Industry Update: Raw Materials, Economic Indicators, and Transportation

Modest demand, sufficient supplies, open manufacturing capacity, declining energy prices, and lessening inflation are muting prices for some packaging raw materials.

In November, the Producer Price Index (PPI) for final demand goods (e.g., CPG products, raw materials) and services (e.g., transportation, warehousing) remained unchanged after dropping 0.4% in October. For the preceding 12 months ending in November, the PPI edged upward by less than 1%.

The PPI measures the average change over time in the selling prices received by domestic producers for their output of goods and services. Because the PPI measures price changes before retail sales, it's considered an early predictor of inflation trends.

Berlin Packaging maintains a best-in-class approach to sourcing packaging materials and manufacturing platforms. We are not bound to a specific material, technology, tool, or country of origin, affording us tremendous flexibility to find the most cost-effective packaging solutions for our customers.

Here's a snapshot of recent economic news and data impacting the consumer packaged goods (CPG) market and the packaging industry in North America.

·        Following a MOM drop of 0.2% in October, U.S. consumer spending rebounded with a 0.3% MOM increase in November.

·        Consumer sentiment jumped 13% in December, with year-ahead inflation expectations falling to 3.1%.

·        Held in check by declining fuel prices, U.S. inflation inched up by 0.1% in November.

·        At its December meeting, the U.S. Federal Reserve held interest rates steady amid cooling inflation and suggested interest rate cuts in 2024.

·        Canada's third-quarter GDP shrank 0.3%, a stark contrast to the 4.9% jump in U.S. Q3 GDP.

Consumer Spending and Sentiment

U.S. consumer spending rose 0.3% month over month (MOM) in November, following a 0.2% MOM drop in October. The November rise was driven by health & personal care stores (0.9%), food & beverage stores (0.2%), sporting goods/hobby/book stores (1.3%), and food services & drinking places (1.6%).

In Canada, consumer spending and retail sales ticked up in November, according to a report from RBC. Gains in travel, gasoline, clothing, and restaurant spending helped uplift November retail sales.

Consumer sentiment — a measure of how U.S. consumers view their personal finances and the economy — leaped 13% in December, driven by expectations of lower inflation in 2024, according to the University of Michigan consumer sentiment survey. Year-ahead inflation expectations plunged from 4.5% in November to 3.1% in December. The latest inflation reading is the lowest since March 2021 and sits just above the 2.3% – 3.0% range seen in the two years before the pandemic.

Berlin Packaging's mission is to improve our customers' net income through our packaging products and services. We help to increase their sales, reduce costs, and/or improve productivity. Along with having a positive impact on their income, we are committed to providing accurate and timely information and products.

The U.S. and Canada: Two Distinct Economies

While the U.S. and Canada share a 5,525-mile border (the longest international border), their two economies are linked but different. In the first 10 months of the year, two-way commerce between the U.S. and Canada totaled $648 billion, making Canada the second-largest trading partner of the U.S.

However, the economic conditions within the two countries are dissimilar. While the U.S. posted a 4.9% gross domestic product (GDP) increase in the third quarter, Canada's Q3 GDP shrunk by 0.3%. Canada avoided a “technical recession” (i.e., two consecutive quarters of GDP contraction) when Q2 GDP figures were revised from a 0.2% decline to a 0.3% increase.

What's behind the disparity between the two GDPs? While both countries have raised benchmark interest rates to around 5% to tame inflation, the impact of these higher borrowing costs appears to have hit Canadian businesses harder than in the U.S. Canadians have higher debt loads that renew faster than in the U.S.

Hefty U.S. government outlays and robust consumer spending have bolstered the American economy.

Canadian consumers may be more cautious shoppers because of their mortgage structure. In the U.S., the average home mortgage is 30 years. In Canada, it's only five years. And many of those mortgages are coming up for renewal with much higher interest rates than five years ago. Canadians are factoring those higher mortgage payments into their total expenditures by spending less and saving more. Meanwhile, U.S. households are spending more and saving less.

As the world's largest Hybrid Packaging Supplier, Berlin Packaging continually tracks consumer behavior, product trends, macroeconomics, and packaging innovation to fully understand what is happening in the market so we can best help our customers succeed.

Disruptions at two major vessel waterways — the Suez Canal and the Panama Canal — are impacting ocean container shipping lanes between Asia, North America, and some EMEA regions, skyrocketing spot rates, lengthening transit times, increasing lead times for importers, and reducing capacity.

Missile and drone attacks on container ships in the Gulf of Aden and the Red Sea, which leads to the Suez Canal, have prompted most ocean carriers to temporarily suspend ship transits through this vital passageway between the Indian Ocean and the Mediterranean Sea and reroute their vessels around the southern tip of Africa. About 12% of global trade and 20% – 30% of container shipments traverse the Suez Canal.

The longer routes from Asia to Europe, the Mediterranean Sea, and the East/Gulf Coasts of North America are adding costs (i.e., more fuel, emergency surcharges, insurance premiums, labor bonuses), increasing transit times, and, in effect, reducing cargo capacity. Rerouting ships around Africa versus traveling through the Suez Canal requires 5% – 6% of additional global container capacity, according to data from Sea-Intelligence. Getting empty shipping containers back to Asia presents another logistics hurdle.

Persistent drought conditions near the Panama Canal have reduced the daily number of ships allowed through the waterway. While container ships appear to be mostly unaffected, the situation is fluid, and some delays may occur as daily passage restrictions peak in February. In November, some carriers began to bypass the Panama Canal in favor of the Suez Canal.

Chinese New Year Holiday

Spot ocean freight rates expect to rise in January as shippers pull orders forward in anticipation of the Chinese New Year Holiday, which runs from February 10 (New Year's Day) through February 24 (Lantern Festival). Several Asian countries (China, Vietnam, South Korea) celebrate the holiday, with factories and offices closed before, during, and after the holiday to allow workers to travel home and return.

As volatility persists in many global trade lanes, Berlin Packaging continues to proactively provide alternate routings and real-time visibility of the global freight market to help our customers minimize any disruptions to their supply chains. We partner with all major ocean carrier alliances to help mitigate delays due to route changes or blank sailings from a single carrier.

Domestic transportation costs — both spot and contracted rates — in North America continue to favor shippers. Carrier capacity generally exceeds freight demand, and benchmark diesel fuel prices, which help to calculate most fuel surcharges, fell in the fourth quarter of 2023.

The war in the Middle East and recent attacks on shipping in the Red Sea, which connects to the Suez Canal, are causing spikes and volatility in crude oil markets, which may ultimately impact the price of diesel fuel.

With a dedicated and accomplished team of logistics specialists, Berlin Packaging excels in all modes of transportation to ensure our customers benefit from competitive rates and freight expertise. We are flexible and nimble, ready to tackle urgent and expedited shipments and special requests like drop trailer services for customer convenience.