This post has been updated on December 1, 2022
Just as it appeared that the economy was beginning to return to some kind of normalcy, the global supply chain was rocked by unprecedented volatility. Prices rose across the board, raw materials supply became limited, and lead times lengthened.
Unfortunately, printers of custom labels are not immune to such supply chain volatility. And if not well handled, it can cause major delays in the production of custom labels.
So what is exactly going on? And more importantly, how can your company and your label printer collaborate to mitigate what seems to be the new normal?
Print Label Market
But first some background. The custom printed label industry has endured many challenges over the last two years. And 2022 started off with some new tests of the industry’s grit and creativity.
Materials suppliers are now warning customers about additional imminent supply challenges for paper-based face stock, especially semi-gloss paper face stock and paper used for liners. These latest challenges are tied to labor issues in Finland and are making an already tight supply chain even worse.
The print label industry continues to face a number of economic and raw material supply chain challenges that mean it must continue to operate in an inflationary and highly volatile environment. Extremely high raw material and indirect costs are causing continued inflation, especially on paper products.
In paper materials, while high pulp prices are adding to this raw material inflation, the primary driver of new increases is related to a shortage of paper capacity relative to the current high demand environment. Recent mill closure announcements have further worsened the supply/demand balance for paper face and liner materials critical to the industry.
Most recently, one of the few remaining U.S. based suppliers of paper liner announced an additional mill closure. This will further reduce the total domestic capacity of paper liner by roughly 25-30%. The indirect impact to the industry from a total market supply and cost perspective is significant.
As a result of this structural supply/demand imbalance and rising costs for labor and energy, paper material suppliers have submitted further, very steep price increases.
Supply constraints continue to indicate significant ongoing month-over-month price inflation through at least the third quarter of 2022. As a result, many buyers are paying ever increasing prices just to maintain continuity of supply.
These cost increases are the result of continuing strong demand for pulp and other papermaking raw materials across multiple industries, not just the label printing industry, and cause challenges across the entire supply chain. The same dynamics also continue to push prices up across the film, adhesives, and freight industries, in addition to paper. As a result, buyers are seeing increased costs ranging from 4-15%.
And to further exacerbate the matter, the labor issues abroad are impacting the global paper market causing certain paper suppliers to implement allocation processes along with price increases.
Buyers in the label printing industry are doing all they can to leverage their relationships with their raw materials suppliers and logistics partners to minimize the impact of the increases and supply disruptions on their customers.
And material suppliers are aware today’s challenges, while painful, may not be permanent and are focused on improving and protecting service to their customers and avoiding disruptions in supply, in large part, by absorbing additional costs for their raw materials and incremental freight as much as possible.
Offsetting Supply Chain Challenges
Label manufacturers are working diligently to try and offset supply chain challenges by increasing lead times on key raw materials and holding elevated levels of inventory to work through any delays that may occur. Despite these best efforts, the fluid nature of today’s supply chain environment makes it impossible to anticipate every potential shortfall. The domino effect of this ultimately results in supply shortages across the entire industry.
As a consumer of custom printed labels, your business cannot afford to be without the specialty labels and other packaging products your vendors supply. If your supply of labels is disrupted, your business is disrupted. And we’ve had enough of that over the past two years!
You can prepare your business for these challenges and avoid disruption by properly forecasting and keeping a close eye on your label stock. This may mean it’s necessary for you to increase your label stock inventory until the supply chain issues are resolved.
Above all, it’s important to work with your custom label supplier by being willing to be flexible, consider alternative materials, and continually communicate with all relevant parties.