Contract Packaging and Fulfillment Services Market

Market Overview

The global contract packaging and fulfillment services market size was valued at USD 73.34 billion in 2021. It is expected to reach USD 178.67 billion by 2030, growing at a CAGR of 10.40% during the forecast period (2022–2030).

Co-packaging, also called contract packaging, enables businesses to outsource the management of their supply chain and packaging needs. It involves the distribution of the goods to the market or directly to the customer, point-of-purchase (POP) display builds, inventory management, and primary and secondary packaging of finished goods. It provides the labor force, resources, and tools needed for research and development (R&D) tasks. Contract packaging is therefore used in cargo shipping and bulk manufacturing. In addition, it has a wide range of uses in the global pharmaceutical, retail, and personal care industries.

Market Dynamics

Global Contract Packaging and Fulfillment Services Market Drivers

Non-Core Operations Outsourcing by Companies Seeking a Competitive Edge

Industries are modernizing and adapting to consumer needs to stay competitive. Non-core operations are best outsourced. In competitive, evolving markets, mastering ancillary specialties can make it challenging to stay on the cutting edge of the industry, and the scope of practices required to maintain efficient operations often becomes unmanageable. In the packaging sector, where forward-thinking producers outsource design, fulfillment, and logistics, outsourcing is more popular than ever. Most contract packagers presently use innovative technology like RFID to track products throughout the supply chain precisely, and automation technology helps to improve efficiency in fulfillment to speed up shipments and reduce costs, all of which contribute to increased profit margins, order flexibility, shipping costs, and supply chain visibility. Companies outsourcing non-core operations to gain a competitive advantage drive market growth.

Rising Demand from the E-Commerce Industry

Modern technology is widely adopted and driven by e-commerce packaging businesses. The demand for packaging solutions by the industry to better serve customers is also fueled by the growing number of e-commerce businesses operating globally. Contract packaging has developed significantly over the past ten years. It is now a significant driver of innovation for major CPG companies and a provider of end-to-end services for startups selling through the e-commerce distribution channel. In the e-commerce sector, co-packers serve as a procurement arm, a warehousing arm, and a packaging production arm to expedite the supply chain.

The e-commerce sector depends on supply chain speed to provide the quickest customer experience. Due to the high variability requirements from CPG-providing companies, customization and speed in the supply chain challenge the product offering companies through e-commerce. Customized e-commerce packaging solutions are now more in demand from contract packaging companies because they are designed around flexibility, agility, and resourcefulness. Contract packers and fulfillment service providers run smaller businesses with fewer volume operations and decision-makers. They can adopt e-commerce-ready packaging innovations more quickly as a result. Additionally, collaborating with e-commerce firms can speed up the development of optimized packaging for this rapidly expanding channel.

Global Contract Packaging and Fulfillment Services Market Restraints

Strict Governmental Regulations

Contract packaging is used by the food and beverage, pharmaceutical, and cosmetics industries. Paper, metal, and plastic are used for packaging these products. Incorrect concentrations or quality declines could damage packaged goods, affecting the final product. Numerous state and national rules, such as the EU food contact materials regulations for the import, export, or production of food packaging materials in Europe, aim to limit packaging use and disposal and require the least amount of recycling. Contract packaging and fulfillment companies may face challenges due to the need for high-quality plastics. Packaging and raw materials prices could rise. Such regulations hinder the development of a class of packaging materials, limiting market growth.

Global Contract Packaging and Fulfillment Services Market Opportunities

Sustainability and Innovations

Some of the key factors anticipated to significantly impact the global contract packaging and fulfillment services market in the future include sustainability, innovation and technology, customization and differentiation, and the growing need to cut costs associated with packaging. Additionally, the circular economy is at the center of all the most apparent trends in the packaging sector. For instance, political pressure and consumer perception of packaging primarily drive the European Union. Regulations to increase recycling rates, laws to increase recycled content, and laws to decrease single-use plastics are all being enforced by the EU faster than usual, driving the demand for sustainable packaging services. The market is anticipated to grow due to rising initiatives by businesses like the Cryopak R3 Service Program that aim to reduce the costs and environmental impact associated with shipping pallets of temperature-controlled goods. For instance, Warren Industries Inc. recycles its pallets to guarantee that market customers will pay less.

Regional Analysis

By region, the global contract packaging and fulfillment services market is segmented by North America, Europe, Asia-Pacific, Latin America, and the Middle East and Africa.

North America Dominates the Global Market

North America is the most significant shareholder in the global contract packaging and fulfillment services market and is expected to grow at a CAGR of 9.89% during the forecast period. Over the anticipated period, the market for contract packaging and fulfillment services is anticipated to expand. To prevent supply chain disruption due to the pandemic, several vital players in the food and beverage, pharmaceutical, and even beauty industries partnered with local contract packaging and fulfillment service providers. According to MC Packaging, a contract packaging company for beauty products with headquarters in the US, many CPG companies have pushed their supply chains for even quicker turnarounds and shorter lead times. Many clients have expanded their product lines using contract packagers for primary and secondary packaging to supplement their manufacturing capabilities. Most drug development companies want to focus on their expertise and outsource the packaging and fulfillment sector to knowledgeable vendors, mainly due to concerns over new drug development and the reduction in time-to-market.

Europe is expected to grow at a CAGR of 9.41%, generating USD 49.62 million during the forecast period. Sales of e-commerce have increased steadily in Europe over the past ten years. This growth has resulted in a demand for safe and efficient protective packaging because a flawless customer experience is still crucial to a brand's reputation and customer loyalty. The e-commerce market in Western Europe is the most advanced in the continent, and about 70% of all European e-commerce value is generated in this region. As a result, there is a greater demand for fulfillment services like logistics and warehousing. Additionally, newly established vendors are using mergers and acquisitions to grow their contract packaging businesses in North America. Some market vendors are also getting out of the contract packaging business to concentrate on their core competencies.

China is one of the largest markets in the world for pharmaceuticals and healthcare products, primarily due to its aging population. Premium pharmaceutical packaging made of Type I pharmaceutical glass is highly sought after on the domestic market. Government initiatives and patient safety standards emphasize the need for high-quality drug packaging products. This is a response to the rising need for storage, secondary packing, and cartooning services to protect glass containers. Japan is constantly focusing on continuous innovation and patented medicines, and it has one of the pharmaceutical industries that is expanding the fastest after the United States. The Japanese government also fosters this expansion by removing barriers to foreign investment in the country's pharmaceutical industry. Overall, it is anticipated that the growth of the studied market in the region will be fueled by rising e-commerce demand and the expansion and development of the pharmaceutical industry.

According to Industryweek.com, Latin America is becoming more industrialized, with countries like Mexico, Brazil, and Argentina producing 80% of the region's manufactured goods. Additionally, due to an increase in the outsourcing of blister-packing activities to developing nations like Brazil, the blister-pack segment is anticipated to grow faster in this region. The market's growth is further fueled by some companies, including coding and traceability options in their secondary packaging. For instance, Fruta-Exporta, a significant exporter of Mexican mangoes, automated the traceability process in its secondary packaging in August 2020 and turned it into a profitable venture by combining the most recent Squid Ink printing technology with automatic data collection.

The Middle East and Africa have made significant advancements in contract packaging and fulfillment services. In the anticipated time frame, the bottling sector in the studied region is anticipated to expand. Gulf Packaging Industries Ltd. (GPIL), a food packaging films company, announced in January 2021 the expansion of its fourth BOPP (biaxially oriented polypropylene) line in its Jubail Industrial City manufacturing complex by 67,000 tons per year to meet the growing demand for contract packaging like labeling. Businesses are also enlarging their manufacturing facilities to meet the rising demand in the area. For instance, a subsidiary of the Indian company Siddharth Grease & Lubes Pvt. opened a lubricant and grease production facility in the United Arab Emirates to serve markets ranging from North Africa to the Commonwealth of Independent States. The lubricant blending plant has 1420-kiloliter storage tanks to hold various grades of different types of finished lubricants in addition to automatic batch-blending and drums decanting units. There is a significant need for bottling plants since more ocean water is being distilled in Middle Eastern countries to supply clean drinking water for the local population.

Segmental Analysis

The global contract packaging and fulfillment services market is segmented by service type and end-user segment.

Based on service type, the global contract packaging and fulfillment services market is bifurcated into packaging design and prototyping, contract packing, package testing, and warehousing and fulfillment.

The contract packing segment is the highest contributor to the market and is expected to grow at a CAGR of 10.34% during the forecast period. Contract packing services include bottling/filling, packaging, labeling, and wrapping. There are three main parts to the services, which include primary, secondary, and tertiary contract packaging. Primary packaging protects from contamination, damage, and spoilage. Primary contract packaging offers "mission-critical" capabilities that manufacturers may not have, especially for short runs or frequent changeovers involving new or niche products, seasonal demand, or other circumstances outside primary manufacturing economies. Primary packaging includes blister packs, clamshells, paperboard, and shrink-wrapping. For Instance, Wasdell Packaging Group offers blister, container, strip, and sachet packing. Players have increased production due to rising demand from the food, beverage, and personal care industries. In order to reduce time-to-market, they outsource packaging, which is anticipated to boost primary contract packaging.

The handling of inventory, shipping, and logistical aspects are the main activities of warehousing and fulfillment services. Warehousing and fulfillment services are anticipated to grow at the fastest rate among all service categories due to the expanding e-commerce market. Additionally, many businesses outsource their warehouse and fulfillment operations while maintaining in-house packaging capabilities because doing so lowers shipping costs, overall operating expenses, and customer service. Most importantly, it allows businesses to concentrate on their core competencies since complicated order fulfillment logistics. Outsourcing the warehousing and fulfillment service helps the company streamline the order fulfillment process, including inventory management, item tracking, security, and payment processing. Additionally, fulfillment services companies use the most up-to-date technology to ship and process the products.

Based on the end-user segment, the global contract packaging and fulfillment services market is bifurcated into food, beverage, pharmaceutical, and household and personal care.

The food segment owns the highest market share and is expected to grow at a CAGR of 10.09% during the forecast period. Most food companies have outsourced their packaging and fulfillment services activities to third-party contract food packagers due to the increasing demand and shifting preferences of food production firms toward contract packagers, as well as the food companies' increasing focus on cost optimization and their core business. Vertical contract form fills seal (VFFS) food bagging, fin seal flow wrapping, food variety packaging, food carton loading, food date and lot coding, food labeling, food case packing, food and beverage pallet display, cartooning, composite can, gummy bottling, kitting, and other services are offered by various vendors. Due to the rising demand for pouches, bags, boxes, clamshells, and other contract packaging and fulfillment services in the US, many businesses also ensure that their products adhere to FDA regulations. In addition to the packaging, any health or nutritional value claims printed on the contract packaging must also comply with FDA regulations.

Juice and beverage producers began concentrating more on their core business operations due to the growing need for processing infrastructure. As a result, producers seek vendors who can provide a dedicated space to store raw materials, the necessary technical expertise, and timely, cost-effective solutions. This has increased demand for contract beverage packaging and finishing. Natural ingredients will be sourced by the vendors, who blend and fill juice or beverage products, code-date and label the bottles, HPP the finished goods, case pack and manage inventory, and handle distribution to end users. As a result, vendors can streamline the production of juice and beverages, allowing manufacturers to concentrate on brand marketing. Vendors have co-packed various beverage varieties, including ready-to-drink, carbonated, energy, low-calorie, nectar-based, functional, herbal, and zero-sugar drinks.

Recent Developments

• March 2021- ActionPak Inc. declared the 196-kW rooftop solar installation on its new 175,000 square-foot packaging facility in Camden, New Jersey, which will perform both primary and secondary packaging of food and OTC products by stringent SQF and FDA regulations, was completed. According to estimates, the 491 solar panels will offset 20% of the building's electric consumption.
• September 2022- The new Pegasus ULD temperature-controlled bulk shipping container was leased globally by Sonoco ThermoSafe, a Sonoco unit and one of the biggest global providers of temperature assurance packaging. As a result of the agreement, United Cargo's Pegasus ULD containers are now directly accessible to pharmaceutical freight forwarders.