Ship Shape: Paper and Packaging Prices on the Rise
Buyers of molded fiber packaging can leverage the high availability of substitutes to negotiate lower prices, such as expanded polystyrene packaging. Despite its higher cost, many buyers already opt for polystyrene packaging instead of molded fiber packaging because of its greater durability and aesthetic appeal. These characteristics boost distribution and presentation of buyers' products. Buyers can leverage the availability of polystyrene packaging as a substitute to negotiate lower prices or to simply switch to the alternative product if the buyer is unable to find favorable negotiating conditions in the molded fiber packaging market.
Suppliers of packaging services provide both manual packaging and machine packaging of client's materials. IBISWorld forecasts packaging service prices to grow at an annualized rate of 2.5 percent in the three years to 2017. The rising price of packaging supplies will boost supplier input costs, fueling service price growth. Additionally, rising average wages in the packaging services market will further contribute to price growth. In light of rising costs in the market, buyers should conduct a thorough cost-benefit analysis to determine whether they should outsource the process or conduct it in-house.
Buyers of packaging services benefit from low market share concentration when negotiating with suppliers. Nearly 93.0 percent of packaging service suppliers operate from a single facility because buyers tend to source from local packaging suppliers to reduce transportation costs. The even distribution of packaging suppliers allows buyers to easily source packaging services from local vendors. The highly fragmented market benefits buyers because it heightens price competition, giving buyers leverage in negotiations.
With steady demand for paper-based packaging products and rising prices of wood pulp and paper, prices of boxes, packing materials, packaging services and more will continue to trend upward. Fortunately, buyers can protect themselves from rising prices in multiple ways. In the corrugated boxes market, buyers can take advantage of the commoditized nature of the product and shop around for the cheapest price. Buyers of molded fiber packaging, meanwhile, can look to viable substitutes if they feel the supplier is charging too much. Finally, buyers in the packaging services market can leverage the price competition that comes from low market share concentration. In addition, buyers can bundle these purchases with other paper and packaging goods from the same supplier, such as tape, cushioning or stationery, to help secure a lower price. Buyers may also get volume discounts by placing large orders or entering into longer-term contracts with suppliers.