Over the past two years, paper and packaging companies have faced various supply chain challenges that ultimately led to paying higher prices for transportation. One year ago, as prices were rising, FreightWaves staff estimated that the top five paper and packaging companies spent more than $7 billion on domestic freight transportation in 2020.
With the rising costs of transportation (as both contract and spot rates rose to new highs in 2021), the spend (as a percentage of revenue) likely followed suit. Instead of estimating that 11% of revenue of these top five paper and packaging companies was spent on transportation, the estimate was increased to 12%, reflecting higher transportation costs. Therefore, FreightWaves estimates that the top five paper and packaging companies spent more than $9 billion on domestic freight transportation in 2021.
While the past two years have been challenging and while inflationary pressures on freight rates aren’t as intense as they were throughout 2021, other inflationary pressures are still impacting paper and packaging companies.
However, there is good news for paper and packaging companies as the calendar is set to turn to 2023. The domestic freight market has turned completely upside down as spot rates have come back down to Earth and rejection rates have returned to 2019 levels.
This indicates that paper and packaging companies will be able to use savings on transportation costs to boost their bottom line in 2023. Using data from FreightWaves SONAR, TRAC and Supply Chain Intelligence (SCI) platforms, paper and packaging companies can quickly identify areas to save money and improve network fluidity.
With those thoughts in mind, we recommend that paper and packaging shippers leverage all data available when negotiating contracts and managing day-to-day freight movements. We estimate that the largest paper company could save ~$25 million in freight spend from a hypothetical reduction in freight spending of just 1%.
In a hypothetical example, a paper and packaging company, Shipper X, is overpaying the market rate on 8 of 52 lanes, resulting in spending more than $800,000 needlessly. By targeting and negotiating rates along these 8 lanes in line with the market rate, Shipper X would save more than 2% of its total transportation spend on the 52 total lanes.
Paper and packaging companies will have leverage heading into 2023 that they haven’t had in more than two years and using all available data will allow them to reap the benefits.
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