With the ongoing impacts of COVID-19, surging prices for energy and raw materials, and Forces Majeures destabilising the global supply chain, we spoke to Bernard Lombard from Cepi and Ron Marsh from the Polymers for Europe Alliance to find out how the packaging industry is faring.
The perfect storm
The current and mounting pressure on the supply chain is not limited to one industry, but instead represents a global challenge wrought by global issues. Most unprecedented is the COVID-19 pandemic and subsequent lockdowns that have led to a huge shift in consumer behaviour and economic patterns.
“Many sectors, including ours, had to adjust to a global economic slow-down but are now facing a spectacular and unexpected rebound,” explains Bernard Lombard, a trade expert working at Cepi, when discussing the impact of the supply chain crisis on the paper industry.
The problem of unpredictability appears to be shared across sectors. Ron Marsh, chair of the Polymers for Europe Alliance, an information platform initiated by EuPC, adds: “Demand is very volatile, but recently has been unexpectedly strong.” As economies around the world bounce back earlier than expected from the pandemic, various industries are struggling to keep up.
Then there is the issue of shipping. Currently, as Lombard says, “the distribution of containers around the world is imbalanced, some regions having too many, others lacking capacity”. The pandemic saw altered shipping routes and staff shortages that meant containers could not be processed. Marsh agrees global freight is “not functioning as smoothly as is customary”.
Additionally, across the Northern Hemisphere, last year’s winter was colder and longer than average. Catch-up maintenance work in Summer 2021 meant that supply has yet to align with demand for some segments, forcing a spike in energy prices. Speaking to Packaging Europe earlier this month, the president of EuPC, Ranato Zelcher, identified Storm Uri, which hit Texas in February 2021 and forced the shutdown of polymer production in the region, as a factor in exacerbating shortages for the plastics supply chain.
For Marsh, however, “the most obvious feature [of the supply chain challenge] is the rash of Forces Majeures that have afflicted supply chains during 2021”. IVK estimates that 81 Force Majeures statements were issued by raw materials producers between January and September 2021, which can allow companies to delay or cancel the fulfilment of particular contracts, largely without liability.
A vicious cycle of shortages and surges
The impacts of these supply chain challenges are felt differently by various segments of the packaging industry, but there are some key overarching concerns – namely, narrowing profit margins, the potential for further delays, conflict over responsibility, and consumer dissatisfaction.
“The cost of some of our input chemicals have increased dramatically,” says Lombard. “Starches used in papermaking, for example, have seen their price increase by 30% on average when compared to a year ago.
“Pulp prices have increased by more than 50% over the same period, and the prices of paper for recycling have more than doubled.”
And by the very nature of the supply chain, there are ripple effects. The European Carton Makers Association (ECMA) recently warned that the high costs and unstable supply of raw materials, along with a surge in consumer demand for fibre-based packaging, has seen lead times for some cartonboard mills rise to 12 to 20 weeks.
Similarly, Marsh cautions that, for the plastics industry, “barrier materials, specifically EVOH, are in particularly short supply”. Plastic packaging producers are largely attributing this to a shortage of vinyl acetate monomer (VAM), a feedstock impacted by Winter Storm Uri. While EVOH alternatives are in development, it remains a key material in oxygen barriers for food packaging, which are essential for preventing environmentally costly food waste. This demonstrates just how far the impacts of the supply chain challenge could reach.
There is, in addition, debates over where price increases should be absorbed. For example, Polymer Comply Europe released a statement claiming that the already-narrow profit margins of convertors may become unviable because of price increases introduced by suppliers. Marsh concurs: “the plastics conversion sector is vulnerable” as different segments of the plastics supply chain are “forced to pass on costs as promptly and as comprehensively as possible”.
Again, the impacts are not felt in isolation: further shutdowns in production are possible, according to IVK Europe, which represents the plastics industry, and key players from the European metal industry. This, in turn, could lead to job losses and products, ranging from cars to takeaway containers, failing to reach consumers.
The impacts are cyclical. Any production shutdowns would likely exacerbate existing delays, further driving price increases and pressure on supply.
In particular, the possible collapse of plastic convertors could rebound, with suppliers and manufacturers losing customers and thus profit. “Converters need the financial muscle of suppliers,” Marsh explains, “and polymer manufacturers need the demographic support of convertors if the industry across Europe is to fend off ill-informed attacks.”
In the long-term, nearly all segments of the packaging are likely to feel the supply chain challenge. It seems that the interconnectedness essential for building and maintaining the supply chain could also be a threat to its future functionality.
An uncertain future
According to Marsh, it is “notoriously difficult to predict” how long the supply chain issues may last – and “those who do always get it wrong”.
“Not all of what is happening at the moment is related to short-term trends,” Lombard adds. “Some changes are here to stay. [COVID-19] has changed how people and companies behave, work, and consume.”
But it’s clear solutions are needed now. Lombard says an “element which influence is not to be underestimated is the power of communication. We must get better at communicating to our stakeholders about the current situation, its causes, and today and tomorrow’s challenges.”
A holistic approach to managing the current supply chain challenges could be essential for the plastics industry, too. “Recognition that the entire [supply] chain needs to come together because the success of polymer suppliers and plastics convertors are inextricably linked” is something Marsh identifies as a potential opportunity – a way to ensure, going forward, the supply chain does not fragment due to unnecessary competition and conflict.
For both Lombard and Marsh, the recovery of supply chains also needs to involve sustainable development if it is to be successful.
Lombard points out that “a large number of paper companies are moving away from fossil-based energy in order to decarbonise, to be more sustainable and generally less dependent on this kind of energy source”. A move to different forms of energy, such as biomass, could help to build resilience against fluctuating prices – especially as the causes of such instabilities, like extreme weather conditions, could be here to stay due to the climate crisis.
While certainty concerning, the current crisis could be an opportunity to re-think how supply chains are structured, balancing global commerce with social and environmental reform. Marsh concludes: “The long-term solution is to learn from recent difficulties that the supply chain needs to be shorter, both to ensure it is more robust and reliable, and to enhance its environmental performance by reducing transport emissions.”