The raw material costs for wooden packaging are increasing
The price of wood is going up; prices for structural wood panels have increased nearly 50% since last year. The price of lumber increasing is in contrast to other commodities such as oil and industrial metal which have softened considerably.
The biggest consumer of lumber is the construction industry. The price increases are caused by shortages of lumber in the supply chain. Is there some major increase in demand to cause pressure on the supply? While housing data has been encouraging lately, and housing starts this year are much higher than last year at this time, we are still less than 50% of build rate in 2008. The supply more than kept up with the demand back then, so what is happening today? It would seem that the current uptick in the housing market would hardly be a blip on the radar screen to the suppliers.
Unfortunately the supply base is not nearly what was back in 2008. After the housing market collapse, many mills cut back on capacity, often permanently closing mills. Mills require expensive equipment, so the industry is still reluctant to add capacity. So even a modest increase in demand is stretching capacity and creating shortages. The increase in lumber may end up being a drag on the housing recovery, so more potentially bad news for the economy.
Packnet is also experiencing the effects of the supply shortage and price increases. Some of these cost increases are being passed on to our customers. As is always the case, Packnet is working with both its suppliers and customers to engineer cost effective solutions for packaging and crating.
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