Here at Springpack, we continue to work tirelessly to ensure our levels of customer service and supply remain strong. However, due to the global pandemic, supply chains have been hit hard, and we are now beginning to feel the effects of it.
Although we have invested significantly in stock, other factors are now coming to the fore, which may impact our service levels moving forward. The key factors are;
Now the UK has officially left the EU, there is considerably more legislation to adhere to. The level of paperwork has increased significantly, and exports from, and imports to, the EU have taken a sharp decline. The Office for National statistics (ONS) recently reported that exports to the EU dropped by a staggering £5.6 billion, which equates to 40.7%; imports from the EU dropped by £6.6 billion, which equates to a 28.8% decline.
The COVID-19 Pandemic
With many ‘bricks and mortar’ companies looking at new ways to remain viable during the pandemic, and Government advice to ‘stay at home’, online sales have rocketed. This has had a huge impact on the usage of key packaging materials, such as cardboard. With the switch to online, comes a further requirement for packaging, and in some instances, new packaging solutions.
The ONS have reported that online sales have grown from 19.2% in 2019 to 27.9% in 2020. This is calculated by looking at total online sales as a percentage of total retail sales.
With consumer demand not seeming to reduce, and the switch to online stronger than ever, we are beginning to feel the impact. Some might blame big companies for hoarding packaging stocks, but not us. The customer is king, and they have the right to order products from wherever they see fit. It’s our job to look for solutions to help our customers, and that’s exactly what we are focusing on.
In addition to increased consumer demand, there are other factors to consider with the pandemic – the furloughing of staff, restrictions around social distancing and staff wellbeing. These factors have also led to issues with supply, and supplier capacity.
There has been a worldwide imbalance of shipping container flows, which has led to delays and cost increases. There have also been significant shortages of containers, resulting in further disruption and logistical issues.
On 9th December 2020, the BBC reported that price rises were likely due to UK shipping problems. This has unfortunately come to fruition. Within the news report, one importer was quoted as seeing rates for a 40-foot container rising from $2,000 up to $10,000.
As you are no doubt aware, the corrugated packaging sector has recently been under unprecedented demand. This, combined with paper shortages across Europe, has made it very difficult to obtain enough material at a sustainable price.
Last year, some of Europe’s largest paper mills endured significant downtime due to staffing issues created by the impact of COVID-19. As a result, paper stocks have been running at extremely low levels whilst the UK corrugated volumes have increased as much as 30%. This landscape has triggered a market-wide paper price increase from December 2020 that has also pushed lead times out significantly.
Furthermore, paper mills are still struggling. Even with the increase in price, paper supply remains incredibly tight, and many mills have made drastic decisions to cut allocations by up to 50% with little or no notice. In addition to this, a huge increase in continental transport and shipping costs (along with market paper pricing premiums of 20-30%) have left current pricing levels unsustainable.
Unfortunately, we have had to pass on some cost increases recently. And it looks like further increases will need to be implemented as the year goes on.
Tapes & Adhesives
Similar to the situation with corrugated boards, we are now experiencing supply and cost issues on our range of tapes & adhesives. This has primarily been driven by a shortage of oil derived products. We are working closely with our suppliers and manufacturers to ensure supply, but costs increases are expected as early as April.
Like with the corrugated boards, we are absorbing as much of the increase as we can, but some increases will unfortunately need to be passed on.
Like with other products, plastics are also being hit hard. Whilst we pride ourselves on offering alternatives to plastic, finding solutions to reduce their use, or recommending plastics containing recycled content, the market for plastics in the UK is still significant. With the global shift to more environmentally friendly products, we are able to switch products, but we are under pressure on both the supply and costs for plastics.
The recent extreme weather in Texas that caused a state of emergency to be announced has had an impact too. Texas is where the major petrochemical plants are based, and they produce the majority of polymer that ships from America to the UK. The plants are suffering both internet and electricity outages, and this is likely to be the case for weeks to come.
Ethylene is the based line for the raw materials for plastics, and this is rising in cost, with lead times being pushed out as a result too.
We are in constant touch with the British Plastics Federation, and they have recently written to us informing us of the month on month cost increases of the raw materials. There is currently no end in sight for the increases.
We can’t stress enough how we are working to maintain both supply and costs, but at present, there are multiple factors against us.
What we’re doing to support our customers
As mentioned above, we have been working tirelessly on ensuring supply, and at the right price. This has been very challenging, but we continue to review stock holdings on a daily basis, and look at UK supply where we need to.
Through the implementation of Slimstock, a stock management and forecasting tool, we have been able to stay on top of the supply issues, with only a minor disruption being seen. We are being vigilant with our stocks, and we are working closely with both our suppliers and customers to ensure constant supply. Where we foresee an issue with stock, we are working on alternative products, or with alternative suppliers.
Our valued customers are loyal to us, and we are loyal to them. We have absorbed significant cost price increases of late, and we will continue to do so, for as long as it is viable. This will mean costs are going to go up, but this will be seen across the whole market.
We can assure all of our customers that as soon as we begin to see raw materials and manufacturing costs reduce, these will be passed on in the form of cost price decreases. As I’m sure you can imagine, daily conversations are taking place, not only on the increases, but the plan to roll out decreases as soon as they are available to us.
We would like to take this opportunity to thank each and every one of our customers for their patience and understanding during this unprecedented time. Should you wish to contact us about anything you have read, please do so by e-mailing [email protected].