- Increasing consumer demand and limiting the supply of raw materials lead to a serious shortage of plastic, paper and cardboard packaging materials.
- Some analysts hope this disruption will spur innovation that could help pave the way for more sustainable options in packaging.
A serious shortage of packaging materials
Supply shocks are growing as more and more people shop online. According to data from Adobe’s Digital Economy Index, due to the impact of the Covid-19 epidemic, online shopping demand increased significantly year-over-year in the first eight months of the year. Currently, e-commerce accounts for about 20% of consumer spending.
A deep freeze hit Texas in February, disrupting many manufacturing operations. This led to a sharp increase in the price of plastic materials and plastic resins. Vipul Shah, product manager of Next Trucking, a logistics technology startup, said: “The cost of raw materials like polyethene and polyurethanes is up 50% year-on-year.”
Some shippers have begun turning to paper products, a more sustainable and recyclable resource. This increased demand for paper products even before the pandemic hit. As plastic prices skyrocketed after the Texas freeze, demand for envelopes, boxes and cardboard grew even more. As a result, paper mills, closed during the pandemic’s early months, have struggled to keep up with demand.
However, raw materials, such as pulp imported from China, have encountered transport bottlenecks and shortages are reflected in prices. After bottoming out in September 2020, the price of cardboard hit a record in January, and it continues to rise.
Which direction for business?
“Big companies like Amazon are going to be at the forefront to get their share of the capacity,” said Andrew Hogenson, global managing partner for consumer goods, retail and logistics at Infosys Consulting. “Smaller businesses will stay behind and get stuck or pay exorbitant prices. Therefore, small to medium-sized companies often have to look for thinner, lower quality or cheaper packaging.”
The pandemic has also exposed flaws in JIT inventory management, many companies expanding their supplier networks and looking for domestic sources of packaging materials. Even they are willing to accept higher costs.
Some analysts hope this disruption will spur innovation that could help pave the way for more sustainable options in packaging. Change is starting to happen at the enterprise level. Some businesses are using plastic pallets instead of wood and cardboard, especially in the food and industrial sectors. Admittedly, plastic has a bad impact, but if used correctly and reused it can be a really good solution, helping to reduce the impact on the environment.