Will prices go up? Yes, they will! Label and packaging printers under pressure
Not only was it a mixed year in 2020, it will continue to be exciting. The label and packaging industry came out of 2020 with a black eye. Generally speaking, it was sometimes a good year for some, in terms of sales and order books. At least in some segments.
As soon as the year starts and it’s not even the beginning of spring, prices for substrates shoot through the roof. By substrates, we don’t just mean printing stocks, but raw materials – including those for inks.
Did that come as a surprise? No, not at all. If you can put one and one together, these developments are neither surprising nor arbitrary. The overall dynamics that preceded it could only have the present state as a result. And it will be idle to debate here what the causes were, who is to blame. It is what it is.
The drivers for the price increases are, on the one hand, of course the pulp prices, which is due to a supply and demand situation. On the one hand, and on the other, a systemic environment of 2020. The pandemic has led to shifts in the paper industry’s operations. Bloated paper inventories in 2020 with unsold paper fell to historically low levels starting in 2021.
Added to this are the costs of chemicals, additives and transportation. These have increased and will continue to increase in 2021.
International freight traffic is not unaffected. Logistics costs are merely a reflection of the distortions.
So much for paper prices in a nutshell.
Polymer prices – the sky’s the limit
And all those who work with paper as a substrate can count themselves lucky right now, because the price of polymers is skyrocketing. In a single month, PP prices rose dramatically – but with further upside potential. The basic problem is resins, which are not available in sufficient quantities. This is due to production conditions. For example, in some countries, critical infrastructures of the petrochemical industry were in a state of emergency due to the weather caprices. System-relevant services were almost on the verge of collapse.
And in this environment, where availability trumps price, the price rises with each delivered quantity. In other words, the next processor already pays the next higher price.
But the fundamental question that arises is how do you deal with these price increases? The printer in the buffer zone between the substrate manufacturer and the end customer. And the end customer in turn as a buffer between the retailer and the consumer.
Under no circumstances can it be the printer who has to compensate for the increases and reduce his margin or even work with losses just to keep the orders. But also the substrate manufacturing industry cannot sit on the systemic and not arbitrary prices, because it is an investment-intensive and therefore capital-intensive industry and faces many new challenges, for example in terms of sustainability.
This then leaves the brand owner. The latter would have to pass on its prices to retailers. However, if you take a closer look at the listing discussions with retailers – and I know what I’m talking about – it’s all about the 3rd or 4th digit after the decimal point. Actually, the consumer would have to pay it and the retailer would have to pass on the price increases to the consumer. But that will be a very big hurdle for retailers. It leads nevertheless a price war of the chains, around the favor of the consumer. And this is often where the price journey ends.
What the reality will look like will remain exciting. Because the entire supply chain has potentials that it has not yet exploited. Potentials to absorb such dislocations. And here, everyone has to do their part and the costs can’t be pinned down and compensated only on one side or the other.
In general we have to say goodbye to this idea of price stability, as it no longer reflects the volatile real world and thus leads to constructs that make no sense either economically or ecologically. This volatility will increase and not decrease.
Therefore, we must also say goodbye to time-honored processes and working methods that are based precisely on the calculus of relative stability and continuity. These systems are extremely fragile.
There is still potential for packaging printers to manage volatility. To become – quite simply – antifragile.
This is about automation processes and the digitalization of processes. About micro-analyses and optimizations, about even more intensive dovetailing with the supply chains. This also applies to the downstream chains, which must dovetail much more closely with their supply chains. If processes are not managed properly, a lot of resources and therefore a lot of capital are lost along the way.
These price increases are a whole-system result and are not confined to one industry or another. Exogenous factors will pose more and more challenges to the entire global economy. The only way to counter this phenomenon – or rather, to deal with it better – is to make a concerted effort to find solutions and to ensure that the entire supply chain does its homework.