1. Logistics and supply chain challenges
Global supply chains have been in disarray since the onset of the pandemic. Transport challenges, especially in shipping and trucking, have meant delays in delivery and disrupted international trade cycles. Furthermore, labor shortages and further lockdowns in parts of Europe in 2021 have added to the pressure.
The disruptions can be felt throughout the forest products markets and are contributing to supply constraints and rising transportation costs. In turn, producers are attempting to pass the costs on to their customers through price increases for their paper.
2. Rising energy prices
European pulp and paper companies are largely powered by natural gas and electricity, and wholesale prices of key cost drivers skyrocketed in the second half of 2021 to their current record-high values. In addition, the price of carbon dioxide emission rights in the EU has also increased.
However, the impact of this cost inflation is not equal for all producers. Some of the differentiating factors include:
- Price differences between types of energy sources
- Energy efficiency of the machinery
- Availability of machinery that enables usage of alternative energy sources
Many paper producers are passing on the higher costs as energy surcharges on top of the paper price increases. This adds to the upward pressure on pricing and makes paper more expensive.
3. Sustainability initiatives
The global interest in sustainability means businesses need to embrace and integrate sustainable operational practices. The EU introduced the Fit for 55 plan in 2021 to reduce net greenhouse gas emissions by at least 55% by 2030.
The pressure not only comes from the governments, but also increasingly from the consumers as they become more environmentally conscious. A 2020 report by Capgemini Research Institute on consumer preferences revealed that 63% of those surveyed said sustainability will play a more important part in deciding which retailers and brands they would purchase from.
4. Growing and evolving paper packaging
Paper packaging is still booming from drivers including e-commerce, plastic substitution and steady economic recovery. Prices on the European containerboard market continue to rise from strong demand combined with restricted supply.
More consumers than ever are pushing for sustainable packaging. The same 2020 report on consumer preferences by Capgemini Research Institute found that 44% of those surveyed are willing to pay a premium for grocery products that have sustainable packaging. Beyond the focus on sustainability, the race is also on for innovations in better and more advanced packaging designs.
Visit our forest products page to discover more insights on the factors at play in the industry throughout 2022.
