Due to several factors from outside and inside the label and packaging industry, we’re about to experience an industry-wide event that we have not seen in nearly six years. Our main raw material suppliers have notified our competitors and ourselves that a price increase on substrates including paper, film, and other materials is about to take place.
We all know that running a business is challenging. There are government regulations, operational costs like ever-increasing health care costs not to mention the day-to-day pressures of keeping the doors open. As you know, our suppliers have these same challenges. In addition, they have their own supply chains that are dealing with raw material issues of their own.
A number of factors have contributed to these increased prices. I want to share some information I have received to help shed some light on the reasons for this increase.
Reduction in North American freesheet capacity
When discussing paper substrates like coated stocks mill closures and mill conversions have led to a reduction in the available materials used to create facesheets. In fact, paper mill closures account for a considerable reduction of the North American freesheet capacity. Replacing this lost supply from overseas is cost prohibitive due to the cost of logistics. These mill closures directly affect domestic capacity. The estimated loss of 14% is substantial. With demand continuing to grow and supply decreasing the pricing obviously follows suit.
Added to the mill closures, an additional 6% of capacity has been removed from the market due to a major mill shifting their focus and converting their manufacturing facility from coated stock to packaging papers.
These two factors alone account for an overall 20% decrease in the available raw materials required for coated facesheets, which are used to make labels.
In addition to mill closings, the cost of pulp is up 17% over last year alone. This is a very large increase in a short window. Pulp is needed to create paper and many of the liners we use. Imagine your main raw materials increasing 17% over the previous year.
A major supplier of release liner exits the market
Another factor in the price increases is the fact that a major supplier of release liner has exited the market altogether. A release liner is a paper or plastic-based film sheet that is used to prevent an “adhesive coated” or “sticky” surface from prematurely adhering. The release liner is the carrier material that your labels are carried on before they are applied to your products. The exit of this manufacturer affects both paper and film label costs as most all pressure sensitive materials are supplied on release liners.
Direct Thermal is a specialty material with limited manufacturers in North America. These manufacturers have reported a substantial production shortage of this facesheet in 2018. This has created volatility in this space and will lead to an increase in the price of this specialty material. If your not familiar with Direct Thermal materials they are used for many items, one of the most common is a label you may have seen printed at the point of sale at a meat or deli counter.
Additional price pressures in the label market
Producers of Polypropylene, PET, and Polystyrene have all announced price increases as well. This is due in large part to the price increase of chemicals and adhesives used in these materials. Propylene cost is up 16% and Styrene is up 10% over last year. These materials are what we commonly refer to as Film, Plastic, or Mylar labels.
Other increases affecting all of us are logistics. One of many factors creating increasing logistic costs is the ELD mandate. The Federal Motor Carrier Safety Administration has enacted the electronic logging device rule or ELD mandate. Carriers must install ELDs to electronically record a driver’s “Record of Duty Status” (RODS). Fleets have until December 2017 to implement certified ELDs in the vehicles. This mandate, in part, has led carriers to increased contract rates by 10%-15%.
The Adcraft Labels solution to increased manufacturing costs
While price increases in raw materials and services will affect all label and packaging manufacturers, we want our clients to understand these materials are only a component of the price for a finished label.
Over the years Adcraft has worked diligently to offset increased operating expenses through continuous improvement and reinvesting in equipment to improve efficiencies and cut costs where possible.
We want to assure you that Adcraft will continue to work to minimize the effects of this increase and work with each of you to identify ways to offset the impact of this on your company.
Our team is ready to answer any questions related to your specific products and to develop creative ways to help minimize the effects of this industry-wide price increase.
We truly appreciate your business and look forward to a mutually successful 2018.