Viewpoint

22 December 2005



Sebastian Lawrence-Mills, managing director of Greys Packaging, comments on the rising costs of raw materials and its impact on the flexible packaging sector


The flexible packaging industry is faced with ever rising costs in raw materials, together with the uncertainty of swift supply and potential increasing lead times. The rise in petrol pump prices affects the public visibly and the awareness is universal, but often the consequences on industry are ignored by the vast majority after they have exited the garage forecourt, or paid their electricity bill.

In the flexible packaging sector we have seen raw materials increase from £700-£800 a tonne for polyethylene in 2003 to £1,100-£1,200 a tonne in the last quarter of 2005. This is an increase of nearly 50 per cent – a drastic rise bearing in mind that raw material makes up 30 per cent of the product cost in our industry. These costs have been accompanied by an increase in electricity where manufacturers have seen rises of around 40 per cent, together with component costs in general, particularly steel.

As a result we have had to pass some of these costs on to our customers, making flexible packaging less desirable and posing a potential threat to the recent growth of the industry. These rising costs have made competitive paper based options look more attractive. The rigid plastics industry and the blow moulding industry has suffered even more, as the percentage of raw material is significantly higher.

As well as increasing costs, the enormous growth in the demand for petroleum derivative products, especially in China, has now affected supply with lead times seriously threatened. Thankfully, the UK extrusion industry has managed to keep its short turnaround of products, which is key to our market sector. Therefore, we have a situation where prices are higher than ever, but supply and 'on time' deliveries have become paramount.

We at Greys Packaging have reacted to rising costs by becoming leaner and meaner, both in the UK and abroad, and absorbed costs where we can. As for any reluctant price increases, so far we have had the support from our customers, who have been understanding and realistic about the current market situation.

To fight back against the rising costs of raw materials, the UK flexible packaging industry has to provide impeccable customer service and strive to deliver high quality products on time. Through this, we have been able to satisfy our customer's needs despite competition from abroad, where costs may be lower, but speed and quality are often neglected. In this challenging economic environment, innovation is imperative. Packaging specialists need to be aware of the latest developments in materials, technology and processes. Innovation, knowledge based manufacturing and exemplary customer service are vital ammunition.

There may be no immediate decline in costs of raw materials. Levels will not come back down in the next 18 months and we all have to adapt to this fact. What we can do is become more efficient in our best practices to claw back costs, strive for speed, quality and customer service in order to continue the growth of, and secure a future for, flexible packaging.




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Greys Packaging

Sebastian Lawrence-Mills Sebastian Lawrence-Mills


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