How is the rise in energy costs affecting the packaging business?

Increased demand for gas in the past year has led to a rise in prices across several industries and the packaging industry has not been exempted. The struggle for suppliers to keep up with this demand since COVID restrictions lifted, coupled with the crisis in Ukraine has made natural resources an unaffordable commodity, with a price tag that has inflated by a tremendous 48.7% since last year. The shortage of raw materials and the increase in prices wasn’t the only issue that the packaging industry had to find a resolution for. Changes in consumer demands during COVID resulted in a significant growth for eCommerce and subsequently home deliveries. This meant packaging companies had to mitigate these impacts. Read on to learn more about the rising cost of packaging and the best way to beat the price increases. 

The packaging forecast reads inflation

During the COVID-19 pandemic, labor shortages and reduced raw materials and energy supplies led to supply chain disruptions. Gross available energy supplies were down by 8.1% in 2020 compared to 2019. These shortages took a toll on packagers and producers as they tried to keep up with the increased demand for goods and services from consumers. Statistics show that in the EU, the demand for natural gas is mainly sustained by imports and in 2020, this equaled to 83.6%. Because everyday life depends on these energy resources, services such as the packaging industry become secondary in terms of supply urgency, making it difficult for manufacturers to cope with business as usual.

The economic storm didn’t end when COVID regulations were lifted. Global inflation and international crises added to the already complicated equation which further limited material availability and hiked prices across the board. However, companies remained optimistic and resilient, shifting their processes to maintain consistency and high standards which allowed them to continue to find innovative ways to overcome their challenges. 

The packaging industry is always affected by both expected and unexpected pain points. eCommerce became more widespread and according to a study by McKinsey & Company, the potential impact of the eCommerce trend developed during the pandemic is high and expected to be the next normal. Companies can withstand the forecast by preparing themselves and optimizing their strategies. 

Predicting what trends will become normal might not be easy but once the path has been made clear, it’s best to gear yourself towards it as quickly as possible. If there is room to absorb additional costs without upsetting your customers, even if it means profit margins might be squeezed, it needs to be done. Packaging can contribute up to 10% of a product’s overall cost and so reducing the knock-on effect for customers is important so as to not drive them away. Inflation doesn’t grant anyone immunity but those who are innovative will be able to forecast a better outcome for themselves. 

Bearing the weight of price increases

Even for seasoned professionals, slight increases in prices can be a great concern. This is because they affect every level of the supply chain. Overcoming these temporary disruptions while catering to consumer demands can add pressure from multiple fronts. So how do manufacturers navigate an unpredictable economic environment?

Start with finding the weak links in your supply chain and optimizing them to relieve their burdens as much as possible. For example, while it may be contrary to popular belief, taking on a more sustainable approach can improve processes and reduce long-term costs. Freight costs, trade tariffs and shipping delays are just some of the issues that a sustainable approach can alleviate. Many manufacturing companies realized that transporting raw materials and finished products internationally was challenging during the pandemic and that domestic manufacturing was a better option for their businesses and the environment. Packaging solutions manufacturer, GPA Global, has regional manufacturing facilities to cater for onshore production which helps reduce your company’s carbon footprint. It also reduces transport costs needed to ship materials or products as well as warehousing costs. And domestic manufacturing helps reduce geopolitical impacts so you can be assured that your products are delivered timely and without the need for managing the administration of international policies and regulations. 

Sustainability also helps cut engineering costs. If you’ve been concerned about the rising energy costs, looking at ways to optimize the engineering section of your supply chain can help restore some balance. For example, GPA Global was able to cut fossil fuel use by 22% per unit and water use by 20% per unit for one of their clients. This means that sustainable practices can save you energy costs. They also help with increasing reuse/recycling potential so companies don’t have to rely on new raw materials each time they produce a new product, cutting down on raw material costs and logistics as well as the negative impact on the environment. Overall, sustainability provides value to your supply chain. 

Considering that there is no agency to mitigate the rising price of energy resources, businesses can buffer the impact by optimizing other areas of their manufacturing processes. GPA Global has introduced a hybrid supply chain offering that caters to maximizing efficiency by automating specific processes through OEM principles. This gives their customers the ease of knowing their business can be improved even in a world of constant change as their packaging solutions are always evolving. 

The calm after the storm

Although there are many economic and environmental challenges that the packaging industry has to face, there are ways to manage them so your business remains successful. With solid fossil fuels following a downward trend and renewable energy sources continuing to grow, there are better solutions on the horizon for packaging manufacturers. The world may be in an economic storm, but being prepared and willing to find innovative solutions will help any company weather it. 

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