The Business of Packaging

Packaging is used across a wide range of consumer sectors, as well as some business and industrial categories. Such is its ubiquitousness in everyday life that the packaging usage rates are often closely aligned with the general ebb and flow of the broader economy.

The Changing Significance of Packaging

Packaging is an important – if sometimes overlooked – aspect of the product experience. At its most basic level, a piece of packaging serves but to carry and protect the contents within it. Or in the case of food and drink packaging, it must also prevent spoilage and retain nutritional value. But going beyond basic functionality, one would see that today’s packaging is expected to be so much more – attractive to consumers, friendly to the environment, all while staying cost effective to produce.

Global Outlook

According to a research report compiled by Smithers Pira, the global packaging market stood at US$799 billion in 2012. Packaging sales are projected to increase by 3 per cent in real terms for 2013 to US$824 billion. The report is also forecasting annual growth of 4 per cent per year to 2018 in the world packaging market, with sales to reach over 1 trillion US dollars by 2018.

Globally, much of the demand is expected to come from the emerging markets of Brazil, Russia, India and China, increasing in line with the development of their economies. Strong growth is expected with increased consumption and demand for consumer goods driving the need for more sophisticated packaging.

One of the key issues faced by packaging companies (known in the industry as “convertors”) is managing the costs of their raw materials. This is especially critical given that raw materials make up more than half of the manufacturing cost of packaging and packaging producers may not have the clout to pass on any price increases to their customer base.

Production Machinery

The packaging manufacturing business is a capital-intensive one, requiring sophisticated printing and converting machines to deliver the necessary quality and production efficiency. According to a study by the Freedonia Group, worldwide demand for packaging machinery is expected to grow at a pace of 4.6 per cent per annum through to US$41.8 billion in 2017.

The US is currently the largest market in the world for packaging machinery, with demand expected to hit US$6.4 billion by 2017. However, China is expanding at a rapid pace too and is expected to overtake the US marginally by 2017, accounting for US$6.9 billion in demand then.

As a region, the Asia Pacific will also see packaging machinery shipments grow rapidly through to 2017. Both smaller packaging firms from the region and larger foreign multinationals will look to ramp up their manufacturing capabilities and capacity to meet the growing demand for packaging from Asia’s markets.

Additionally, changing demographic and consumer lifestyle trends, as well as increased competition between fast-moving consumer goods (FMCG) companies, have created demand for innovations in packaging, such as resealable pouches for snacks. The production of new specifications require investment in new machinery, which is expected to add to their growing demand.

Sustainability of Packaging

The key development in Singapore’s packaging industry in recent years has been the increasing number of packaging producers committing to reduce packaging waste. This growing movement is largely the result of continuous efforts by the National Environment Agency (NEA) to promote the cause.

In 2007, the NEA launched the Singapore Packaging Agreement (SPA), which was signed by 32 signatories. The Agreement outlined a platform and structure for businesses to collaborate with the government in reducing packaging waste. When the first SPA expired in June 2012, a second SPA was effected. This time, a total of 159 signatories came onboard.

To date, the participating companies have reduced some 20,000 tonnes of packaging waste in total. This has been achieved through measures such as innovative packaging redesign. Apart from reducing waste at source, these signatories also saved a total of S$44 million in production and material costs.

Industry to Grow in Tandem with the Economy

In conclusion, the packaging sector looks set for a sustained period of growth in the years ahead, riding on the global economy recovery that has been getting underway for some time now. And while the industry has largely matured, its correlation with the broader economy suggests that it will continue to prosper as long as consumer demand remains resilient.

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