Number of manufacturing processes
- Inefficient machinery / conversion costs
- Cost of transit / logistics
- Sub-contracting / reselling
- General overhead rises
But is there anything you can do about this? Continue reading for advice and tactics to ensure your packaging is as cost effective as possible.
03: Material Increases
Price of paper and materials increasing
Directly tied to the overall state of the economy, uncertainty over Brexit and the weak pound, imported paper for manufacturing corrugated cardboard has seen sharp increases.
These have been reflected in the price of cardboard (across all types and grades of board), which in turn filters into the cost of your packaging.
Making matters worse, is the fact that demand is far outstripping supply. This has also driven up prices considerably as packaging manufacturers do not wish lose business due to not being able to source sufficient material.
Whilst this scenario is not unique to the packaging industry, it is the main reason your packaging costs are rising.
Is there anything you can do?
The answer depends on the type and styles of packaging you use.
It may be possible to analyse the material your packaging uses, and change this to a lighter, cheaper board grade, thus mitigating any cost increases due to material.
Similarly, your pack designs may be able to make more efficient use of material (e.g. switching to a specific FEFCO style), or switching to custom sized boxes to reduce the overall amount of material used.
Labour costs / shortages / minimum wage increase
If you can’t reduce the cost of your packaging, then an obvious alternative is to use less of it.
Whilst this sounds obvious, it is often overlooked that your business may be using excessive packaging – and in particular what is often classed as “secondary” packaging.
An example of this could be as simple as switching from standard taped boxes to cartons with self-locking bases. These not only assemble more quickly, but also halve the amount (and therefore the cost) of the tape that you use to seal them.
If you are using specialist bags or papers, such as VCI corrosion inhibitors or anti-static protection, then could these properties be incorporated into the outer container (again eliminating the need for additional items and the process for adding these when packing)?
You could even consider changing the sizes of your boxes. A tailored box, which would usually be smaller than the nearest stock option, would reduce the amount of void fill required, and the costs of purchasing, storing and adding it. As a side note, this would also reduce volumetric shipping costs and allow you to get more items per pallet – another potential cost saving.
The bottom line is to consider if your products are over-packed, whether you can eliminate or combine certain elements, and how they are handled.
Number of manufacturing processes
Whilst not linked directly to inflation, the number of manufacturing processes used to produce your packaging has a direct impact on the cost of your packaging.
This can be even more acute if the general overheads and costs for your packaging supplier are rising.
As a simple example, if the cost of running a machine (in terms of labour and power) is increasing, and your packaging makes 2 or 3 passes (e.g. for secondary scoring, folding, stitching or printing), then any small increases may be multiplied two or three-fold.
As with dealing with increased labour costs, the thing to ask is if your packaging is using the most efficient manufacturing processes, and if not, what can be done to fix (or at least improve) this. The cost saving should follow.
Inefficient machinery / conversion costs
Similar to the number of manufacturing processes adding to the cost of your packaging, the efficiency (or not) of the equipment being used to manufacture it can also be a factor.
With the ongoing programme of austerity, lack of business confidence (partly caused by Brexit) and the performance of the economy as a whole, many packaging businesses may have put off (or been unable) to upgrade ageing and inefficient machinery.
The knock on effect of this is that your packaging is not being manufactured efficiently.
What can you do?
Again check to see if there is any way the manufacturing processes can be simplified for your boxes. If they cannot, and the costs of inefficient production are increasingly being passed to you, it may be time to look at new suppliers.
07: Transport Costs
Cost of transit / logistics
Although there is increasing competition within the logistics sector, the cost of transit could still be leading to your packaging prices rising.
Fuel costs remain relatively high, and shortages of qualified HGV drivers are squeezing margins and prices in this sector.
And although this isn’t directly tied to your packaging cost, it is almost certainly having an impact.
There are ways you can alleviate this though.
Firstly, if you have spare warehouse capacity, order large volumes (minimising delivery charges) and utilise the extra space for storing your packaging inventory.
Alternatively, if you explore using a different board grade, you may also be able to realise transit cost savings through lighter weights and less volume (both in terms of the packaging being shipped to you, and you sending it on to customers).
Similarly to this, custom size packaging (being the optimum size and not too big) can reduce your courier costs, and allows you to send more items per pallet. This can, in turn, reduce your own shipping costs.
Sub-contracting / reselling
Of course, if you are using what is known as a packaging “merchant” – effectively a company reselling products manufactured by a third party, then they will be experiencing all of the same issues that you may be.
This where price rises (or at least a proportion of them) get passed on to you.
However, if you are in this situation, you have one of the easiest solutions available to you.
By working directly with a packaging manufacturer, you can effectively cut out the middle man and can often achieve much more favourable pricing.
It is worth bearing in mind that whether this is possible or not depends on the type of packaging you use (stock or custom), the volumes you use, and potentially being able to absorb the upfront tooling cost when switching.
However, from a long-term perspective, this can make serious inroads into reducing the average cost of your packaging.
General overhead rises
On the back of all of the above, general overheads for businesses (and indeed individuals) are rising.
Whilst there is not a lot that can be done about this (although the Bank of England will likely use interest rates in an attempt to keep inflation under control), the mantras repeated throughout this guide should be applied wherever possible.
Are you using too much packaging? Is it the correct size? Does it use the optimum material (offering a balance between cost and protection)? Is it easy and efficient to manufacture? Is it easy and efficient to use? Is it helping your transit costs?
By answering all of these questions, it ensures your packaging is as efficient as possible. And if you haven’t addressed all of these, the cost savings you may be able to achieve could come as quite a surprise.
Why packaging costs are rising...
Once you know the reasons behind why your packaging costs are rising, it is much easier to know how to address them.
By ensuring your packaging is as lean and efficient as possible, you can see some significant gains in cost performance.
Just remember to factor in all potential considerations, and don’t be afraid to discuss your concerns with your packaging supplier.
About the Author
Business Development Director | GWP Group
Ian is one of the founding Directors of GWP, using his broad knowledge acquired over more than 30 years to oversee new business strategy [Read full bio…]