Life Cycle Of Plastics Packaging Demand And Internet Sales

Business, China, Company Strategy, Economics, Environment, Europe, Oil & Gas, Olefins, Polyolefins, Styrenics, Sustainability, Technology, US

Packaging demand and internet sales

By John Richardson

THERE is a huge amount of excitement out there right now about booming internet sales and how this also boosting packaging demand and so sales of polymers such as polyethylene (PE), polypropylene and polystyrene.

China is, not surprisingly, the biggest growth market.  Demand for foamed PE  is, for example, booming in China as it is much more effective than cardboard and paper in preventing damage to products during delivery.

Money seems to be no object right now for the internet sales companies because of their stellar financial performances.

China again stands out as an example. Alibaba saw revenues up 60% year-on-year in Q1, with Tencent 55% higher.

Amazon is, of course, the standout story in the West. Its share price has soared over the last year in particular. And there is a prediction that Amazon’s strong earnings growth will lead to its shares trading at $1,275 per share, up from today’s $989.84 per share.

But you will be familiar with the product life cycle chart at the beginning of this blog post. See my thoughts on how this applies to plastics packaging and the internet.

I think we are in Phase 2 right now in many regions of the world where some companies don’t worry too much about costs – and anyway the costs of packaging are tiny relative to the costs of distribution etc., especially given the recent fall in oil prices. And in the case of PE, pricing is set to face lots of downward pressure because of the flood of new capacity. 

Also, the key for certain internet sales companies is to win market share through reliability, and that reliability largely hinges on making sure computers, washing machines and refrigerators etc. arrive in one piece.

Some e-commerce guys will thus be listening to packaging providers who sell safety first packaging solutions. This is great news for polymers producers because these solutions require large volumes of polymers – and/or sometimes higher value, and so higher margin, polymers.

Phase 3 will I think arrive in certain localities sooner than many people expect. Cost pressures will build on companies as competition increases. Internet sales growth could also slow down, or sales may even collapse, because of problems with the global economy.

Environmental concerns will also increase as the buzz, or novelty, of buying ever-greater volumes of stuff online will wear-off. Just as consumers have turned against plastic supermarket shopping bags, so will they turn against what they see as excessive and unnecessary packaging of goods bought on the internet.

The broader issue will also be the amount of plastic waste in general. As fellow blogger Paul Hodges points out in this post, by 2050 there will be more plastics in the ocean than fish by weight if current policies continue.

He adds that 95% of plastic packaging material value is currently lost after just a short first-use cycle.

Environmental pressure could also come from the internet sales companies themselves, for two reasons.

Firstly, there is reputational image and brand value. Companies could be increasingly anxious to “walk the talk” on the environment to win-over customers.

Secondly,more and more internet sales companies may want to pre-empt legislation. There are few things worse for any company in any sector than badly-designed regulations that stifle growth. So, as the political pressure builds on plastic pollution, e-commerce players could act first on cutting back on their use virgin, or prime, polymers in packaging.

This will mean the arrival of Phase 4 – less growth in sales of polymers by volume into the e-commerce industry. But there is an upside for higher-value polymers providers who can demonstrate “less is more” – e.g. thinner PE films that perform as well as thicker films.

And don’t think for a minute this will only apply to western countries. China banned free plastic supermarket shopping bags way back in 2008, and is becoming increasingly concerned about the impact of plastic waste. July’s decision to ban imports of scrap plastic is a great example of this. Other developing countries will also become more and more concerned about the plastic waste hazard.

This process will obviously not be linear, just as is the case with the five stages of grief and the global economy. Phases 1-4 will happen at different times in different geographies, and there could also be movement backwards and forwards between phases one, two and three.

The key takeaway here is that growth of packaging in the e-commerce end-use sector serves as just more one example of the increasing complexity faced by chemicals and polymers companies. Today’s societal, political, environmental and economic challenges require levels of scenario planning that few people will be familiar with.

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