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The plastics industry has continued to recover from the COVID pandemic as well as the recent unprecedented polar storm which paralyzed the Texas petrochemical industry. Added pressure from the recent spike in fuel prices have caused an increase in freight costs. Unfortunately, this perfect storm of long and short term disruption, has caused an increase in plastic prices and market volatility for the foreseeable future. Let’s take a closer look at these factors in order to understand and hopefully neutralize some of this upward pressure.
The Polar Storm
On February 15th, 2021, The USA Today article reported “more than 150 million people were under a winter storm warning, winter weather advisory, or ice storm warning in 25 states.” These cold temperatures caused major energy problems, resulting in 3.5 million power outages in Texas alone. Texas is considered the petrochemical hub of America, with the majority of their facilities being shut down for several days and in some cases weeks, the plastics industry will be in recovery mode for several months to come.
Transportation cost is a key factor in the manufacturing cost model. Since 2017 freight costs have been increasing, but in the last six months those costs have increased significantly. Powerful storms, such as the hurricanes this past fall and the ice storms this past winter create unforeseen obstacles and an additional demand on the industry to support recovery efforts. The most contributing factors for the rise in freight costs is a strong demand in freight, increased diesel fuel costs, and a low supply of carriers and drivers. This is an ongoing issue and carriers are predicting future increased rates as this is not a problem with a forthcoming solution.
The short-term outlook for plastic prices continues to be unstable. Most plastics have already seen drastic increases with reports that there are more to come. Resin prices have already increased 10% to 30% dependent upon the resin. Over the coming months, multiple price increases are expected with instability of the supply and the ability of the gulf coast chemical facilities to meet demand once again.
There are no guarantees, but the increases we are seeing in plastic prices in the short term are expected to recover slightly in the summer months. The relatively short 2 week shut down of the gulf coast chemical plants from the polar storm will take a minimum of 3 months to recover. Transportation is still expected to be an issue, so increased shipping costs will still need to be factored in for future pricing.
There are several things to considered to help manage your bottom line. Below are a few to consider:
- Understand your price breaks: Pricing is typically based on how many pounds of material are used to produce the quantities you requested. Request quantities that offer price breaks. Increasing your order quantity can be one way to keep your costs down.
- Plan ahead: With price increases imminent, review your current inventory and ensure you have enough product on hand to get you through the high peak months ahead.
- Contact your carriers: Renegotiation is key. Contact several carriers as well as third party logistic companies that can help manage shipping costs.
- Contact Mercury Plastics: I agree that this point is a little self-serving, however, Mercury Plastics, Inc. has a competitive edge over most other thermoformers. Mercury extrudes various plastic sheet in house and has other unique capabilities that limit the need for other manufacturers. Extruding helps to reduce lead times and a better control over increased plastic prices. Mercury understands the price breaks, we have a robust future plan and negotiate with our carriers in order to reduce the upward pressure. We are strategically positioned to be able to provide our customers with an insulating barrier to the coming storm.
The best way to work through unstable times is to ask questions to understand your options and to plan ahead. Start the process today by filling out the Request for Quote Form.
Like to know more about custom thermoforming and understand the costs for your product. Contact Brian Pankratz at Mercury Plastics, Inc. to learn more, firstname.lastname@example.org.