Is the Price Increase Fun Just Beginning?

Over the last few weeks, we have received price increase letters from thermal transfer ribbon suppliers and a film supplier. It has been five years, yes, five years, since a general increase in the pressure sensitive label industry. After a long period of price stability (and even declining prices in some areas) in our industry, are these the warning signs of increases to come?  

Regular readers know I’ve been wrong on raw material inflation for a while. My judgement is clouded because I see operating costs rising but no opportunity to raise our prices without a raw material increase. I’ve also underestimated the irrational mentality related to capacity utilization that exists in our world. A good friend in the paper industry gave me this analogy. He said, “It’s like we’re in a boxing match but there are really two fights going on. I work for a company that wants to win; I only survive in my position if I win the fight before it goes all 15 rounds. In other words, I need to make money. Some of our competitors view the fight differently. All they have to do is make it 15 rounds. It doesn’t matter if they win or not; they just want to survive. In other words, making money is a secondary goal for them; it’s my primary goal.” He delivered this analogy a lot more colorfully in his New York accent and lingo, but this is a family friendly blog. (My mother reads this.) 

We live in a world with excess capacity. Excess capacity gives the buyer power. That’s happened in the label industry (and several others over the last several years) – buyers have gained power. Transparency created by the internet has helped buyers more than sellers.  (His delivery methods are not very refined, but that’s President Trump’s basic message to our trading partners.) For the pendulum to swing towards sellers, excess capacity either has to be taken out (via closures and/or consolidation) or utilized (via increased demand). Unless something happens that drastically changes the supply side of our industry, we will get sporadic price increases related to increases in commodity prices. If I could predict commodity prices, I’d be writing from my yacht in the Mediterranean right now. I don’t own a yacht…But if I did, I’d prepare for choppy seas (price fluctuations) ahead.