Industry Update: Raw Materials, Custom Tooling, and Transportation
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, Custom Tooling & Mold Development, Ocean Freight, and Domestic Transportation.
Resins & Raw Materials
After a dramatic run-up in costs last year, the price of a few packaging raw materials has stabilized or decreased. The partial pricing relief is due to additional capacity, sufficient inventory, lower material costs, supply-and-demand balance, and more imports.
While this is a bit of good news, the higher costs for freight and transportation are likely to offset any price letup. Furthermore, inflation is fueling an increase in the cost of goods. In January, the U.S. Consumer Price Index (the price consumers pay for goods and services) rose 7.5% for the preceding 12 months — the largest increase in 40 years.
Although Berlin Packaging cannot control the price of raw materials, we do offer services to help our customers Package More Profit. Over the past few years, Berlin Packaging has added more than $200 million in profit, back to our customers, as a unique benefit of doing business with us.
Plastic Resins
While some plastic resins are benefiting from higher inventories, added capacity, near-normal demand, and decreased raw material costs, the outlook is clouded by the crisis in Ukraine. Pricing volatility and rising energy rates (oil prices have recently topped $100 per barrel for the first time since 2014) due to the military conflict in Eastern Europe may impact the cost of plastic resins down the road. Business sanctions are putting further stress on supply chains.
Here’s a brief rundown of the current market conditions for various resins:
- PET (Polyethylene Terephthalate): Unexpected plant shutdowns, strong demand (especially for beverage bottles), extremely tight supplies, freight and import challenges, and rising feedstock costs are increasing PET prices.
- HDPE/MDPE/LDPE (Polyethylene): Ample inventory, softening demand, and lower raw material costs have begun to decrease HDPE/LDPE prices. Additional decreases may be seen as a result of PE capacity expansion in N. America, with the recent start-up of two PE production units (nearly 3 billion pounds annually) in Texas.
- PVC (Polyvinyl Chloride): PVC prices dipped slightly at the start of the year as both production capacity and inventories grew. If this pattern holds, there will be continued downward pressure on PVC prices.
- PP (Polypropylene): Limited inventories, logistical constraints, and increased raw material costs have moved PP prices higher.
- PS (Polystyrene): Following flat pricing for several months due to a balance between supply and demand, PS prices rose as a result of strengthening demand, increased raw material costs, and styrene outages.
- Post-Consumer Recycled (PCR): rPET prices increased substantially last year and are maintaining record-high rates. Demand is strong due to sustainable packaging commitments from brand owners and expanding state legislation mandating minimum PCR content in beverage bottles and other containers. rHDPE prices are moving downward, following virgin HDPE resin pricing.
Glass
Beer is the leading user of glass packaging in N. America, accounting for 47% of all glass containers shipped last year. Food is the next largest glass packaging segment at 23%, followed by nonalcoholic drinks at 9%, wine at 9%, and spirits at 6%. Over the past five years, food and spirits have made the biggest market share gains in glass packaging.
Strong demand and tight supplies of glass packaging in N. America continue to put upward pressure on prices. Global sources offer additional glass container capacity but are challenged by high freight rates and shipping container availability.
Aluminum
Aluminum prices jumped more than 30% last year and are up double digits in 2022. Tight supplies coupled with strong demand have pushed up the price of beverage cans as well as packaging components like foil liners.
Many brand owners are moving to aluminum packaging for its sustainability attributes of recyclability and reusability/refill capabilities. Aluminum cans continue to gain market share in new product introductions and grow in traditional end markets like beer and beverages.
Tin Plate
Tin plate steel prices rose dramatically in recent months due to tight supplies, strong demand, and increasing raw material costs (tin metal prices nearly doubled last year). Traditionally associated with the “tin” food can, the metal is finding greater uses in electronics applications. In fact, packaging represents only 12% of tin usage.
After several years of static or declining volume, tin plate steel production rose in 2020 and 2021 as consumers purchased more canned foods to prepare homemade meals during the pandemic.
In response to tight glass supplies domestically, Berlin Packaging has identified and partnered with glass producers around the globe to source additional glass capacity. Contact your Packaging Consultant or call 1.800.2.BERLIN to learn more about our glass packaging capabilities and how we may able to help you with your supply chain.
Custom Tooling and Mold Development
When you begin to think about your next packaging project, whether it’s brand new or an upgrade, you may be surprised to learn that a custom tool or new mold may be your best packaging solution.
Why? A custom tool can provide many benefits. Here are 10 potential advantages of building a new mold:
- Produces a unique package to meet your exact needs and specifications
- Lowers your product cost
- Increases your capacity/volume
- Improves your manufacturing efficiencies
- Differentiates your product in a crowded marketplace
- Creates a competitive advantage through added functionality
- Addresses a quality concern
- Improves component performance (e.g., greater leak resistance for e-commerce)
- Decreases your transportation costs
- Reduces your environmental footprint
To demonstrate how a new mold can do some of these things, let’s take a look at some plausible scenarios:
- Manufacturer A makes a 10-oz container that is a perfect fit for Customer A but the manufacturer cannot produce it in the quantities needed. There are no suitable stock options. If it’s not proprietary, a new mold can be duplicated with Manufacturer B.
- When seeking to increase production output and support further growth, a new mold with increased cavitation is an excellent option.
- If a packaging component is being sourced from a country or region with a tariff or tax penalty, a custom tool enables you to relocate operations to a more favorable geographic site or more efficient supply chain.
- Finding a manufacturer closer to the brand owner or copacker decreases transport fuel usage and costs and reduces the product’s carbon footprint through fewer freight miles.
- A new mold can produce a lighter weight component, which can lower material and product costs.
- A custom tool can create an exclusive package structure that will stand out on the shelf. It can also provide unique functionalities. Here is an example below of a first-of-its-kind exterior house washing product that was produced using custom tools.
Case Study: Household Care
Having worked together for nearly a decade, For Life Products turned again to Berlin Packaging’s Studio One Eleven product development team to create a unique packaging system for exterior house cleaning.
For Life’s Rejuvenate Dual System Outdoor House Wash and Window Cleaner represents a revolutionary leap in the home cleaning space. For the product’s patented sprayer with handle, Studio One Eleven engineered a custom tool to meet the closure’s performance requirements. Another new mold was developed to produce the 64-oz bottle with two separate chambers — each having an opening.
United by a single-threaded closure, the twin orifice HDPE bottle holds house wash formula in one chamber and window wash formula in another. Switching between the two formulas is as easy as rotating the sprayer nozzle on the specially-made patented sprayer and handle. No hose reconnections are required.
To ensure product protection and integrity in e-commerce applications, the system ships with a specially designed plug and threaded closure. From conceptual development to fulfillment, the development and custom tooling teams worked closely with our manufacturing partners to achieve groundbreaking blow-molding and flow dynamics outcomes.
Mold Myths
Myth No. 1: Custom tooling is too expensive. Some brand owners may prematurely dismiss a custom tool because they perceive it as too costly or too much work. But that may not be the case. While there are upfront costs to build a mold, the total costs of a new package may be less in the long run. In addition, some packaging manufacturers will help fund the cost of the mold in exchange for the business.
Myth No. 2: Unit tools are unnecessary. Some customers may question the necessity of a pre-production or unit tool. While at first glance this seems to add costs and lengthen the project timeline, the unit tool enables faster verification of the design and process and validates how the packaging component performs in the real world — from molding and filling to shipping and all the way to the consumer’s hands. Plus, in general, it helps to uncover potential problems, which can be addressed much cheaper and quicker in the unit tool than the production tool.
Myth No. 3: Molds cannot be moved from one manufacturer to another. Although a tool can be transferred from one molder to another, it may not be a simple change. Along with having the appropriate machine to run the tool, the new manufacturer may need to adopt different ancillary equipment like runners and cooling systems for the tool. Plus, there is always a learning curve with a new tool — which might have been designed and built with a different molding machine in mind.
Myth No. 4: Adding post-consumer recycled (PCR) content to virgin resin will require a new mold. While switching plastic grades (from a co- to a homo-polymer and adding PCR) generally only requires an adjustment of the molding parameters and not a new mold, switching plastic materials (e.g., from PP to HDPE) usually will require a completely new tool due to differences in shrinkage of the polymers.
Know-how and Capabilities
To assist you every step of the way, Berlin Packaging has a dedicated Custom Tooling team that manages mold development from concept through production and commercialization. We oversee project scope, documentation, drawings, design, specifications, quality assurance, timelines, supplier selection, recordkeeping, and component review.
Annually, the team produces more than 300 custom tools and is working on more than 70 mold development projects at any given time. We work with traditional materials — plastic, glass, aluminum, and steel — and newer materials like PCR resins, ocean-bound plastics, and bio-based resins.
Our mold development projects span numerous industries and markets, such as food, beverage, personal care, automotive, pharmaceuticals, household care, industrial chemicals, pet care, nutraceuticals, paint, and cannabis. Recently, we have seen an uptick in custom tooling for food, beverages, and spirits packaging as consumers have increased homemade meal preparation and home entertaining due to the pandemic.
Combined, the team has several decades of experience with various molding processes, including extrusion blow molding, injection blow molding, injection molding, glass molding (Type I and Type III), metal forming, and thermoforming.
To learn about how our Custom Tooling Team and Studio One Eleven can tackle your next mold building project, please contact your Packaging Consultant or call 1.800.2.BERLIN.
Ocean Freight
Ocean freight shipping rates (both contract and spot) continue to be highest in the Trans-Pacific trade lane (Asia to N. America) due to elevated demand, inland transportation constraints, and inventory restocking. And these rates are expected to persist for most of the year.
The Trans-Pacific trade lane now accounts for 22% of the total global container fleet — up from 17% at the beginning of 2021. While some of the increase was due to cargo demand, the primary reason for the upsurge in shipping is to make up for poor sea freight efficiencies, with ships sitting at anchor for many days or weeks waiting to unload their containers.
Schedule reliability of ocean freight is a huge problem and hit a record low last December, with a global average of 32% for on-time arrivals. This number is being dragged down by N. America, with on-time shipments running a meager 10% on the West Coast and 15% on the East Coast.
While container shipping correction or relief has been predicted several times over the past 18 months (only to be proven wrong), it now appears the global supply chain constraints and disruptions will last through the year.
To increase capacity, ocean carriers are purchasing new vessels and containers that will become operational in the next two years. Ports and inland transportation networks will need to expand and adjust to handle the greater volume.
Berlin Packaging’s global capabilities encompass sourcing, quality, design, and supply chain. Especially during inflationary times, it’s essential to have a nimble packaging partner that will leave no stone unturned to find the best packaging solution for your business at the best overall cost.
Port Activity
When it comes to port operations, N. America is faring much worse than the rest of the world. About 80% of all global port congestion is occurring at N. American docks. These bottlenecks are expected to continue through at least the first half of the year amid strong import demand to replenish low inventories.
Although the backlog of ships off the ports of Los Angeles (LA) and Long Beach (LB) were down to the mid-60s in February from over 100 in January, other ports such as Houston, Charleston, and Norfolk are seeing increases in the number of ships. For the past eight months, the overall growth at East/Gulf Coast ports exceeded the growth at West Coast ports.
The drop in ships at LA/LB ports may be short-lived due to the Chinese New Year Holiday. Industry analysts predict a sharp increase in the number of ships arriving in Southern California in March and April. In addition, the East Coast could see a 15% to 20% rise in vessels during the coming months.
Due to global port congestion, the average transit time between Chinese ports and Los Angeles has increased to 60 days, with more than 15 days awaiting berth. Prior to the pandemic, transit time from Asia to Los Angeles was 16 days, plus 6 days at anchor.
China’s zero COVID policy of localized shutdowns and restrictions in the event of an outbreak will continue to disrupt port terminals, manufacturing, and trucking availability.
Spot Market Rates
Ocean carriers are taking a different approach this year when negotiating annual contracts.The carriers are setting aside more cargo space for spot rates and are handpicking lanes, volume, and types of business — factors that will likely put upward pressure on freight rates and may weaken competition.
To help overcome global freight challenges, Berlin Packaging is utilizing its diverse supply base, expanding partnerships with trusted carriers, exploring alternative routing options to avoid known bottlenecks (where possible), and leveraging our size as an importer for more favorable rates and space reliability for the upcoming contract cycle.
Domestic Transportation
Transportation costs in North America are increasing exponentially as freight demand outpaces carrier capacity, import volumes remain strong across all ports, and fuel prices continue to surge. Freight expenditures jumped 38% in 2021 and are expected to rise 25% in 2022. In comparison, freight expenditures dropped 7% in 2020 and were flat in 2019.
In January, the Omicron variant and related worker absenteeism and quarantines placed further constraints on carrier capacity as freight shipments declined nearly 11% from December and 3% compared to January 2021. The downturn in capacity moved freight costs upward.
Recent trucker protests at several U.S./Canada border crossings over COVID-19 vaccine mandateshave delayed freight shipments. Trucks transport over $300 billion of freight between the U.S. and Canada annually, with about 75% hauled by Canadian drivers. Due to these disruptions, freight rates from Canada to the U.S. have spiked — more than doubling in some instances.
Berlin Packaging’s commitment to managing costs and finding the most cost-effective packaging solutions ensures our customers maintain a competitive position in their respective marketplaces.
Truckload
Costs per mile for dry van spot market shipments rose sharply at the end of last year and are hovering at record levels — averaging $3.28. The average rate has not dropped below $3.00 since last summer. The Northeast charges the highest rates ($4.14), followed by the Midwest ($3.60), West ($3.16), Southeast ($3.02), and Southwest ($2.74). Overall, spot rates are about $0.75/mile higher than 12 months ago.
Inventory-to-sales ratios for the retail trade continue to sit at historic low levels — 1.09 in November or about one month of inventory. Strong consumer demand and the constant need for retailers to restock their inventories are maintaining upward pressure on transportation costs.
While the inventory-to-sales ratios for the retail trade may be low, other more recent measures show that inventory is on the rise in the supply chain. Limited transportation capacity and elevated costs are resulting in an accumulation of inventory in the supply chain. Warehouse space is in short supply, leading to higher costs.
But there may be other reasons for higher inventories. Caught off guard by stockouts during the pandemic, some companies have moved away from just-in-time manufacturing and added safety stock. Furthermore, the burgeoning e-commerce sales channel requires incremental inventory, new fulfillment operations, and rapid delivery modes.
In February, diesel fuel costs surged to more than $4 per gallon — a price not seen since 2014 and more than $1 higher than February 2021 rates. Prices are expected to top $5 per gallon in March — an all-time high in the U.S.
Through our many services — quality advocacy, packaging design & branding, inventory management, global sourcing, and more — Berlin Packaging can enhance the bottom line of its customers through increased sales, reduced costs, and/or improved productivity.
Less-Than-Truckload (LTL)
U.S. manufacturing output rose in the fourth quarter of 2021 but slowed at the beginning of this year due to worker absences from the highly contagious Omicron variant. Even with the slowdown, manufacturing metrics are still indicating an expansion. Since LTL shipments correlate with manufacturing, LTL demand will remain strong through at least the first half of the year.
LTL shipments and tonnage will continue to be robust due to positive manufacturing activity, truckload freight spillover, port congestion, and e-commerce growth.
Parcel
According to government data, U.S. retail e-commerce sales reached $218 billion in the fourth quarter of 2021 — a 1.7% increase from the third quarter but a 9% increase over the same time period in 2020. Total retail e-commerce sales in 2021 surpassed $870 billion, a 14% jump from 2020 and an increase similar to annual gains in pre-pandemic years. E-commerce sales in 2021 accounted for 13% of total retail sales — a percentage similar to 2020.
Retail sales during last year’s November–December holiday season jumped 14% over 2020 to $886 billion, according to the National Retail Federation (NRF). It was the largest holiday season percentage increase since NRF began tracking data in 2002. Online sales were up 11% at $219 billion, representing about 25% of the total holiday spending.
For 2022, parcel carriers UPS, FedEx, and the U.S. Postal Service raised rates between 5% and 6%. Amazon, which grew its total annual revenue by more than 20% to $469 billion in 2021, is expected to be the largest package delivery carrier by volume in the U.S. sometime in 2022. The online retail giant accounts for more than 40% of all e-commerce revenue in the U.S.
Because of rising fuel costs, FedEx and UPS will institute fuel surcharges of 15% on ground shipments in March. For air deliveries, the jet fuel surcharge for both parcel carriers is expected to climb to 20%.