The global supply chain shortages have been in the news for a while now and businesses and consumers are feeling the pinch. Britain’s biggest container port, Felixstowe, has become severely congested and is struggling with the volume of cargo passing through it. Tens of thousands of cargo containers are backed up, causing cargo container shortages. Shipping costs are rising through the roof. An increase in demand for pulp and paper has created a growing demand that far exceeds the supply, pushing prices higher. Empty shelves are becoming the norm, especially for certain types of items. As the global economy recovery continues, the supply chain disruptions are causing havoc across all sectors, including label products.
The print industry has been at the receiving end not just because of the price rise but also due to shortages of paper and the rise in demand. Demand has soared as lockdowns drove people indoors, entrenched working from home and accelerated the e-commerce and home delivery boom. Corrugated board and the paper from which it’s made – fibre as it’s known in the industry – is a fundamental raw material. Changing shopping habits have seen the e-commerce economy soar and boosted the demand for cardboard boxes – but the decline in recycling rates has squeezed supply. When we’re talking about the paper supply overall, there’s no getting around it. Virtually all paper products — from wedding invitations to labels — are in short supply as mills struggle to keep up with demand and shipping bottlenecks cause delays and problems for consumers and businesses.
Some of the supply chain problems include:
Production Supplies:Â Cores, cartons, shrink wrap, plastic bags, stretch wrap, banding material, pallets, etc. are all in tight supply. Again, these manufacturers are having difficulty getting the raw materials they need for their products.
Label Stock: All of the major raw material suppliers have record backlogs for orders. This, on top of a shortage of supplies to them, continues to push out lead times to a week or more for stock material and as long as a month for specialty items. This includes paper, film, and overlaminate materials. One of our suppliers, Spinnaker, did a nice job summarizing the supply chain issues affecting their business. I thought I would share it with you to help you better understand the underlying issues. Please see their supplier letter.
Ink: Base inks are starting to experience delays. Specialty inks and varnishes are becoming more difficult to get. We are growing concerned about the availability of fluorescent inks right now as key components are not readily available to our ink suppliers. We are researching additional options for fluorescent inks.
Price Increases:Â As you have already seen, inflation is occurring in many commodities, including the ones we utilize to produce labels for you and your customers. Just recently, both paper and film label stock have gone up from 5% to over 9%. Also, over the past few months, packaging supplies have had multiple increases ranging from 12% to over 24%. With inflation invading all product sectors, we would not be surprised to see raw material costs increase again later this year.
Freight:Â We continue to see issues with both incoming and outgoing freight. There are clearly challenges in the freight market, which are extending delivery lead times. Between the large increase in shipping needs and a shortage of trucks and drivers, the reliability of freight companies has diminished significantly.
Delivery Times:Â You should plan on a minimum of three to four weeks for custom flexo products, six weeks for specialty materials, and five to seven workdays for short-run digital work. We have added shifts, employees, and purchased new equipment; all of which add capacity. However, order volumes remain quite large and, when combined with raw material supply issues, have increased our lead times. We are working hard to reduce them, but for now, the extended lead times will continue to exist well into Q3 of this year.
Ocean cargo prices have skyrocketed, with increases of 400% or more. For example, the cost of shipping a 40-foot container from China more than doubled. Shipping is built on stability and predictability. This has created a high degree of volatility and pushed shipping costs higher. This volatility is expected to continue through 2022. Businesses who suddenly experience large new demands for freight typically fill that need with spot business over long-term contracts. That was definitely the case as the pandemic took hold, with demand for disinfectants increasing more than 6,800% overnight and demand for items like at-home exercise equipment also grew exponentially.
One label maker created a label for a sparkling wine that her clients were hoping to sell for a specific time. They’re ready to bottle it, they have the glass, they have everything they need, but the printer can’t get the paper. Meanwhile, prices keep going up. In August, paper cost 50% more than it did at the same time last year and that is going to increase the price of products when we encounter them on the shelf.
Weather, COVID and shipping issues have all contributed to an increase in price and in some cases a shortage of many items involved in the label industry. Rising pulp prices are driving up direct thermal base paper costs, forcing manufacturers to pass along these price increases to consumers. In addition, shortages are being seen in the chemicals used to create direct thermal coatings.
Thermal transfer papers and release liners are not in shortage. However, increased pulp prices and logistics costs are pushing prices higher for these products. Rising pulp and paper pricing is driving up raw material costs. Also, as the cost to move raw materials and finished laminates rises, the increased logistics cost will be passed onto label converters. There are also shortages of substrate materials used in making laminates. Weather issues have caused shortages in the production of several acrylic chemicals. Acrylic acids are used for making acrylic adhesives, acrylic resins and acrylic esters. This shortage has created a precarious situation for all consumers of acrylic coatings and acrylic adhesives as these are necessary ingredients in a wide range of products without any viable alternative substitutes.
Due to the resin shortage and the polypropylene shortage in 2021, prices on carton sealing tape are increasing. The huge shortages of acrylic adhesives and polypropylene resins are causing acrylic tape prices to soar, costing nearly as much as hotmelt tapes, further increasing shipping costs. Not only have prices increased, but so have lead times to receive more product. In 2020, typical lead times for new orders of acrylic tape were running about 4-6 weeks. Currently, lead times are as long as 4 months or more.
The supply chain for paper needed to make labels has taken a big hit and there are numerous reasons as to why. As has happened in many industries, COVID-19 has reduced the number of dockworkers truckers due to positive tests or fear of contracting the virus. This issue isn’t just in the UK – In early 2021, a surge of COVID cases swept through the port of Los Angeles and other key California sites. Months later, wait times for boats to be able to anchor at these ports often is several weeks or more, which only continues to push costs higher.
The shortage of dockworkers is not the only labour issue causing material shortages and affecting the supply chain disruptions. Shortages of rail workers, truck drivers and longshoremen are also contributing to an increase in freight rates. Because of these labour shortages, many boats are not able to dock and be unloaded in a timely manner. This creates a snowball effect, further slowing the rate at which shipping containers are recycled back into service.
A huge shortage of truck drivers is adding to the supply chain shortages. Drivers are only allowed to work a certain number of hours which must be followed by time off before they can return to driving. These rules are intended to prevent accidents caused by over-fatigued truck drivers, a leading cause of truck driving accidents. Because of these new rules, truck drivers aren’t able to put in as many hours or drive as many miles as they previously were.
As ships and cargo back up at ports, thousands of containers have been stranded at ports and rail yards. Since these containers are sitting waiting to be unloaded and emptied, new customers are unable to receive containers and fill them with their products. Some containers are being essentially abandoned. Containers delivered to South American and African ports are not being picked up, because these are less profitable routes. It is more profitable instead for ships to work China-USA routes and China-Europe routes. Fewer truck drivers means there are fewer goods moving across the country, which not only stretches out lead times for deliveries but also leaves unfulfilled demands for essential products. The truck driver shortage is likely to continue affecting shipping through 2022.
Another key part is the supply and demand battle that is driving up the prices of many raw materials. Increasing pulp prices began putting pressure on prices industry wide at the end of 2020. This trend is expected to continue into 2022, with a global increase in the use of tissue and ivory board. COVID-19 has driven the increased demand for tissue and ivory board demand has increased due to more companies changing their to-go containers from plastic containers to board.
Many paper mills delayed maintenance in 2020. As demand quickly soared, preventive maintenance shutdowns were delayed. COVID-19 restrictions limited access for the specialized maintenance teams, mechanics and suppliers needed to keep the mills running smoothly. Many of these mills are now taking extended downtime to finally take care of the deferred maintenance, causing even more strain on the pulp supply chain.
Due to the increased demand and issues affecting supply, the pulp industry has seen huge pricing volatility. These higher prices are affecting the production of many different items used in the label industry, and experts say this likely will continue into 2022. In recent weeks, reports have been received from around Europe that lead times for paper based label materials (some 70% of total European label demand) have increased up to 3 months or more. Some label printers and raw materials suppliers have even been forced to prioritise the allocation of deliveries among customers, now that stocks of raw materials are close to being depleted.
As an essential component of the supply chain, demand for self-adhesive labels and narrow web packaging already peaked during the Covid19 crisis, but with the rapid general economic revival since last year, demand for labels and packaging materials has continued to boom into 2022. The lack of availability of labels and packaging is likely to hit a wide range of final consumer industry sectors such as food and beverages, health and personal care, medical and pharmaceutical products, chemicals, logistics and retail, consumer electronics, automotive and other sectors, thereby harming the general economic rebound.
Sustainability has become a hot topic with major retailers in the past decade. Many customers make their decisions in accordance to a company’s environmental consciousness. The idea of eliminating receipts to help reduce waste is the perfect vehicle for retailers to initiate this change. However, the biggest win for retailers is getting YOUR email address. Now, they have the ability to market new specials and product recommendations to you. This isn’t quite the deal with the devil that retailers might expect.
Somewhat surprisingly, consumers are actually more than happy to give out their email for electronic receipts. Personalized messaging has taken over and with the help of past transaction data, companies are able to cross sell and up-sell consumers things they actually want. In fact, a recent study by Boston Retail Partners found that 80 percent of consumers said they liked when retailers send product recommendation via email.
If you are concerned by the potential impact the shortages may have on your label supplies then feel free to give us a call and we will be happy to discuss how, at Labelservice, we are working to help clients maintain their supply.
