Factors contributing to the price pressures include rising energy and transportation costs, the latter exacerbated by a recent federal rule that regulates a truck driver’s work day, potentially limiting the time a driver can be on the road. Also cited by the suppliers are inflated raw material prices.
Most notable is the global shortage of acrylic acid, which has caused adhesive prices to rise substantially. In a November 3 customer presentation given by Avery Dennison, the company reported that adhesive prices have increased more than 30 percent. The company also cited price increases for silicone above 15 percent, for paper between 25 and 30 percent; for films 15 to 20 percent; and for production costs, energy and oil more than 43 percent.
Relief from these numerous price pressures, the suppliers report, is not expected to come soon.
“Because of the capacity issues in the marketplace, we don’t expect these inflationary pressures to loosen up in the short term, and in fact the trends that we follow forecast pressures to continue throughout 2005. We will, of course, do everything possible to minimize the impact on our customers,” said Rick Olszewski, VP/GM of Fasson Roll North America in Painesville, OH, USA.
“I think the increases are going to be continuing from the supplier base, primarily through the adhesive side in the next year because of the capacity shortage and strong demand for their product. As far as liners and facers, petroleum based products, I would expect that [these prices] will continue to increase,” said Paul J. Hasemeyer, senior vice president for Green Bay Packaging, Coated Products Operations in Green Bay, WI, USA.
Several label stock companies have also chosen to implement a freight surcharge to defray the rising costs of transportation. Spinnaker Coating, for instance, notified customers of a surcharge of $.001 per MSI in June. In November, Raflatac announced a shipping fee of $75 for orders below 9 million MSI.
Avery Dennison announced a $.001/MSI fuel surcharge in June and another $.001 in October, although the company has plans to rescind the charges if certain conditions are met. November’s charge will be dropped if the cost of diesel fuel falls below $1.90 a gallon for a sustained period of 30 days; the initial surcharge will be dropped if a gallon falls below $1.50.
Converters are now faced with the decision whether to pass the increases along to their customers.
Dwane L.W. Wall, president of Creative Labels of Vermont in Winooski, VT, USA, said warnings of a price increase have been coming for awhile. “I hold no ill will or grudges. It’s called America. There’s a bottom line,” he said, but added that “We as an industry have just barely snuck out of the ultimate doldrums. I don’t feel right doing anything with pricing for my customers.”
Others plan to pass some of the burden to some customers. “We have had three or four people burning the midnight oil to see what’s a tolerable range of margin. We passed on a professional notification letter to all clients, letting them know what’s going on. We will work with them on a case-by-case basis to minimize the impact of the increases,” said Mike Erwin, president of Tailored Label Products in Menomonee Falls, WI.
Here is a look at a few of the recent price increases:
• Avery Dennison Fasson PS products:
up 7 percent, effective January 3, 2005;
• Raflatac PS label stock products: up 7 percent, effective January 3;
• Green Bay Packaging, price increases averaging 6.5 percent, effective January 10;
• Spinnaker Coating, 7 percent increase on all roll