Coronavirus Impact – Rigid and Flexible Packaging

Key Highlights:

• Demand for packaging products across categories is expected to decrease by 10-20% across categories owing to the impact of COVID-19. Supply tightness is expected to increase in 3-4 months with depletion of suppliers' inventory across the globe.

• Major suppliers are shifting their non-essential packaging capacities to essential packaging, inorder to cater to the increased demand in food and healthcare sectors. Apart from these, standard packaging products are making a comeback to the market to ease the supply chain.

• Demand for essential services such as personal and healthcare products is witnessing a spike which can impact both rigid and flexible packaging products, especially HDPE containers, pumps and pharmaceutical bottles, however, demand from packaging of non-essential industries is declining gradually with many countries under lockdown and restricted movement across countries .

• Regional label suppliers who do not cater to food and healthcare industries can witness reduced demand owing to shutdowns all over the globe.  However, key global players such as Avery Dennison and CCL Labels continue their business operations with focus on essential business such as healthcare and food with priority.

• Impact of COVID-19 on China is slightly improving with manufacturing units resuming to function, however majority of the countries such as US, UK, Italy, India etc. are in complete lockdown, indicating a dip in overall demand. Restriction of movement across countries curbs opportunities for cross country sourcing.

Major Risk Factors

Key Facts

• HLP Klearfold, clear box supplier in the US has planned to manufacture around 600,000 face shields per day with the existing resources of plastic packaging

• Thermo fisher is working closely with the Indian government to ramp up rapid testing phase within the country with supply of kits

• Amcor is focused on R&D support for developing convenient packaging for perishable essentials to support healthcare demand

Summary – Industry-level Impact – Rigid and Flexible Packaging

Market Outlook

• As concerns grow about the continued spread of the COVID-19 across various regions, the global packaging industry will face disruptions for next 3-4 months​. Pandemic has further caused disruption in work, movement of labor and breakdown of the supply chain, recovery would be a challenge for next 8 months

Food and Beverage

• Seasonal Demand for beverages has come down drastically owing to cancellation of major sports events and other public gatherings. Lockdown in many of the COVID-19 affected countries have operating rates below 50% for food packaging
• This has reduced the overall demand under this segment, however, supply of packaging for food and beverages is classified under essential services, thus, suppliers are operating at a minimal level and cater to the industry demand

Personal Care

• Demand from personal care industry is limited with restriction of movement across the globe, and buyers who operate largely in personal care segment are adhering to the lockdown and have operating percentages below 10% which can cater to categories such as hand sanitizers, personal protection equipment etc.

• Suppliers cater to essential services on a priority basis which can create supply disruption in the next 3-4 months for personal care

Pharmaceuticals

• Standard products such as antibiotics, general immunity boosting medicines are still at a higher demand as compared to other pharmaceutical applications, however owing to challenges in logistics, there is a wide supply demand gap

• Packaging suppliers catering to pharmaceutical industry have them on a priority basis, thus are meeting the soaring demand through inventory and low operational services, however, the supply constraints are expected with prolonged lockdowns 

Mitigation Measures

• Companies should create a pandemic reaction plan. Firstly, establish a working group of employees from across the organization to author the plan ​

• Owners and contractors should work together to implement public health and infection control improvements on the jobsite by providing masks, sanitizers

• Most contractors should claim postponement of time of the completion date of the project as a result of interruption caused by the novel coronavirus. (Force Majeure or  NEC3)

• Companies with extensive international supply chains should contemplate the tax and transfer-pricing components of restructuring their supply chains by identifying alternate suppliers. To help evaluate labor costs, consider workforce emergency planning scenarios, including during a period of diminished demand and activity.

Key Facts:

• Avery Dennison has dedicated a part of its operations to manufacture 500,000 face shields for distribution across hospitals

• Berry Global in the US has maximized its production capacity toward providing medical and healthcare supplies with being a leader in non-woven fabrics

• Sonoco uses alternative sourcing for raw materials and has restricted imports from  China to a very minimal