Paper and cardboard costs set to expand in coming years

While paper and cardboard packaging has long been a constant in the industry for decades, that could soon change as company needs shift.

Industrial Distribution reported that prices of these products are on an upward trend that won’t necessarily be ending any time soon. Input costs for upstream suppliers and consumer shopping demands are making these products more valuable, which is driving efforts for vastly increased consumption.

Specific costs are growing, especially for wood pulp and paper. The news source noted that 2011 saw the highest prices for wood pulp in more than three decades, and while prices have declined slightly since, they are still historically high. They’re expected to continue rising, too – the global price of wood pulp is about to rise at an annual rate of 1 percent in the next three years, IBISWorld figures indicate. This is due from several factors – higher increased demand from a recovering economy, higher construction and industrial activity and increases in supply chain input costs. Some elements of this will be extremely evident – rising wood pulp prices will influence the price of paper, which itself will spike by more than 2 percent in the next three years.

Worse, key demand drivers will push this need even higher, and prices will join it accordingly. Disposable income’s rise in the near future will only put more strain on packaging material companies, as consumers will be able to purchase more discretionary items, often packaging in paper. E-commerce is also surging at rates rarely seen before, which will boost shipping activity and demand for boxes and shipping products as well.

Corrugated boxes one to see a rise

Corrugated boxes, molded fiber packaging and packaging services will bear the brunt of these rising price trends. In the next few years, boxes will see their prices grow by 3 percent annually, with the rising cost of paper leading companies to utilize competing types of shipping. With rising demand for the boxes on all sides, prices will rise without seeing any drop in shopping trends.

These prices will be an issue for many shipping companies, as the number of substitutes currently available is low. Few products on the market can reliably supply a balance of cost and strength. Plastic boxes, one potential alternative, are durable but can be more expensive per unit, while solid fiber boxes are cheaper but much less strong. This lack of options can strictly limit buying power and the ability to negotiate.

However, one way for buyers to better compete comes from low market specialization and inexpensive switching costs. The commoditized nature of these corrugated boxes allows their buyers to shop around, and they can make switches with minimal risk, leveraging the number of vendors and determining which are best for their needs while limiting the rise of prices.

Molded fiber costs to expand

Molded fiber packaging is expected to increase in price even further in the coming years, with an annual rate of more than 4 percent seen through 2017. The higher price of pulp and growing demand for improved packaging processes, as well as a growing population putting strain on the availability of food, will drive these products’ prices ever-higher, though there are some alternatives like expanded polystyrene packaging that features higher durability and pleasing aesthetics. Such characteristics can make fiber packaging less necessary, and can be used as either a leverage tool or an alternative to the initial product depending on how negotiations go.

Packaging services costs to change as well

While the changes won’t be as immediately noticeable, the news source found that packaging services costs are also projected to grow in the next few years. Suppliers of packaging services are creators of manual packaging and also supply machine packaging for client materials as well. IBISWorld figures cited by the news source see the costs of this service to grow at an annualized rate of 2.5 percent through 2017, due to the rising cost of packaging supplies and the rising average salaries in the industry as well. Buyers of these services are said to have some benefits, namely low market share concentration, that help negotiations. About 93 percent of suppliers use a single facility to lower their costs, which makes competition more viable and makes it easier for users to find a better long-term solution to rising prices in shopping around.

These prices are set to rise worldwide, a report from Research and Markets found. In the United Kingdom, sales of paper-based and cardboard packaging material grew by nearly 2 percent last year, the fourth consecutive year of growth in the last five years totaled up. This growth has been called unsurprising due to the prevalence of these materials in everyday life and will push prices higher over time.

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Posted in Boxes/Corrugated Sheets, Industry News, Supply Chain Management