Plastic packaging demand grows despite swelling prices

Plastic packaging protects delicate or perishable items as they pass through the supply chain. High raw-material costs—mostly plastic resins—have dented profit margins even though suppliers have successfully implemented some price increases.

However, longer supply chains and just-in-time

manufacturing have created more shipments of small packages over greater distances, says analyst Matthew Warren at market researcher Morningstar in Chicago. Also, quickly growing Internet retail sales drive deliveries of small packages to households rather than truckload shipments to retail stores. These trends have been driving sustained growth in demand for plastic packaging products from suppliers.

Market insiders expect expanded purchasing of plastics packaging—whether flexible or rigid—to outpace growth in gross domestic product for the rest of this decade at least. Some of that optimism is based on continued expenditures by plastic packaging firms on research and development that solve customers' problems. "On the protective packaging side of the business," says Warren, "this involves developing customized equipment, if necessary, that can be integrated into the customer's production line to ensure products are adequately protected against breakage.

Plastic packaging has been able to fight off share-of-market incursions by such other alternative packaging as paper-based products, notes Warren. And he points out there has been "a steady stream of steep price increases" that have offset the explosive increases in costs of plastic resins since mid-2005. Still, the analysts are confident that suppliers will see 6% compound annual sales growth over the next five years.