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IK criticizes plastics manufacturers' force majeure policy

IK criticizes plastics manufacturers' force majeure policy
The current IK Industrievereinigung Kunststoffverpackungen e. V. economic trend figures give grounds for optimism: German plastic packaging manufacturers are predicting a continued upswing for the second quarter of 2015.

This positive development is under threat, however, due to the fact that major raw material suppliers currently consider themselves no longer able to meet their contractual obligations towards packaging manufacturers. Deliveries that have already been accepted are being cancelled. When deliveries are made, they are coupled with significant price hikes, despite the continuing moderate cost of crude oil. An end to this price spiral is not in sight.

Alongside the export of large quantities of plastics to regions outside Europe such as China, Africa or Central and South America, the main reason for the shortages in raw materials is notifications of force majeure.

In recent weeks, the number of cases of force majeure registered by raw materials producers in Europe has reached “epidemic proportions”. Such reports have so far contained no detailed information and consequently make it difficult to ascertain whether the criteria for force majeure have actually been met.

Cases of force majeure presuppose an "act of God", that is, an influence from outside which is completely unrelated to operational circumstances. Merely claiming the occurrence of "incidents" or "technical problems" is generally not sufficient. The causes lie solely within the area of risk of the raw material supplier. Commercial due diligence dictates in such cases the availability of corresponding storage capacities.

Current raw material shortages and spiralling prices present the generally small and medium-sized manufacturers of plastic packaging with considerable problems. Since raw materials account for a large proportion of costs – up to 70 percent – margin losses represent a potential existential threat.

In addition to economic damage, a significant loss of public image is also a result of the current situation. The retail trade, food industry, and other key user industries value reliable preliminary suppliers very highly. To date, no other packaging sector, neither paper nor metal, has seen such serious occurrences.

In the last 25 years, production of plastic packaging in Germany has doubled, not least thanks to the innovative commitment of packaging manufacturers. Producers of raw materials have also benefitted considerably from this development. They should now implement themselves the spirit of partnership they always claim, especially from contract costumers. Above all this includes sound economic judgement.