What Does a Paper Shortage Mean for The Plastics Industry?
09/15/2021
Just as the US economy was opening up in the first-half of 2021, a rise in the Delta variant around the world impacted the global supply chain, leading to another reduction in industrial labor, manufacturing and logistics. Among the industries hit particularly hard by this is the paper industry, which is dealing with a shortage of material.
Now the paper shortage is starting to impact other supply chains, the plastics industry especially.
Just this week, Brunk Plastics Services, a Midwest plastics pulverizer and compounder that offers logistics and warehousing services, notified its customers that the domestic paper shortage has turned critical.
"This is an urgent situation, because even though we just today took delivery of our octabin boxes in Indiana and tomorrow we will receive them at our plant in Minnesota, we are concerned whether our next orders will be delivered on time or delayed like this week's orders were," the company's customer service department said in an email to clients.
Brunk stressed that if the packaging issue is not resolved, its ability to complete orders for pack-outs and pulverizing to boxes could be affected again in the future unless alternative solutions are found or the paper issue is finally resolved. "After a rough spring of supply issues, things had gone well for most of the summer, until the issue popped up again this week," said Sandy Hochstetler, Brunk's Business and Purchasing Manager.
Other alternatives besides different box sizes and styles, would be super sacks and valve bags which hold less products.
"A majority of super sacks come from India, which has been devastated by a second wave of COVID-19. Plus lead times for super sacks can be anywhere from 14-18 weeks, and the resin industry prefers boxes," added Hochstetler.
The paper shortage is not new, however. Brunk and other plastics logistics companies have been affected by the shortage for almost a year.
Ross Selvaggi, Executive Vice President for Texas-based Packwell, a plastics bagging and logistics service company said his company almost delayed some order fulfillments this year because of a shortage of gaylord boxes, which are industrial bulk cardboard container boxes used to ship resin.
Wood and wood products have also become short and impacted the price of items such as wood pallets, which are used to ship gaylord boxes. Wood pallet prices have increased by about 30% in a 10-month period, while gaylord boxes have also seen a large price increase over the same period, Selvaggi said.
"With this issue, our pallet suppliers also had stock outs," which Selvaggi indicated was likely due to other higher paying customers entering the market. "I think the shortage was due to the increased use of home delivery and package deliveries for all of us sitting home and ordering from Amazon/Wayfair increased. The box shortage for gaylords was significant on us as we do not do a lot of boxing so our inventory is low and our buying power is also low."
- What Does Big Paper Say?
It may be a while before the paper industry recovers. Wood pulp, raw material used to make paper, has seen costs increase 50.2% over the past year, according to the Bureau of Labor Statistics, while the price of paper rose 14.2% in the same time period.
In its recent quarterly earnings report, International Paper, a global leading producer of fiber-based packaging, pulp and paper, said it operated with extremely low inventories of containerboard due to the lingering effects of Winter Storm Uri and planned maintenance outages in Q2.
Those operating conditions severely stressed the company's transportation environments, and adversely affected volume and operating costs in Q2. The company offset its raw material costs with price increases, but it was at its lowest inventory ever in Q2.
"It's going to take a little bit of time for us to recover that as we go through the third quarter and probably into the fourth quarter to some extent," said International Paper CFO Tim Nicholls.
By Brian Balboa For The Plastics Exchange.
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