The label supply chain disruptions are affecting prices and availability of many label products. There are many reasons why and we’ll go over some key components as to why.
But first, here is a little history that has led up to this moment:
- China – China is no longer taking in 40% of the world’ waste due to the National SWORD Initiative. They now only require virgin pulp and resins for its imports. China is also shutting down entire industries in an effort to reduce pollution such as chemical plants that produce Leuco dye, which is used in direct thermal face stocks and silicone used for label liners.
- Economy – If a paper or pulp factory survived the economic crash in 2008 – 2009 and growth of the internet — they did not add to their capacity. Today’s current worldwide economy has outsripped the supply of components that make up our labels creating a seller’s market.
- The Internet – In the past 15 years, the growth of the internet has dramatically reduced the use of print. Many pulp and paper factories have closed due to the reduction of demand on labels.
Paper Liner, Film Liner, and Face Stock
- Benchmark pulp prices are up nearly 20% vs a year ago.
- Boise Paper, a manufacturer that produced over 30% US market share of the release liner business, will be leaving the liner marketplace which will impact supply.
- There has been a direct thermal supply shortage driving cost up 15% – 20%.
- Polypropylene prices up 4% from last year (and projected to increase)
- Polyester prices up 6% since last year
- Polystyrene costs up 12% over the prior year
- Crude oil trading near $75/barrel vs. $50/barrel (May 2017)
- Tackifier (used in adhesives) prices up nearly 10% over last year
- Butadiene prices up 23% this year amid tight global supply
Direct Thermal Face
- All Direct Thermal producers announced increases in the last 12 months: e.g. Appvion 14% cumulative; Jujo 25-37% cumulative; Hansol 18% cumulative; Oji 15-18%
- Starting in late 2017, Chinese government shut down leuco dye producers over environmental concerns; 90% of leuco dye production comes from China
- Suppliers are currently producing at reduced rates, but supply quantities and timing remain uncertain
- Direct Thermal Coaters are in bidding wars for leuco dye and are air freighting to move it quickly
- Full resolution of the shortage situation is uncertain but expected to last through 2018
- Some label material have a coating of silicon on the facestock to prevent the adhesive sticking to the facestock when rolled up. This is necessary when using standard paper material otherwise the adhesive would be absorbed by the paper material and would not peel apart.
- China produces much of the world’s silicon metal (Up to 60%), and supply has been restricted over the past year by environmental regulations. This has driven up prices for silicon metal, and in turn is squeezing margins and limiting supply for silicons.
- The shortage started to become more visible within the past year, as silicon facilities worldwide have fallen behind demand.
- Silicon prices are up over 25% vs. one year ago and projected to increase
- There is not one single constraint that can be remedied to solve the industry’s problems.
Hardwood Pallet Cost
Corrugated Medium Cost
- Corrugated prices are up 7% and projected to increase.
- Pallet prices are up over 7% and inflation expected to grow. Lumber is available, but the prices are reaching record levels in many regions. This is putting extreme pressure on pallet prices.
- Label core prices increased 10% over the prior year and projected to increase.
Primary reasons behind market tightness is a lack of supply caused by high demand, fewer sawmills than ten years ago, increased export demand, restricted supply from Canada due to U.S. duties, wet weather and increased forest fires are making it difficult to log, also sawmills are running leaner and have less inventory on hand.
- Diesel fuel costs are up more than 16% from last year
- Freight rate increased from 10% to 30% over last year & continues to grow
- Truck capacities limited with load-to-truck ratio at 7.2 to 1
- Average freight costs highest in 7 years
Manufacturers and retailers have been scrambling to book transportation in recent months as freight volumes have expanded in a surging U.S. economy. Bad weather, high turnover among truck drivers and a new federal rule requiring drivers to electronically track their hours behind the wheel have contributed to the tighter capacity.
“Everybody is seeing an increase,” Graeme Pitkethly, chief financial officer at Unilever PLC said in an earnings call last week. The seller of Dove soap and Lipton tea expects U.S. freight costs to rise by the “high-single digits to high-teens,” Mr. Pitkethly said, on higher demand and requests by retailers for more frequent deliveries.
We know it’s unfortunate that prices keep increasing, especially at such a frequent rate. We will continue to work with our suppliers to minimize this trend. We are committed to providing you with quality labeling products at a competitive price, and we thank you for your trust and business.
We here at All Barcode Systems appreciate your continued support and we thank you for your business.