Call it death by a thousand paper cuts. 

The paper-based labeling industry is on its last legs. For one, the monthslong strike at Finland’s crucial UPM facilities all but destroyed the pressure-sensitive paper label supply chain, especially for the dairy industry. While plants are back up and running, the situation has barely improved; in part, this is because some 30% of personnel found employment elsewher in the interim, leaving UPM running at only about 70% capacity. As a direct result, many dairies have been forced to change to film materials for packaging, despite the comparably high cost and potential equipment compatibility issues.

The COVID-19 pandemic also continues to plague paper. The crisis commenced what has become protracted labor shortages that, among other drawbacks, have increased lead times for printed materials. Even as the worst of the pandemic wanes, labor costs have continued to be an issue amid the Great Resignation and other manpower-depleting, wage-increasing factors. Many printers are responding by automating more production processes, but such changes take time – and time equals backlog.

Another factor is the supply chain crisis, which peaked earlier this year but is still a substantial concern. In an untenably condensed time frame, the cost of shipping a single freight container from overseas increased five- to tenfold, from about $3,000 to an otherworldly $15,000-$32,000. Meanwhile, miles-long queues grew at overstressed, understaffed North American ports. One of our clients had a container arrive from Asia… that sat for three weeks off the California coast. For many, such expensive prices and extensive delays have simply made sourcing paper material from overseas a nonstarter, indefinitely.

Unfortunately, the understandable reluctance to source from overseas coincides with the ultra-consolidation of domestic paper mills. The good news is the consolidation streak is pretty much over; the bad news is that this is because there’s only one domestic paper supplier remaining: Sappi, the seven-hundred-pound paper mâché gorilla in the room.

Like many industry-defining changes, this consolidation occurred gradually… then all at once. As recently as July 2021, there were five paper label raw material manufacturers in the United States. Then the whole thing tumbled over.

One major player apparently operated in the red for years until a surprise announcement that it was ceasing its paper label-making operations. Another prominent paper provider, Verso, switched from producing paper to corrugated brown board, a nod to the booming e-commerce sector. Several smaller mills are being gobbled up by larger companies, only to see their products shipped to other markets around the world, to address shortages in places like China. Most recently, a small yet scrappy paper provider, Pixelle, announced it would no longer be making standard paper stock, opting for more niche production.

So much for healthy competition. The result is predictable: soaring paper prices and an inability to keep up with capacity.

The domino effects are as easy to understand as they are difficult to stomach. The triple threat of exceptionally volatile pricing, inadequate capacity, and uncertain delivery dates has caused protracted production pauses simply for lack of packaging. Brand owners have plenty of their own product – but not enough materials to place them in. Notably, it’s one thing when a small company can’t procure a necessary production element for a short time; it’s quite another when the crisis is so prolific that highly profitable household names suffer production shutdowns.

In fact, any singular issue in this three-headed paper procurement monster could itself be a killer. For example, take cost (no please, take it!). In early 2021, paper label pricing was around 17 cents MSI. As I write this, the price index is eclipsing 23 cents MSI. That’s a 30% increase in less than 18 months. One of our customers had their labeling expenses soar nearly $2 million in one year.

As crucial as packaging is, it should never be the weakest link along a manufacturing line. We are, it seems, at a point of no return – one wher, realistically, such a thing as a “full recovery” no longer exists. While a cautiously optimistic industry insider could make a case for price stabilization by 2024, the reasonable prices and availability we enjoyed as recently as 2019 are never coming back.

Paper labeling is dead, the result of a thousand paper cuts. There are too many root causes for a complete comeback. And there is only one realistic response: an industry-wide switch to film.

Lights, camera… roll film

The switch to film will bring its inevitable share of headaches. Substrate substitutions are seldom the simplest things, and the production and application challenges inherent in moving from paper to film-based labeling exemplify this. Any seasoned packager knows film can be finicky, and often requires label application equipment tweaks throughout production runs. Line run speeds, static issues, label adhesion, waste, and changeover times all must be considered when switching from pulp-based to film-based labeling.

Given the sheer breadth of the labeling landscape, no “one-size-fits-all” advice exists for packagers looking to switch from paper to film labeling processes. At the most foreboding end of this spectrum, an unknown number of plants still use aging legacy equipment that won’t run anything except paper. These folks are caught between a barren rock and an exceptionally expensive hard place: the paper supply has run dry, but the alternative is prohibitively pricey.

The more fortunate packagers in this crisis have more modern equipment requiring only minor tweaks to switch to film. Still, headaches and challenges will inevitably arise. Most prominently, throughput could decrease up to 20% and, despite paper’s price spikes, film is typically still about 30% more expensive. Also, from an operational standpoint, the switch to a clear substrate will likely mean changing eye marks.

Worrisomely, hovering above everything is what brought us here in the first place: supply. As paper supplies severely dwindle, procuring an adequate, consistent level of film labeling materials is suddenly becoming more difficult.

Amid the churn and chaos, printed packaging facilitators are in a pivotal position. Such hub-and-spoke table-setters can, through their understandably broader array of resources and contacts, arrange the best possible lead times. They also can help mitigate the price increases that, recently, have begun bleeding over into film labeling due to its newly heightened popularity.

This is, we’re finding, an especially difficult time to be a small to mid-size food or beverage packager. In this market, it’s these players that end up paying more for supplies on the front end and waiting longer for them on the back end. Heck, some printers won’t even return calls from companies under a certain size threshold. This draws parallels to the empty store shelves at mom-and-pop stores during the worst of the supply chain crisis: no one is price-gouging or slow-rolling Amazon. It’s the smaller businesses that feel the brunt.

Given the landscape, it’s no surprise that many small to mid-size consumer goods manufacturers are seeking ways to qualify multiple sources of supply through one point of contact. The underlying reason is that supply facilitators can act as bigger fish in an increasingly turbulent pond – boosting collective purchasing power.

For example, if a manufacturer’s regular printer runs out of pressure-sensitive raw materials and is coming up against a shipment deadline, a facilitator might be the best bet to help pivot to another printer, since it is more likely to have a pre-existing relationship with multiple printers. The current supply chain struggles place a premium on having an array of options, rather than placing one’s eggs exclusively in one basket. With the plot thickening and options thinning, packagers are finding that more choices allow them to continue controlling their own narratives.