Can a Label Shortage Bring Global Supply Chains to a Halt?

Date: Monday, March 14, 2022
Source: Supply Chain Brain

If retailers, manufacturers and transportation providers can’t get paper labels, the entire supply chain could quickly reach a crisis, and even grind to a halt.

Absurd as it sounds, that’s now a looming possibility, after a strike called by the Finnish Paperworkers’ Union on Jan. 1 was followed by support from the Transport Workers’ Union (AKT), which refused to handle shipments of labelmaker UPM Raflatac out of Finland’s ports. Together, those moves brought UPM’s production and export of paper products there to a standstill. On Jan. 24, the Paperworkers’ Union on announced a three-week extension to the strike, to April 2.

As a result, sales of UPM products plummeted from 306 sea shipments in October 2021 to barely 53 in January 2022, according to ImportYeti.

While labels might not be as critical to the distribution of goods as ships, truck drivers and fuel, they’re very much an essential part of day-to-day supply chain operations. “Everything has to have a label, including food and pharmaceuticals, and then there’s all the labels used in the logistics and transportation industries,” says Corey Reardon, president and chief executive officer of AWA Alexander Watson Associates. He says the boom in e-commerce and the COVID-19 pandemic have driven demand for labels even higher, because each home delivery requires its own label — mostly of the pressure-sensitive type produced from components supplied by UPM.

A significant shortage in these types of labels threatens to bring a supply chain already strained by inflation, war and the COVID-19 pandemic to a standstill.

While China is by far the largest producer of paper and cardboard, Finland ranks seventh, with two Finnish companies, UPM and Stora Enso, among the top seven companies producing paper and paperboard products worldwide, according to Stastista.com.

Reardon says the strike in Finland is critical, because UPM is the leading supplier of release base paper (the liner from which labels are peeled) as well as face papers (the actual labels that are printed on). “It’s really affecting the western market, with the impact more on the U.S. and Europe,” he says. Asia, on the other hand, has less to worry about, as it is effectively self-supplying. (UPM has a large plant in China, and there are other producers of these types of paper there.)

The threat is “existential,” label manufacturer Smith Corona said in a recent blog, adding that if the situation becomes desperate enough, label suppliers might have to prioritize distribution to specific industries, such as healthcare, to keep the supply chain moving. This action could spur government intervention, which Reardon points out has never happened before in this industry.

At the same time, he argues, the situation has been a long time coming. “The context is that demand is very strong. That’s both the good news and the bad news,” he says. He argues that there’s too much focus on the strike in Finland, which is only the most recent in a series of disruptions that have affected the pressure-sensitive label industry. COVID-19 ended up being a driver for growth, but in the beginning there were huge and erratic fluctuations in demand and some companies ran down their stocks.

“Just like other industries, we didn’t know for six months how it was going to turn out,” Reardon says. Add in the weather-based disruptions in the U.S. Gulf States, where many of the chemical manufacturers making resins and adhesives critical to labelmaking are based. Then there was the blockage of the Suez Canal and a growing number of other transportation and supply chain disruptions that prevented paper pulp from Canada, South America and Finland making its way to label manufacturing plants.

“The strike is possibly the straw that breaks the camel’s back,” Reardon says. “There’s been a whole string of disruptions that have created significant headwinds. The strike is just exacerbating the problems that have been hitting the industry for some time.”

Robert Turnbull, vice president of business improvement for Buckeye Business Products, a manufacturer of pressure-sensitive labels, urges companies purchasing labels to preserve good relationships with suppliers. Otherwise, that supply might go elsewhere.

Says Turnbull, as quoted by Smith Corona: “Right now, if you have a supplier of raw materials or finished goods who will still supply you, you need to keep in their order books. There are plenty of people who would take your volume should you stop buying.”

European label groups like the British Printing Industries Federation (BPIF), and industry trade associations like Intergraf, are already raising concerns with the U.K. government to ensure it’s aware of the potentially serious impact on consumers.

Intergraf president Ulrich Stretter stresses the importance of resolving the labor disputes quickly. “[The strike] jeopardizes the rebound of our industry and our suppliers after the pandemic, and both will suffer irretrievable damage.”

At present, there’s no obvious workaround, Reardon says. “Any buffer stock is depleted, and there are no other suppliers with the capacity to fill that void, because they’re all running at full steam already. The problem is that other companies simply can’t absorb the capacity.”

 

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