Since COVID-19, paper and packaging companies have faced extreme uncertainty, volatility, and disruption. The pandemic caused abnormal demand patterns across many product categories. In addition, paper and packaging companies have seen record-high volatility in input costs, spurred by surging energy and chemical costs, record-high inflation, and an enormous spike in overseas transport costs in 2021. For example, the Ukraine crisis resulted in European natural gas prices spiking from an already high EU80 per megawatt-hour in January 2022 to a peak of more than EU300 per megawatt-hour in August 2022. Overseas transport costs more than tripled in 2021 and sustained high levels in 2022 because of the lack of sea container capacity and other supply chain disruptions. Key chemicals used in the industry have skyrocketed in cost as well. For instance, starches rose by more than 60%, and caustic soda increased by almost 200% for some customers.
Regulation is also shifting growth patterns and, in practice, eliminating some product categories (such as plastic straws) while creating new ones (such as molded fiber for compostable salad bowls). Bans and restrictions on single-use plastics are propelling a clear shift from plastic to paper straws and lids, and they are boosting the demand for recycled content in PET (polyethylene terephthalate) bottles. Recent proposed EU regulation aims at reducing “avoidable packaging.” That is, reducing the demand for quick-service restaurant packaging and shifting from single-use tableware, for instance, to washable items.
Arguments about which products are the most sustainable are very real among the consumers. Whereas companies historically considered cost, functionality, and consumer experience as they determined which substrate to use for a given product, now sustainability is top of mind for everyone from regulators to consumers to the C-suite. However, there are no clear winners in this early moment of transformation. Although some substrates, such as rigid paper, may have an edge, it is still too early to tell. Across geographies, there is still not a shared understanding of what is necessarily the preferred or most sustainable type of packaging.
Retailers are responding. Most consumer product companies have publicly announced sustainability commitments, though brand owners still do not have a clear view of which substrates they prefer across different applications. Many companies have focused on replacing virgin plastics and increasing recyclability and reusability for plastics in compliance with the Ellen MacArthur Foundation Global Commitment 2022 initiative. Some targets cover all packaging substrates, such as Nestle, which aims to make 100% of its packaging recyclable or reusable by 2025. Other companies are making clear commitments about eliminating one type of substrate, typically plastics. For example, Apple is planning to eliminate all plastic packaging by 2025. To meet varied demands, leading companies set the foundation for their sustainability strategy by first analyzing the fundamental environmental properties of each product throughout its life cycle, from production to transport to
end-of-life disposal.
The pressure on paper and packaging executives to become more environmentally friendly has never been higher. The industry generates significant carbon emissions because producing paper and packaging is
energy-intensive and requires high amounts of raw materials and water. At the same time, paper is a core input for a vast range of products. Packaging protects goods during transport and sale, increasing the shelf
life of perishable products. Paper and packaging companies have started to address sustainability, but more can do much more. The number of companies in the industry that have verified or committed to targets rapidly increased from 5 companies in 2019 to 164 in 2022, and more than 30% of those companies, however, have missed their near-term scope targets
Concluding, the paper and packaging industry is changing rapidly amid unprecedented turbulence. As a result, chief executives are dramatically rethinking their operational models and global footprints. The market
mix is changing as traditional commodity markets, such as newspapers, shrink and specialty papers, such as high-barrier papers that protect food from moisture and oxygen, grow. Global competition intensifies, and technology disrupts all parts of the supply chain. Economy-wide raw material shortages and volatility further complicate market dynamics.
Article by: Asst. Prof. Suwan Juntiwasarakij, Ph.D., Senior Editor & MEGA Tech