Industry Update May 2021

Industry Update: Raw Materials & Transportation

The packaging industry, like so many others, has been impacted by supply chain tightness and inflationary raw material prices. This Industry Update examines the root causes of these market conditions and presents solutions, as Berlin Packaging remains committed to managing costs to ensure our customers maintain a competitive position in their respective marketplaces.

Introduction


At Berlin Packaging, we pride ourselves on providing the most reliable, efficient, and cost-effective packaging solutions available to our customers. As your packaging partner, we closely monitor industry conditions that may impact your business. Our Industry Update, published bimonthly, features news on Resins and Raw Materials, Ocean Freight, and Domestic Transportation.

Resins & Raw Materials

Plastic resins and other packaging raw material supplies have been negatively impacted by a confluence of successive factors over the past 12 months, resulting in significant price increases for many packaging inputs. Major factors include:

  • COVID-19 pandemic created worker shortages, higher labor costs, supply chain disruptions, increased
    packaging demand, global trade imbalances, premium shipping rates, and inflation.
  • Fall storms including Hurricane Laura struck the U.S. gulf coast and disrupted major resin production operations.
  • Texas snow and ice storms and prolonged subfreezing temperatures damaged and shuttered most resin manufacturing plants, some of which have been slow to come back online.
Berlin Packaging utilizes our network of 1700+ supplier partners to find the most cost-effective supply sources for our customers. Especially during inflationary periods, it's important to have a nimble packaging partner that has only your best interests in mind and isn't beholden to a specific manufacturing platform.

Plastic Resins

Strong demand and limited supplies have pushed up the cost of plastic resins. It’s important to note that packaging is just one end market for resins. Other major uses include carpeting, building & construction and automotive (i.e., bumpers and car interiors). Over the past year, resin prices have skyrocketed. Here’s a breakdown by polymer:

Prices for PS and PVC have also increased substantially since the onset of the pandemic. In some cases, resin suppliers are rationing their products to customers and are unable to fulfill their contracts. With tight supplies, converters have been forced to find alternative sources of supply, which come at a cost premium.

Overseas resin supplies can help fill the domestic gap, but they are impacted by shipping container availability and shipping costs, which are running 3–4 times higher than contracted rates on the spot market.

Glass

Glass containers are typically made from:

  • Silica (sand)
  • Soda ash
  • Limestone
  • Cullet (recycled glass)

Since these raw materials have been nearly immune from recent events, glass prices have remained somewhat constant.

However, glass purchasers haven't been immune to price increases as the limited capacity for both domestic and global transportation has caused inflationary pressure.

Aluminum

With on-premise sales of beer and soft drinks collapsing due to the pandemic and subsequent closure of many restaurants and bars, breweries and fountain drink makers switched gears and began packaging their products for home consumption. The top choice was the single-serve aluminum can.

Production disruptions combined with increased demand in the packaging, automotive and construction industries have pushed aluminum rates higher. As a result, aluminum prices—which had tumbled for two years—began to rise last May. Since that time, aluminum prices are up 50% and approaching a three-year high.

Aluminum prices are on the rise.

Ocean Freight

Global trade lanes throughout the world continue to struggle with unprecedented North American demand due to the pandemic. As many carriers look to reset allocations for customers in May, many of the original challenges that caused the current environment still exist in addition to some new obstacles as well.

Berlin Packaging continues to negotiate with our global suppliers to offset global shipping price
increases. We are not giving up on finding ways to mitigate these increases and minimize disruption.

Container Shortages & Congestion

Empty container/equipment availability remains extremely tight due to the increased pandemic induced consumption. Compounding the issue is the continued decrease of on-time performance, reaching an all-time low of around 35% in March of 2021. Port and inland congestions still exist across North America due to limited labor to manage the freight.

Carriers have been canceling bookings to inland destinations to limit their turn time.

The recent cargo ship stuck in the Suez canal, which handles about 10% of global trade, further agitated trade creating a backlog of several hundred ships and is currently at its peak effect in the Trans-Pacific.

Carriers continue with blank (skip) sailings to both avoid the looming port congestions and make an effort to reset shipping schedules.

Inventory Fulfillment

On top of the perpetual demand from consumers, companies are trying to restock inventory following a 30 year low in February 2021.

Due to the extended lead times, retailers are importing goods for year end to counter the delays in shipping and transit that currently exist in the market.

Record Prices

Spot rates for the Trans-Pacific have been stuck in a record-high for eight straight months.

Container allocations amongst all carriers were restricted this year, allowing carriers to make more money with an increased spot market exposure.

Additional Info

Shipping capacity for the Mediterranean region is at an all-time low. Rates are up to six times higher to move cargo for some trade lanes. Carriers began to reposition containers to the Trans-Pacific where they could fetch more money in that region. Due to the limited number of carriers operating the region, the flexibility for options is much stiffer than the Trans-Pacific.

 

Domestic Transportation


The North American freight market has remained elevated for the past 3 quarters, seeing demand pressure
continue to build amidst a struggling supply of drivers and assets. While some regions have seen ups and
downs, all modes are impacted and supply networks across the country continue to feel the strain.

Berlin Packaging remains committed to managing costs to ensure our customers maintain a competitive
position in their respective marketplaces. We stand ready to help our customers grow profits by leveraging
Berlin’s many resources to increase sales, reduce material costs and improve productivity.

Truckload

Costs per mile for dry van spot market shipments are above $2.60, and in some areas over $3. Compared with Q1 and Q2 of 2020 these are increases of 50-60% or more and the impacts are felt by shippers of all sizes.


Inventory to Sales ratios are at all time lows, causing retailers and other shippers to re-stock at a record pace which increases demand for transportation.

With COVID restrictions in place, travel, entertainment and restaurant sales have plummeted with spending on freight-reliant goods like furniture, lumber, electronics, and clothing skyrocketing.

Less-Than-Truckload (LTL)

As manufacturing comes back online, the LTL industry (tied heavily to manufacturing) is getting busier by the day. Add the overheated truckload market, and many shippers are breaking down full shipments into smaller LTL loads to try and offset higher costs, further inundating carrier networks.

Companies like XPO, Old Dominion, SAIA and more have reported extreme growth in earnings and volume in Q1 2021, confirming what many shippers are seeing in the marketplace.

Parcel

E-commerce has grown even faster as a result of the pandemic.

This growth has led to increased demand for services from Amazon, FedEx, UPS, and USPS all of which were able to increase prices and surcharges dramatically as a result.

Additional Info

As states re-open, consumers are likely to shift from transportation-heavy purchases like appliances, furniture and home goods, to buying services and visiting restaurants, sporting events and concert venues. This should ease demand for transportation somewhat, at a time where new truck orders will be delivered and driver pay will likely hit all-time highs.

However, this deflationary period is unlikely to begin until later in 2021 and may even last into 2022
pending the overall economic recovery.

Call the number below to be contacted by a Packaging Consultant.

1.800.2.BERLIN