What Lower Oil Prices Can Mean for Your Business
As the world has noticed, the price of crude oil has dropped dramatically. It’s most noticeable at the pump. As a new Census report states, revenue for gas stations dropped 19.4% between 2014 and 2015.
The drop in barrel prices is not a trend that will have gradual effects on the market, like consumers’ shifting tastebuds, but rather an economic shift that’s here to stay. With it comes a multitude of consequences, but those affecting your business are a reduction in operation costs and in many cases a lower raw material cost for plastic items. From flexible film to PET bottles, plastic packaging uses many chemicals extracted from oil as a processing byproduct. High demand packaging material components, such as ethylene and hydrocarbons, are finding their own supply chains affected. Reductions across different polymers vary, but there’s no doubt. They’re cheaper to produce.
It’s doubtful that any savings will directly match the fall in oil prices. Many petrochemical manufactures, because of previous high prices, let plants stagnate to the point where production and supply have been affected. For North America in particular, prices are higher than other regions and there’s concern for expansion projects. Savings thus are found on a case by case basis.
Between lower material costs, lower transportation costs, and knowing that the price of oil isn’t going to rise rapidly to previous levels, now is the time to consider reevaluating your own packaging spend. Suppliers are slow to pass on cost savings, for good reason. Each part has its own supply chain, of which oil’s dropping price affects only a portion, but there is room for negotiation. Today is when you should start considering how to improve your company’s position.
Start with assessing your current contracts for savings opportunities and from there it’s using an understanding of the market surrounding the specific materials you purchase. The market has changed a lot even within the past three months, and oil’s drop means you need an expert with current situational knowledge on your side. It’s important to analyze all your company’s spend categories – plastics are not the only place where reduced oil prices have an effect, it’s simply the most direct.
Oil is, after all, an energy source and one that helps power many supply chains from label ink to cardboard. Containerboard dropped last month, a shock after six years of without a dip, thanks to a mixture of operation adjustments, supply, and energy costs.
Cheaper packaging is an opportunity to grow your margins, it’s true, but it also provides a chance for you to elevate your company’s packaging. Features such as being easy to carry, open, store, and reseal can demand premium pricing, as can using recyclable packaging. Now, when prices are low, is the perfect time to test new designs and enhance your product line’s image.
Be it a slight change or a brand new innovation, Provident can help you design and bring your packaging to life.