2023 Label Market Outlook

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Is it just us or have the last few years felt like the “10 plagues of Egypt”? At least it has for the label market. Not only was the world confronted with the COVID-19 pandemic, but the label industry was forced to combat the negative effects of things like natural disasters, paper mill shutdowns, freight disruptions, a liner mill strike, and material shortages. But before we can look forward, let’s first take a trip down memory lane, then discuss what 2023 and beyond may have in store for us. Our 75 years of experience tell us to hope for the best but prepare for the worst.

As businesses cope with the potential challenges of 2023 and beyond, they'll need to respond by adding flexibility to their products, plans, and policies. With all of the talk about an economic recession, being agile has never been more important. This article outlines the past, present, and future outlook of the label market, as we’re hearing and seeing from our industry partners, and how we can all equip ourselves to confront any unexpected challenges going forward.

The Past is the Past
Unless you’ve been living under a rock, you’re well aware of the global supply chain crisis and rising inflation affecting us all. The printing supply chain is no different and subsequently, has been hit especially hard. Soaring material demand and tight supply have pushed lead times to unprecedented levels, which have forced allocations in several markets.

For label manufacturers, securing ample material to service our customers has been difficult, but, fortunately, those who have built strong vendor relationships were able to stay ahead of the game. To mitigate the customer impact, label manufacturers were tasked with balancing inventories based on customer needs.

The balancing act involved:
• Turning away new business opportunities due to the supply crisis (to not jeopardize the material supply allocated for current customers).
• Having supply agreements in place to assure supply.
• Not refusing material allocations, even though this comes with increased risk and cost.

One of the tightest markets in 2022 was the pressure-sensitive material market. The suppliers in this sector restricted their customers, the label manufacturers, to purchase amounts that could not exceed the prior year’s volume for each item. This meant an inability to entertain certain new business opportunities, thus potentially restricting growth. Behind the scenes, the material suppliers, and in turn, the label manufacturers and end-users were being faced with the modern-day version of the “10 plagues of Egypt”. Over the last two years, the challenges we faced include:
• Pandemic-related labor shortages
• Major events disrupting the supply chain include
• On the gulf coast, Winter storm Uri in early 2021 and Hurricane Ida in August 2021, shut down much of the chemical production needed in the supply chain of adhesive and paper manufacturers.
• A paper mill had a tragic accident that shut down its Canadian facility for weeks.
• Freight issues include
• Container shortages
• Driver shortages
• Ocean freight capacity shortages and soaring prices
• US port congestion
• UPM Finnish Paper Workers strike from January 1 through April 2022. These shuttered mills supply a substantial portion of the release liner paper as well as semi-gloss facestocks used in the US market.
• The acrylic adhesive supply chain has seen many shortages and force majeures on key monomers and formulation additives.

It didn’t stop there; the remainder of 2022 saw additional challenges. Lead times from pressure-sensitive suppliers were out anywhere from one to five months on many materials. On top of the allocations and extremely long lead times, then came several rounds of price increases on virtually every raw material involved in the label manufacturing process, including paper, label stock, release liner, adhesive, silicone, inks, and packaging supplies.

On the Horizon
Looking forward, we’re starting to see signs of brighter horizons! In a typical cycle, some of the increases from inflationary periods will start to erode when business slows down. We’re already starting to see pricing on components show signs of stabilizing. This may not happen immediately as the slower economic times still find some of the mills are full due to so much capacity being removed in the last few years due to shutdowns. But we are hopeful that by the Summer of 2023, we will all benefit from raw material price decreases in the market.
We also fully expect all material allocations to soon be lifted, as there are only a few still currently remaining. This means we could finally start to see lead times return to weeks instead of months. With talk of a possible upcoming recession, it’s more important than ever to align yourself with suppliers you can trust as we continue to navigate these and other supply chain challenges in the coming years.

Help Us Help You
The good news is that we’re in this together, but supply chain disruptions are inevitable. To reduce the impact, work with your label suppliers on the following:
1. Have open communication regarding usage forecasts. We can incorporate this data into the forecasts that we are being asked for from our suppliers.
2. Get orders in much earlier than normal to combat the extended delivery delays. It is much easier to move back a delivery than to get material that is out of stock.
3. Change the re-order point you have become accustomed to. We suggest building inventory to slightly higher levels than in the past and then placing the next order when levels get down a 3-month supply.
4. Work with a supplier that can be self-sustainable. For example, the ability to make their own pressure-sensitive stock if need be. Having adhesive coating capability, silicone-coating capability, and the ability to buy many of the components already assembled will help combat unexpected shortages and allocations.
5. And if challenges persist, work with your suppliers and be open to label/ product redesign or using alternative materials.

For more information on this topic and others related to your custom label needs, contact Chicago Tag & Label at 800.826.8260 or visit www.chicagotag.com.

DOWNLOAD THE FULL ARTICLE HERE.