Despite the pandemic — and maybe because of the pandemic — now is right time for plastics processors to flex some muscle, according to one CEO.
As leader of Emerald Packaging Inc., a flexible packaging supplier to the fruit and vegetable segments based in Union City, Calif., Kevin Kelly sees an opportunity. With today's difficult supply chain, now is the time to pass along rising costs to customers who have become more appreciative of their packaging services.
In the cutthroat world of business, plastics packaging companies sometimes have to eat their own rising costs, other than resin increases, as customers push for better pricing year after year.
But Kelly sees a market where reliable processors have an opportunity to assert themselves to also pass along other rising costs of doing business. A decrease in international competition due COVID-19 challenges coupled with other supply chain difficulties have customers thankful to processors who can continue to fulfill orders.
And these processors who have figured out a way to navigate the current challenges should be rewarded for that hard work, Kelly said.
"This is really a market of, if you are going to survive or you are going to prosper, you have to pass on those increases. And it should be. We shouldn't be afraid. I still sense that fear amongst processors. I think we've been a lone wolf in the marketplace passing along those increases," he said.
"I also think we're getting product, we're able to source material, we should be rewarded for it," Kelly said. "There's nothing wrong with saying that. Especially in a market like this. We're promising our customers we're going to get them products.
"For the most part, as a matter of fact, they are willing to say, 'Yeah, we're willing to pay more for it.' I've never heard so many thank-yous in my life," he said.
Companies need to let customers know current circumstances are raising costs for processors in a variety of ways beyond resin, Kelly said. "We have to pass on those costs and then some," he said.
"Historically, we've always passed on cost increases based on plastic [pricing] and not passed on nonplastic increases. That goes back to when plastic was 70-80 percent of the cost of processing," he said. That amount is more like 30-40 percent these days for Emerald. "Typically, we have not passed along [nonresin] increases. We've just tried to cut costs where we can."
Customers, who have grown accustomed to receiving price cuts year after year, are learning there is a new reality in today's market. Not only are there not price cuts, but the numbers are not even staying flat.
Kelly called this a "weird psychological moment for the processors" who are used to getting beat up over pricing by customers.
Another interesting situation occurring in today's market is that Emerald is receiving interest from companies they have never been able to sell to previously. But the company, with a tight resin supply, is hunkered down and concentrating on supporting the existing customer base and not worried about trying to extend beyond that during these difficult times.
Kelly believes the tight market and higher prices will continue, at least in the near term.
Emerald considers itself the largest flexible packaging supplier to the produce industry in the country, with $80 million in sales and annual production of more than 1.5 billion bags.
The company employs about 275 workers, but Kelly said there are about 15 or so open slots he wants to fill. This, however, has not been an easy time to recruit new staff.
The CEO estimated about one in 10 new hires actually stick with their job these days. Enhanced unemployment benefits instituted to help families make it through COVID-19 has discouraged some people from working.
But he also believes some people do not want to go into a manufacturing atmosphere.
"We entered the pandemic a year and a half ago with about 15, 16 open slots. It went up to about 22, 23 and it's back down to about 14, 15. So it really hasn't budged that much," he said.
Some people do not return after their first shift. Some don't return after their first week.
Kelly explained that the jobs are not "dirty or bad. … But it's still manufacturing," he said, which can be noisy and "not as clean as Starbucks."
"You end up hiring a lot of people to get one or two to stick," the CEO said. "I'm probably optimistic at 10 percent," he said about new hires who stay. "It's not pretty."
Those who previously worked in manufacturing are more likely to remain on the job than those with no such experience, Kelly said.