Sticker Shock: Why Are Your Packaging Costs Going Up?
If you’re seeing the price of your packaging increase lately, you’re not alone. And things might get a bit worse before they get better. We’ll try and break down the varying factors here which should help you plan internally.
Inflation
The most generic factor adding to the price increases. UK inflation has gone above 3% again, while averaging 2.5% across the EU.
Raw Material Costs
Aside from inflationary factors, we are seeing some severe material cost rises that affect packaging. Plastics are currently heavily affected by oil prices (primarily from the Iran war) - 30-40% raw material increase. That means that poly mailers, bottles and tubes will go up in price.
For paper, most producers of corrugated (cardboard, containerboard) have announced price rises of between 6.5 - 8%. This is driven partly by material shortages but mainly by high energy costs (30-40% increase in the last 5 years).
Energy Costs
This is a double-whammy because raw materials are heavily affected, and then your next manufacturing processes are also hugely affected.
All manufacturers will be suffering from increased costs that are not easily controllable. China probably has some advantage here because of heavy investment in on-site energy production. The bottom line though is that all manufacturers will need to increase their prices because packaging is a lean environment. Low margins mean that pricing is disproportionately influenced by relatively modest rises.
Logistics Costs
Related to the above, costs are high across the world for petrol and diesel. This affects the per-mile cost of your logistics. From local delivery trucks to huge sea-freight vessels, everything is affected. Aviation fuel costs mean that getting things in a hurry also got a lot more expensive (100% increase in aviation fuel costs since the start of the Iran war).
How Does This Affect My Packaging?
Expect to see average price increases of around 10-12%. While some suppliers may choose to absorb part of the cost, it’s unlikely that they can absorb all of it. See below for an average breakdown of costs. This varies by base material but is a general guide. For example, poly mailers have a material cost closer to 60%.
Is There Anything I Can Do?
You might find some cost reductions by tendering or looking for alternative suppliers. However, all suppliers are similarly affected right now. We would generally advise against making quick decisions based on a volatile situation for your existing packaging SKUs.
If you are launching something new, talk to your packaging supplier about options to engineer costs down. For example, printing inside a box only versus both sides will be cheaper but you can still create a great unboxing experience.
Check out our blog post here about ways to save money on your packaging.
Talk To Us
We create long lasting relationships with our clients so our advice is always free and unbiased. Reach out if you want a completely obligation free session where we can point you in the right direction.
