Close to 18 months of pandemic conditions have disrupted vital supply lines. Many raw materials are in short supply, including paper, the price of which has increased ten-fold as a result. Worse, many paper manufacturers are unwilling to look more than a few weeks ahead and are only accommodating short-term orders. Why? Because they are unwilling to take a risk that when delivery time arrives, prices will once again have risen, and they will have to bear the burden.
Shortages and the Amazon effect
Cardboard prices have risen significantly since the start of the pandemic, according to Charged Retail, in part due to the Amazon effect, in which consumers favouring online rather than in-person shopping has had knock-on effects, increasing demand for packaging and boxes. Amazon itself has such extraordinary buying power that it can afford to buy shipping supplies well in advance, in enormous quantities, and stockpile them for future use. Smaller retailers have few opportunities to compete.
Worldpack’s buying power has limited the impact for many of our clients, but this is a global issue caused by a lack of pulp in the supply chain forcing manufacturers to fall back on limited virgin fibre. In India, there are calls for a “ban of export of kraft paper… so that the domestic industries will not be starved of the key raw material, particularly to make packing boxes.”
Industry insiders in the country are blaming shortages on the ‘three Cs’ – Covid-19, a lack of containers for shipping, and pulp exports to China’. These have plunged the paper industry into crisis and are having a consequent effect across the wider retail scene.
In the UK, the price of old cardboard, which is used to make new boxes, was £118 per tonne earlier this year, which was almost 12 times higher than it had been 12 months earlier. There will come a point where even fulfilment services will have to consider passing on subsequent price rises and, ultimately, a risk of supplies being interrupted.
The perfect storm
You might think this isn’t news. Paper supplies come under pressure towards the end of every year, after all. Andy Barnetson, director of packaging affairs at the Confederation of Paper Industries, told Printweek that “we always face a surge in demand in the run-up to Christmas, so the standard rise in demand in Q4 [in 2020] really set the scene.”
However, while the year-end uplift may have been largely predictable, other factors have a longer-term effect. These include shipping containers being in the wrong place, paper mill workers isolating, mills shutting down for maintenance and, for British retailers, Brexit. None of these was too significant on its own, Barnetson said, but together they resulted in some “tight” market conditions.
As more of us are vaccinated, the world is opening up, but it is going to take a long time for these shortages and logistical problems to be overcome. It can take almost 40 days to ship a single 20ft container from Shanghai to Rotterdam, so even when far eastern paper mills start rolling again, it will take several weeks for their output to enter the supply chain.
Only those who have planned ahead are likely to receive the supplies they require. This year there really will be no get-out-of-jail card for retailers who leave their Christmas planning too late.
To make sure you have the supplies you need for packaging and display over the festive period, speak to your Worldpack Account Manager today.