Hello and welcome to Fence Shots Daily. In today's episode, we talk about the trouble brewing in the packaging industry package and B, there was an interesting headline on it yesterday, and it went something like this.
Prices of refrigerators, washing machines, air conditioners and televisions are set to go up by up to five to six percent next month. And the reason, it seems, is because of a sharp increase in input costs and freight charges. For instance, copper prices are on the rise. We have already talked about that. Semiconductors are in short supply. We have already talked about that to shipping charges are exorbitant because of missing containers. And believe it or not, we have discussed that as well.
So the price increase shouldn't come as a surprise. But there's one other element that's also contributing to this price hike. And it's not something you think about too often, packaging specifically corrugated boxes. It is used everywhere. We use it to buy refrigerators. We use it to pack air conditioners. We use it to pack e-commerce goods. We use it rather extensively. Unfortunately, the people that manufacture these boxes have been in a bind for a while. Their costs have been shooting up and they have struggled to pass on the increase in price to their customers.
Why, you ask? Well, let's start with Kraft paper. The key raw material used to whip up one of these corrugated boxes. Indian manufacturers have had trouble procuring Kraft paper because they haven't been able to access pulp at competitive rates. And if you know anything about paper, you know that wood pulp is fundamental to your costs. But this begets another question. Why are pulp prices increasing? Well, you could manufacture paper and one of two ways you could use wood pulp from trees or you could use recycled paper.
And as it stands, demand for virgin wood pulp is through the roof.
Why is that, you ask? Well, China, you see, the Red Dragon once built a thriving enterprise by shipping in the world's waste. They would accept trash from multiple countries only to recycle, use and export these products elsewhere. It worked for a while, but it also paved the way for toxic industries to pollute the clear skies of Beijing. Something had to change. So a few years back, the country's lawmakers promised to move away from waste altogether.
And today they don't impose waste paper like they used to, meaning China's paper companies are now being more reliant on wood pulp than ever before, and they're buying the stuff in bulk. Also, there are speculators in China right now who are hoarding wood pulp in the hope of seeing a price increase soon enough. They want to profit from this endeavor. And if that weren't already, too bad. Certain manufacturers are also importing the finished product that is Kraft paper in bulk from the likes of India.
After all, the pandemic has created new demand for paper products across the globe, and Chinese manufacturers don't want to be left behind. So, yes, the prices of wood pulp are on the rise and Kraft paper supplies are being diverted to China, leaving Indian paper manufacturers high and dry. So what do Indian craft paper manufacturers do? They bump up their price and the packaging industry now has to contend with the possibility of buying this raw material at a higher rate.
Also, 85 percent of the cost of manufacturing corrugated boxes can be attributed to Kraft paper alone. So this impact isn't negligible by any stretch of the imagination. Unfortunately, this only explains part of the equation. The incumbents in the packaging industry are also reeling from a double blow because they haven't been able to unilaterally increase prices for a while now. Most of these manufacturers are small scale enterprises that supply boxes after having contracted orders at a fixed price. And while some companies had the flexibility to renegotiate, most companies don't.
So they've been biding their time, hoping to sign new contracts. But now things are finally looking up. After a long time, it seems some manufacturers are in a position to pass on the increase in packaging costs to end consumers, which in turn partially explains why prices of certain white goods are on the rise.
Thank you for listening to today's episode. And if you want to share your feedback or suggestions, do drop us an e-mail too high at the Redfin's shots dot. Until next time.