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Processors Under Pressure When it Comes to Packaging

March 7, 2022
More expensive materials, labor and transport add up to a challenge for users of all kinds of packaging.

Ask any food or beverage processor what their biggest concern about packaging is, and the answer is likely to be: finding it.

The scarcity and increased cost of packaging is one of the biggest concerns in food & beverage today. Suppliers have been strapped, with Ball Corp., one of the world’s biggest makers of aluminum cans, announcing late last year that it would expand its minimum for can orders from one truckload to five (about 1.02 million cans) – a decision that led to consternation among small craft brewers.

The situation has been showing up in quarterly reports, with Monster Beverage saying in May that a shortage of aluminum cans cut into its gross margins. The CEO of Constellation Brands called the lack of brown beer bottles “a drag against outstanding results” in January.

Inflation in packaging, as with so many other items, stems in large part from increasingly scarce and expensive labor, adding to the expense of production and transportation. In some cases, packaging suppliers are passing along inflation from raw materials. Wood pulp, for instance, has gone up about 50% in price during the pandemic; plastic resin prices have increased too.

Much of that, according to the Plastics Industry Assn., stemmed from the storms last winter that knocked out power in Texas for days, as well as the flooding the following spring in the Gulf Coast. Plastic resin production is a major industry in both regions, and the bad weather severely disrupted resin production.

The Texas storms also wreaked havoc with production of the chemicals needed to process paperboard, says Ben Markens, president of the Paperboard Packaging Council. “Everybody’s costs for energy and for ... the materials that go into making the paper - all those input costs have gone up,” Markens says.

Sustainable demand

In some cases, the pandemic has intensified the pressure that certain packaging categories already were under. If a material was in particular demand, that demand now is even greater. That especially applies to materials that were in demand due to sustainability initiatives, says Jorge Izquierdo, vice president for market development at PMMI, the Assn. for Packaging and Processing Technologies.

“For sure, aluminum cans are one of the hardest [materials] to get due to the growth in demand and the recyclability appeal by consumers,” Izquierdo says. Also in short supply are “films with sustainability attributes like biodegradable, compostable, etc., due to a high demand for sustainable products by consumers and the short availability of these materials.”

Sustainability considerations also played a role in demand for paperboard packaging, Markens says. As plastic packaging is coming under regulatory restriction, especially in Europe, processors of food and other consumer goods are turning to paper-based packaging as an alternative.

“When you say you can’t use plastic, it makes folding cartons of paperboard a logical place for them to run,” Markens says.

Interruptions in manufacturing, especially in regions disrupted by weather, were a major factor in supply and price issues with paper-based packaging.

Overseas considerations also play into packaging through import restrictions. Getting supplies of packaging from overseas means dealing with not only whatever production issues are taking place in the country of origin, but the snarl that the pandemic has caused at ports and on the roads. Transportation, especially overseas transportation, is especially difficult due to a lack of labor.

“A fair amount of paperboard comes in from Europe and Asia, and because of the pandemic, a lot of that supply just dried up. It didn’t end up shipping into North America,” Markens says.

While he claims “there are no shortages of domestically produced glass packaging,” Scott DeFife, president of the Glass Packaging Institute, adds that “some of the third-party global container distributors – importers of glass and packaging types across the board – are likely experiencing delays with respect to empty bottle imports due to ongoing port and connected logistics congestion.”

DeFife declined to comment on prices, but according to a report by the Food Institute, the price of glass has gone up 45% since 2019.

And of course, the way the pandemic played out also played a role in packaging demand. In the early stages, consumers stocked up out of fear of supply shortages – what Markens calls “the cupboard effect.” That affected supplies of packaging used for the more popular products for hoarding, like breakfast cereal.
“I don’t think that people actually needed more cereal, but they were putting cereal in their cupboards,” Markens says.

Another way the pandemic put strain on packaging was through an initial spike in demand for single-use packaging, which was perceived as more sanitary, and for packaging for hand sanitizer, which was in huge demand early in the pandemic. As demand for sanitizer has slackened, so has the demand for the plastic that packages it.

Supplies of certain kinds of resins, especially those used for barriers in laminated plastics, have been especially disrupted by the pandemic.

“Certain types of packaging are easier to locate and acquire than others,” says Tyler Rogney, manager-surplus purchasing department at McKernan Packaging Clearing House. “For instance, plastic packaging (PET, HDPE, PP, etc.) and dispensers are abundant due to the fading sanitizer market related to the COVID-19 pandemic, whereas glass packaging was not over-purchased. Because of this, the demand for glass packaging continues to mirror pre-pandemic levels.”

Barrier obstacle

The price and availability of packaging materials are very much in flux, differing by material. For instance, ethylene vinyl alcohol (EVOH), a resin used to form barrier layers in plastic film laminations, has remained relatively high in price, even while prices for other resins have stabilized.

“The inexorable increase in demand from the packaging sector under market optimism during COVID resurgence also supported the price rise of EVOH,” said a market overview from ChemAnalyst, a news service that tracks chemical commodity prices.

In a “To Whom it May Concern” letter to trade customers, J&B Group, a Texas-based processor specializing in smoked and barbecued meats, directly referred to the shortage of EVOH, “which is the property that produces Barrier Film used in the production of Fresh Ground Beef. We are in the process of securing another supplier to ensure we fill our needs.”

However, the overall challenges for the plastic market are based more in labor, both within plants and for shipping, than with chemical availability, says Perc Pineda, chief economist for the Plastics Industry Assn.

“Plastics product manufacturing in December was up 3.0% from a year earlier,” Pineda says. “Any challenges would be more likely related to low supply for skilled workers and logistics issues, against the backdrop of healthy demand for plastic packaging.” He says the supply disruptions caused by last year’s bad weather have turned around: “The plastics industry is in a better position today to meet healthy demand compared to 2021.”

The squeeze also extends to secondary packaging, like pallets. Chep USA, a leading distributor of multi-use pallets, has been affected by shortages of labor, lumber and other materials during the pandemic, says Jason Adlam, vice president for new business development.

Another concern is what Adlam calls “black market activity” in stolen pallets: “These unauthorized bad actors limit inventory and raise costs across the board, critically impacting the entire supply chain.” To increase efficiency in the pandemic, Chep has increased minimum order quantities to ensure full truckloads, he says.

Worker woes

The packaging supply situation differs by material, but in general, packaging suppliers and trade associations say that supplies of raw materials have either regained normalcy or are expected to soon. Labor is another matter. Finding workers, and replacing the ones who get sick, is a problem for production, for receiving raw materials and for getting goods out the door.

“Any challenges would be more likely related to low supply for skilled workers and logistics issues, against the backdrop of healthy demand for plastic packaging,” Pineda says.

Markens notes that carton converters sought and received status as “essential businesses” during the pandemic, which kept them operating when certain COVID protocols would otherwise have shut them down. “But there were a lot of challenges, and there still are challenges with illnesses,” he adds.

With the status of COVID remaining uncertain, it seems likely that the labor situation will continue to affect packaging supplies, at least in the short term. This will lead many processors to adopt, or continue, the coping strategies that were prevalent at the start of the pandemic: throttling back SKUs and cutting back production of slower-selling items.

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