Polypropylene is a commodity and its price moves. Any packaging contract longer than a few months has to deal with that somehow, and there are three common mechanisms – each with a different balance of risk.
Mechanism one: fixed price for the term
The supplier carries the resin risk and prices it in. You get budgeting certainty and usually pay a little more for it. On a short contract, or when resin is stable, this is often the best value.
The thing to check is the validity period. A fixed price with no period stated is not a fixed price.
Mechanism two: index-linked
The price moves with a published resin index, usually with a formula and sometimes with a collar limiting how far it can move in a period. Transparent and fair, and it requires you to track an index you may not otherwise follow.
Ask which index, how often it is applied, and whether there is a collar. An index clause without a ceiling is not much protection in a volatile market.
Mechanism three: review on notice
Either side can request a review with notice, usually thirty or sixty days. Flexible, and the weakest for a buyer – it turns every price review into a negotiation where your alternative is to find another supplier.
If this is what is on offer, ask for a cap on any single increase. It is a reasonable request and often granted.
What to ask for
Notice period before any increase takes effect – thirty days minimum, sixty is better, because you need time to react. Frequency of review: quarterly is normal, monthly is aggressive. And a cap, in percentage terms, on any single adjustment.
Also worth asking: whether a decrease is passed on as readily as an increase. A clause that works in one direction is not a mechanism, it is a one-way option.
What actually protects you more than any clause
A qualified second source. The best defence against a price rise is somewhere to go, and it is worth more than a well-drafted escalation clause. That is the argument for the split described in single-sourcing vs multi-sourcing packaging.
What to ask for, in one sentence each
Which index, if index-linked, and where it is published. How often the price is reviewed. Notice period before an increase takes effect. And any cap on a single adjustment.
Four questions, and a supplier who answers all four specifically is offering a mechanism rather than an option. One who answers two is offering something weaker than it looks.
How to tell whether a fixed price is good value
Compare it with an index-linked quote over the same period. If the fixed price is only slightly higher, it is usually good value – you are buying budgeting certainty and the resin risk for a small premium.
If it is much higher, the supplier is pricing in more risk than the market probably justifies, and an index-linked arrangement with a collar is likely cheaper over the term.
What to do at renewal
Re-baseline rather than rolling over. An index-linked price that started in a low market and has been adjusted several times can drift away from what the same packaging would cost quoted fresh – and suppliers are generally open to a reset at renewal because they want the term.
Ask for a fresh quote alongside the renewal figure and compare. It is one email and it is the easiest check available on whether a mechanism is still working in your favour.
What we can do
We supply PP corrugated sheet and will state which mechanism applies, with notice period and any cap, before you sign. Tell us the contract length and we will propose the arrangement that gives you the most certainty we can honestly offer.