I think Brexit came as a surprise to most of us and it is for that reason few companies made preparations for the fallout from such a momentous decision.
Having admitted last month to being totally unprepared for the short term consequences to prices of film supplies, as time passes we are now able to take a more balanced view of the price trends which are developing.
First of all we wrote in these notes in April that as the UK is Europe’s second largest consumer of packaging film (the majority of which is imported from the EU member countries), we believed European suppliers would be very reluctant to lose the UK Market, particularly as at this moment, there is a surfeit of film manufacturing capacity in the Middle East with additional capacity being installed in both Turkey and Eastern Europe.
We also said in May that 2016 polymer suppliers seemed to be adopting a more market based approach than that pursued over the last few years. Our impression was that instead of closing capacity to balance supply and demand as they have done previously, there were signs that some of the major players were willing to trade some of the major gains they had made in sales margins for market share. Thus polymer prices after February began to “soften” with potential price reductions likely over the holiday period.
Both these scenarios are still applicable, the only “wild card” for UK film supplies both OPP and PE is the reduction in the value of sterling against both the Euro and the Dollar. Depending on who you believe, this fall has hit film supply side margins between 8-10%. As noted last month, the first reaction from some film suppliers was to increase prices by similar amounts, whilst others issued new price lists with the Euro conversion value used as a base to calculate the new rate – plus the caveat, “The price to be charged would be at the rate prevailing at the time of delivery”. This would be a complete departure from normal practice which we rejected out of hand. One other supplier proposes all future quotes in Euros! Once again this was rejected as a basis for supply.
The consequence has been, to date, all of our remaining suppliers have honored the original prices quoted, suggesting that the polymer price is taking some of the strain. How long this will continue, who knows. But the fundamentals suggest that after the holidays, particularly if the oil price breaks through the $50 per barrel price, unless sterling recovers, then both polymer and film prices will undoubtedly increase. As a consequence we are trying to purchase our bulk film supply through to the year end and, as ever, if any customers want to join us in this approach you would be very welcome.
Frankly, if interest rates are to fall and Q.E. resurrected, we can’t see sterling any higher than €1.22 between now and Christmas and it could test last month’s low of €1.17.
As ever we shall see.
Supplier Self Certification and Product Conformity.
I know that we have readers of these jottings, several hundred as a matter of fact. So all these folks will be aware of my concerns regarding the inexorable growth in numbers of self-certification. The fact that many of those companies that ask for their own certifications to be completed year after year could reduce significantly the workload on both their own and National Flexible’s QA departments. They could do this by simply eliminating from their questionnaires all those questions which are included and independently audited within the BRC, ISO and HACCP procedures. They would free their own QA staff’s time and ours “at a stroke”. It would then be possible for them to focus on the specific information they require over and above the BRC, ISO and HACCP minimum standards.
I raise this issue once again as at the half year, despite a much more stringent approach from BRC, requests for self-certification are up year on year by some 18% and climbing.
In addition changes to the new standard seem to require reel by reel evidence of product conformity and traceability, with appropriate documentation on each delivery. This is a totally disproportionate volume of paperwork for what?? Any customer can, at any time, ask for and be given full traceability on any reel supplied within minutes. That’s what a state of the art, comprehensive bar coding system does. By testing our response they would then have the confidence of knowing that a full traceability system is in place and working for them. Having established this fact, their QA people would not eed to have and store, endless reel by reel paperwork.
If I appear somewhat paranoid raising these issues, it’s because with some 400,000 reels produced each year, I fear that the growth we are seeing in this area will generate more costs at both ends, whilst adding to the mountain of paperwork month by month. If evidence is required that the audit trail on every reel, is on the computer, this is available, so why now are suppliers being asked to print it out and put it on the pallet?
No doubt someone out there has the answer.
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