For the last few years, it’s been a challenging label market. Disruptions in weather, international events, and market conditions have created a perfect storm that has had a massive impact on the label supply chain. The result? Supply shortages and a spike in prices. Our customers have felt it. We’ve felt it. The entire industry has felt it. What has caused this shortage and when will it end? We have some insights.
First, a look at how we got here:
1. Complexities in the label supply chain make it vulnerable to disruptions.
Face stock, liner, and adhesive are made up of multiple components, including paper, poly, and various chemical compounds. Components come from both domestic sources and overseas, creating a complex supply chain that is vulnerable to disruptions.
Among the recent disruptors?
- Global pandemic, including lockdown restrictions in China.
- Disruption in energy supplies from Russia’s invasion of Ukraine.
- Blockage of the Suez Canal in 2021 that has had long-lasting impacts on the supply chain.
- Papermakers’ strike in Finland that disrupted supply and created ripple effects that continue to impact the industry even today.
- Anticipated closure of one of the largest makers of 40# liner stock, the most common liner stock used in the label market, early this year.
2. There are continuing challenges with paper supply.
While label face stock and liner can be made of PET and other non-paper compounds, historically, paper has been the “go to” substrate. Steadily, the shift to digital communications has reduced demand that has resulted in mill closures. The pandemic depressed demand further, resulting in more closures. By the time economies started opening back up, demand for paper far outstripped supply.
Can’t the papermakers simply restart their machines and increase their capacity? It’s not as easy as you might think. Due to the complexities of paper manufacturing (cost structure, machine maintenance, staffing), this is not a tap that can easily be turned back on. Plus, papermaking already operates at a razor thin margin. With continued volatility in the energy market, papermakers have been forced to close even more mills or take papermaking machines offline.
3. There have been crippling weather-based disruptions.
Severe weather in the U.S. Gulf states have created supply chain disruptions affecting essential resins and adhesives. In 2021, in particular, a series of storm-related power outages had a devastating and long-lasting impact on supplies that is still affecting us today.
Things Are Turning Around
Fortunately, things are getting better. Here is the good news coming from our suppliers:
- Paper shortages and associated inflation will carry on into 2023, but the film and adhesive markets are heading in the right direction.
- Domestic energy, packaging, and freight have all stabilized, helping to reduce the backlog that occurred in Q4 2022.
- Even though long lead times continue for international shipments of film and adhesives, our suppliers report that their suppliers are meeting all demand once again.
When it comes to paper liners, however, things are not so rosy. Further inflation is expected, with demand continuing to outpace capacity. Cost and availability of imported papers from the EU, in particular, will continue to be impacted by tremendous energy increases and high logistics costs. For many customers, this will necessitate a switch to PET liner, but there is good news here, too. While this liner will look different, it actually has the same or better performance characteristics.
So while the supply chain remains a mixed bag—continuing shortages and price pressures in some areas, with easing price pressures and growing stock availability in others—we are seeing noticeable improvement. Where supply chain disruptions continue, there are suitable alternatives.
Our Turnarounds Back to Normal
Here at Brandmark, we are much relieved to be feeling the impact of the easing of these pressures. We hope you do, too. This is what we are seeing “on the ground”:
- While there are still areas of volatility and price pressure, our stocks of materials are high and our ability to access stock has improved.
- Most of the more common materials (such as polypropylene films and polyester films) are becoming more available.
- Our lead times on purchase orders have improved.
Things have not yet returned to normal, but we’re getting there. So if you’ve been slowing up on orders until the supply chain issue resolves, get those orders in! We’re ready to get back to full capacity!
Take a look at our label options here.