“Everything can be improved.”
—Clarence W. Barron
Packaging plays a pivotal role in the distribution of goods, and a combination of multiple factors determines its price. The quality and cost of the packaging are usually directly proportional to the value of the goods being distributed. Since packaging provides different benefits to different industries, the prices are also set accordingly. If you’re wanting to understand the real price of packaging, you’ve come to the right place. In this article, we are going to dive into the main factors that impact the pricing of packaging, followed up by suggestions to reduce these costs without compromising quality or product safety.
CORE PRICING FACTORS
These are the core factors that impact the price of packaging:
1. Packaging materials
The type of material you choose will be one of the most prominent influencers on the cost of your packaging. From paper and plastic to corrugated cardboard and specialty items like aluminum foil or kraft paper, the variety of options and availability from different suppliers will greatly affect how much you spend, especially in the context of inflation. For a deeper look at material choices, read Types of Packaging Materials.
Since fall of 2020, RISI Fastmarkets has published four industry recognized price increases, leading to corrugated and paper prices at an all-time high. Given the current state of the industry, you might save money upfront if you choose a lower-quality material, but it may not be worth it in the long run, as such a choice can also impact the customer’s perception and compromise your product’s safety.
The costs of labor are an important consideration in your operations, including the labor required to assemble and pack the product into each unit. The ability to speed up the assembly and pack out time while reducing the number of touches required by your associates are two of the most relevant factors to think about. For example, integrating automation into your packaging design or implementing a revised packaging design that reduces handling, or both, could have a big impact on reducing your labor costs. Conducting time studies of your current operations can help determine what solutions your business might leverage.
It is also important to note that the COVID crisis generated a paradigmatic shift – according to a recent McKinsey report, wages are increasing at more than twice the long-term rate before the pandemic. Moreover, wages in warehousing and transportation are rising four times quicker compared to the pre-pandemic period.
Shipping cost varies according to distance and mode of transportation used. For example, an e-commerce company shipping a small number of items to a single location will be able to ship by ground delivery for less than if they were shipping hundreds or thousands of items to multiple locations throughout the country. Also, per unit shipping costs increase when you’re shipping more fragile or heavier products. For example, shipping glass-fragile items in protective cases will cost more per unit than shipping plastic-lightweight ones without protective cases. Given the fact that crude oil has reached $120 per barrel, this is reflected by the increased shipping prices as well.
Warehouses play an important role in storing products before they reach customers. For example, some countries require goods to remain at customs for several days before being shipped out because it makes tracking imports and exports easier. For this reason, warehouses may charge for storing goods or because they need to keep inventory on hand for their suppliers or customers who may request immediate delivery. Various factors influence the warehousing costs – the packaging and the nature of the product included. For example, packaging materials that provide protection may allow storing products in warehouses that do not require climate control, which allows for lower costs.
Fulfillment is an important consideration as well. For example, a small e-commerce business that sells all its product from one location may need less packaging than a company that ships its products from many different locations. However, if you have multiple fulfillment centers and offer free shipping, you may need more packing material than a business that offers free shipping but only has one fulfillment center. When you outsource fulfillment services, you include the labor cost in your product’s price.
HOW CAN YOU REDUCE PACKAGING COSTS?
As you may well know, the current economic climate is challenging for manufacturers. Raw material costs are rising, transportation and warehousing costs are not decreasing as fast as in previous downturns, and an ever-tightening labor market is creating difficulties in hiring qualified employees. In the packaging industry, all of these factors create a vicious cycle that can be mitigated via packaging efficiency solutions.
ITB Packaging is committed to providing cost-effective secondary packaging solutions for our customers. We offer pre-assembled packaging solutions that eliminate the need to hire employees to assemble the packaging. At the same time, our flexible packaging solutions can integrate with machines that allow the automation of the packaging process, improving overall packaging efficiency and reducing costs. Our In-The-Box and Pop-N-Drop packaging solutions allow customers to ship and store their secondary packaging completely flat, reducing the warehouse space and labor costs. Moreover, fitting all the packaging on one skid allows you to reduce transportation costs.
THE BOTTOM LINE
Regardless of the industry in which you operate, the price of packaging is probably among your most significant expenses. Global supply, logistical bottlenecks, world events, and production line delays make it more critical than ever to evaluate and research packaging efficiency solutions that can improve your packaging operational costs. Fortunately, simply understanding the cost factors involved can be enough to steer you towards the most cost-efficient options.