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Update on Market Conditions
Dear Valued Customer,
We want to provide you with details on the substantial inflation we have experienced thus far in 2021. As you have likely seen, price increases have been unrelenting and the global supply chains have been disrupted. These increases are occurring for a multitude of reasons and have created the perfect storm of events. The major reasons for disruption are as follows:
- Exchange rates
Domestic freight is severely challenged with a massive driver shortage due to the national decline in available drivers. As a result of this, there is an additional impact of escalating wages as companies fight to attract and retain drivers. Furthermore, to exacerbate this issue, fuel rates are skyrocketing, and the result is domestic transportation cost increases of over 30% this year.
Ocean freight continues to be challenged with severe congestion in the ports. Spurred by the pandemic, there has been a massive increase in ecommerce consumer spending that has created a 50% increase in containers being shipped to the US. Along with the massive increase in volume, the ports have been hampered with labor shortages due to the pandemic. Consequently, ocean freight costs have quadrupled since the beginning of this year.
The price of resin has skyrocketed this year primarily due to the severe weather this past winter in Texas and the Mississippi Gulf Coast that affected the petrochemical sector. Refineries and associated industries had to curtail or halt operations. Several suppliers have declared Force Majeure across various resin categories affecting polyethylene and polypropylene plants. Many contracts are now deemed null and void and strict allocations and/or moratoriums have been imposed. For instance, LLDPE (Linear Low-Density Polyethylene) just announced another increase in July for the eighth consecutive month.
The price of pulp continues to increase due to a myriad of factors. First, as the global economy recovers from the pandemic, the demand for pulp has increased significantly, especially in China. Also, a significant portion of the pulp capacity is now being directed toward the brown kraft market due to the significant increase in ecommerce sales as the demand for corrugated cartons continues to increase. This creates further strain on other non-corrugated paper-based products.
Additionally, there have been numerous curtailments of paper mills and/or paper machines as demand declined due to the pandemic. Many paper mills have retrofitted their paper machines that traditionally manufactured printing paper to produce brown kraft paper to chase the increasing demand in corrugated cartons. Paper manufacturers are racing to keep supply and demand in balance as mill operating rates for Coated Free Sheet and Uncoated Free Sheet are at maximum capacity. As a result, there have been numerous price increases as demand for all paper-based products returns. Strict allocations and moratoriums are now being imposed by several paper manufacturers.
Lastly, over the past year the US dollar exchange rate has declined at least 10% against other foreign currencies causing importers to raise their prices or choosing to export to other more profitable markets further constraining our domestic capacity.
We recognize this is a challenging business environment and commit to you that we will continue to do all we can to mitigate the price increases while proactively communicating these changes as we navigate through this together.
President WCP Solutions