State of the Industry: COVID's Continued Impact
It has been a year since COVID rocked our worlds. To our amazing community of eco-minded businesses - thank you for your business and partnership throughout these challenges, and for continuing to work together to keep sustainability front of mind during a time it could easily have been forgotten.
We are finally in the midst of positive pandemic news with increasing vaccinations and declining infection rates. But even as we embrace this, we also know the impact of COVID will continue for many more months.
I'm writing to share upcoming EcoEnclose price changes in response to COVID-driven cost increases across our supply chain and to offer operational tips for ecommerce companies based on other trends we are experiencing firsthand. We hope you find this valuable as you look ahead to the next few months.
Upcoming Price Changes
Ecommerce grew an astonishing 44% in 2020. At the same time, supply of raw materials and finished goods slowed dramatically. This mismatch between supply and demand led to significant increases in the pricing of the raw materials. These trends were then exacerbated by the Texas freeze which shut down several manufacturing industries. Specifically, EcoEnclose has seen:
- The price of recycled corrugate increase almost 300% since last January
- The price of recycled polyethylene increased over 27% since last January
- The price of adhesives has increased over 10% in the last few months
We absorbed price increases throughout 2020 to ensure customer costs were stable gong into the holiday season. With new commodity cost increases taking hold this month, EcoEnclose will be increasing pricing across several product categories in the first week of April 2021. This table provides a summary of price changes that will go into effect so you can plan accordingly. Please contact [email protected] with any questions or concerns.
The State of the Industry: Planning for 2021
Beyond pricing, we continue to see COVID impacting businesses in a variety of ways. Here are four of the most salient trends impacting our own supply chain right now that we believe are affecting the entire ecommerce industry.
Manufacturing shutdowns and their broader ripple effect: Manufacturing facilities are operating far more consistently now than they were six months ago, leading to better and more reliable lead times on raw materials and finished goods. However, facilities still need to halt or slow operations occasionally in response to an outbreak or other measures. These events have a lasting downstream impact. In February, the Texas deep freeze led to chemical plant shutdowns which have now created major limitations in the supply of adhesive nationwide. These adhesive shortages will impact packaging and product companies in a myriad of ways, many of which are not yet fully understood. Today’s business landscape is tightly interconnected, so seemingly one off events ripple through a variety of often unrelated industries.
Widespread commodity price increases: In addition to rising costs of recycled paper, corrugate and plastic described above, most other commodity indexes have skyrocketed. In fact, 53 of the 63 commodity prices tracked by the World Bank were higher in December 2020 than they were in December 2019, many of them at 10 year highs. For example, the cost of natural rubber is up 66%. Virgin plastic is up almost 70%. While these aren’t materials EcoEnclose deals with in large quantities, the trends remind us that we must expect and plan for continued cost increases.
Freight pricing and delays: Spot market freight pricing increased 40-50% in 2020, due to rising freight demand, driver shortages and severe weather events. LTL carriers announced another series of 4-6% general rate increases in January of 2021. Carriers are also experiencing heavy delays. We reviewed twenty recent EcoEnclose LTL shipments and found that over half of them were more than three days late. Companies who manufacture overseas have faced even more dramatic trends, as ocean freight pricing was up 2-4x compared to January 2020 and port congestion is delaying some shipments multiple weeks.
Shipping carrier pricing and delays: USPS and UPS instituted recent price increases. UPS general rate increases average about 5%, with the highest increases concentrated on parcels weighing less than five lbs. USPS First Class Package Service saw average increases of 6.5% and Priority Mailer increases averaging 3.6%. On a positive note, the majority of UPS and USPS are now delivering on time! 65% of our February USPS shipments delivered on time, 30% delivered but were over five business days late, and 5% were over two weeks late. Of the UPS shipments sent in mid-February, over 97% were delivered within two business days of their stated transit times.
Five Strategies to Navigate Continued COVID-Driven Challenges
A small silver lining of COVID is that so many ecommerce brands have become pros at working through the unexpected. Here are five strategies EcoEnclose adopted this past year that we think think may be valuable to all ecommerce and retail brands navigating the continued challenges COVID brings to their businesses. .
Plan and purchase ahead: While EcoEnclose is no longer seeing major out of stock challenges or extended lead times, we know we'll see occasional inventory outages or small spikes in our lead times. Additionally, freight delays are widespread, and carrier delays could return at any time. Other partners you work with are likely in the same boat as us! Therefore, plan and purchase packaging, business supplies, and raw materials in advance to avoid getting your operations into a bind.
Be proactive: Stay on top of trends impacting your industry, supply chain and the specific raw materials you work with. Consider and plan for how events will impact your own business. Responding to recent carrier price increases is one example. If you offer free or flat rate shipping, it is important to assess the impact of these price increases on your bottom line, and adjust pricing if needed to accommodate this.
Be resilient, nimble and flexible: Be comfortable diversifying your raw materials and supplies as needed. For example, if you typically use a specific type and size of packaging, consider alternative sizes or styles if stock outs occur.
Be communicative: Communicate with your own customers, letting them know about any product, service or pricing changes being made in response to COVID trends, and the rationale behind them as far in advance as you can.
Maintain focus on your values: Avoid letting the impact of COVID detract from your commitment to sustainability and other values. As a personal example, two weeks ago, we were unable to secure supply of recycled corrugate due to the deep freeze in the Midwest and its impact on manufacturing facilities. While we could have accessed virgin corrugate at that time, this would not have aligned with our core focus on sustainability so we chose instead to await our standard 100% recycled corrugate. COVID has often tested us in this way and reminded us that even when an option is logistically easier, it doesn’t make sense for us unless it aligns with our vision and sustainability framework.
We’ve been tremendously inspired by the degree to which the companies we work with have also maintained their eco focus throughout the past twelve months! This commitment assures me that the movement of conscious and ethical businesses will continue to grow, thrive and drive lasting environmental change.
If you have questions, comments or additions to the above tips, please reach out to me at [email protected].