It's almost 2017 (thank god). We are all so ready for 2016 to be over.
But, there's one big problem: the price of cosmetic packaging has gone up. A LOT.
It doesn't matter whether you're working with a factory on Alibaba, Aliexpress or an agency in the US: everyone was equally affected.
Actually, regardless of what you're making in China, the price is probably going up in 2017.
Wait, but why?
Those of us who are here on the ground in China saw it coming.
In fact, those of us here in China who are in touch with our factories probably all received a similar frantic 2am text message that said something to the effect of:
"Attention! Please note that the prices of packaging will go up after the Chinese New Year! Starting March 1st, the price of materials will rise. The government is limiting the pollution level by each factory and many factories must shut down. The price of raw material continues to rise. Together, expect all packaging to rise in cost by 30-40%."
The undertone read like this: The world is going to end.
Needless to say, everyone was freaking out. Every factory we work with was asking us to put down deposits and lock in prices now, to prevent changes in outstanding price quotes. Many customers have probably been waiting on this blog, to fully explain our recent behavior, because we have been super pushy with our clients in the past 2 weeks, asking them to close and sign ASAP. This was all in their best interest, of course, but here's why:
Here is exactly how raw materials are predicted to rise in price in 2017:
1. The price of coal will rise 200%
2. The price of glass will rise 40%
3. The price of plastic will rise 30%
4. The price of aluminum will rise 30%
5. The price of iron and steal will rise 30%
6. Stainless steel price will rise 40%
7. Shipping prices will rise 33.6%
8. Paper packaging prices will continue to rise (every 3 days the prices are predicted to increase).
Here's what that looks like:
Rise in Price of Raw Materials (%) China, 2017
But it's not just about rising raw materials costs.
The Chinese government is cracking down on high and illegal levels of pollution pouring out of factories. They've set new regulations to hamper smog production. They've shut down factories. They've checked illegal operations, which previously only operated at night. They've raised the standards, forcing factories to either get new equipment or shut down.
Many factories are choosing to shut down altogether.
Expect at least 1/3 of the factories that produce plastic cosmetic packaging to disappear into thin air.
By the end of 2017, 40% of factory workers in China are expected to lose their jobs. Up to 25% of factories in China will close. Maybe even more.
Oh yeah, and..?
The RMB is decreasing in value relative to other global currencies.
This all spells trouble for cosmetic packaging factories in China.
So, what's next?
As we've written before, it's possible that factories will continue--yes continue, because it's already started--to move to neighboring countries, like Indiana, Bangladesh, Vietnam, Thailand, Laos and Cambodia. Labor continues to be cheap in China--the average factory worker works 72 hours/week and makes $450-$900/month in China--but with a weak yuan and rising regulatory hurdles due to the Chinese government attempting to contain pollution levels and the rising cost of raw materials, we're not quite sure how things will shake out.
For the time being, China is still the biggest manufacturing beast in the world.
We do know a few things:
1. Moving a factory overseas takes time; any shifts will take 2-3 years to become trends.
2. Packaging options are still limited to Chinese factories; everyone will keep producing in China in the short-medium run out of habit and convenience.
3. Expect prices to rise 30-40% overall. If you demand the "same price as always," expect your quality to decrease. Corners will be cut somewhere.
4. Working with an agent or company that offers QC checking will greatly decrease your chances of faulty goods during this time of shaky Chinese economics.
30% isn't much to be scared of, though, right?
It's doesn't sound like a lot, when you think about a $1 packaging becoming a $1.33 packaging, but when you think about a 10,000 unit run at $10,000 becoming a $13,330 run, that $3,330 is very real and needs to come from somewhere. When you think about your products that were already being double-distributed on razor-thin margins, now there are no margins to speak of.
In times like this, you need to think about where that "extra" something is coming from: your paycheck, your ingredient list, your employee benefits. Something real, something tangible will be affected.
If you're operating on fat margins, then no, it doesn't matter too much.. now.
From the points above, you might have derived that there will be longer-lasting effects. China is developing. This is just step 1 in a chain reaction of rising costs and regulations. If you're thinking long-term, it may be better to begin a shift to minimal, eco-friendly and lasting packaging--perhaps even a reusable or recyclable packaging.
Consumer Point: Stay Informed in Times of Change
As a consumer: check your labels.
Formulations will change. Compromises will be made. Be informed; know what those changes means for you and your health.
Takeaways: Why Cosmetic Packaging Costs Will Rise in 2017
So, there you have it! 2016 was one hell of a year, and if you believe in the Butterfly Effect, you saw this coming from a mile (or perhaps half a world) away.
This was a pretty wide-reaching review from all angles of the industry, but we're all as much creators as we are consumers; the world is a giant ecosystem.
The cosmetic packaging industry will continue to shift and change, but just keep in mind that your packaging will take up a larger percentage of the overall product budget in the coming years, so make room for it.
As always, if you need a quote for packaging prices, translator, or QC check on the ground in China, feel free to contact us (here) for a quote.