Tubes: Price Tags
According to Andy Iseli of CCL Tube, tube suppliers get less bang for their buck manufacturing smaller tubes like these Hawaiian Tropic lip gloss tubes—which is especially challenging now that oil prices are rising and making tube production even more expensive.
Oil prices and production costs raise the stakes for manufacturers seeking a competitive edge, as one supplier discusses.
By John ConroyFor some tube manufacturers, high oil prices and cost pressures are taking a greater role in the ongoing quest for aesthetic breakthroughs and competitive advantage.
Small Tubes, Smaller Prices
CCL Tube (Wilkes-Barre, PA) has installed two in-line production lines for tubes with diameters measuring ¾, ⅝, ⅞, and 1 in. Small tubes are popular for personal care items such as Carmex lip balm and other cosmetic, healthcare, and sample products, but making them presents manufacturing challenges, says Andy Iseli, general manager of CCL Tube’s Los Angeles plant.
Smaller tubes are more difficult to manufacture and handle than regular sizes, says Iseli. Making the small tubes “requires basically the same type of equipment you would use with regular-sized tubes [measuring] 2 in. and 1½ in.”
One problem is that smaller tubes sell for far less than their larger counterparts, even though they’re made on the same production line. Iseli says that for smaller tubes, CCL charges a fraction of what can be charged for bigger tubes. Manufacturing the smaller sizes “requires the same footprint, the same energy, the same labor. Everything is the same; there’s just more plastic on the bigger tubes,” he says.
CCL takes several approaches to keep costs down. These steps include concentrating production in the United States, using in-line production equipment, and putting “high-end decorations” on the smaller tubes in order to increase their value, according to Iseli. In addition, CCL is manufacturing some small tubes in China with materials supplied from the United States and applies U.S.-based manufacturing controls to trim costs. “It’s the same tooling. It’s just made over there,” he says. “We are using this business model for big-volume, small-sized tubes [in markets] where we would just not be able to compete.”
Like manufacturers in many industries, CCL Tube is suffering from the dire effects of the record-setting price of crude oil and natural gas. The spike has caused plastic resin prices to rise, putting the squeeze on CCL and other manufacturers, Iseli says, adding that the percentage rise in the price of resin has “pretty much paralleled” the rising cost of gas at the pump.
Resin Prices Rising
Since January 2007, the price of plastic resin, the basic raw material for making tubes, shot up 40%, according to Iseli, and is expected to keep rising. “It affects every competitor,” he notes. “It’s just a fact you have to deal with.” Multiyear agreements with large-volume customers often prevent CCL from passing along the higher costs, he says.
CCL makes only small-sized tubes in China, says Iseli, adding, “they’re relatively cheaper to transport” than larger tubes. In fact, although hidden costs such as international freight charges and customs duties can cut into any money saved, it costs less to ship the small tubes from China than it does to drive them from Los Angeles to Dallas on a truck, he notes. As many as 2 million small tubes fit in a shipping container, while approximately 150,000 of the 2-in. tubes fit in a shipper, making the cost-per-thousand break-even point prohibitively expensive.
The weak U.S. dollar has had both positive and negative effects on CCL’s business, Iseli says. European manufacturers that used to be the main source of many foreign-made tubes, particularly large ones, are finding their American business suffering while domestic producers fare better as U.S. brands look to have tubes made closer to home. One of the drawbacks of the weak dollar, however, is that European companies manufacture some of the production equipment that CCL and other U.S. tube suppliers use. As a result, “if you buy new machinery, you pay a huge premium now [in dollars],” Iseli points out.
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