Packagers are being edged out of the value chain

The packaging industry saw another casualty recently in the form of LMS Packaging. Staff lose their jobs, brokers lose their money and so it goes on.

We also saw vultures circling for any scraps they could find in the wreckage, with the likes of Personal Touch Packaging and KGB Packaging crying crocodile tears for the demise of LMS.

In the process, these companies launched into a second-hand car dealer-style pitch about how they could be of assistance when we all know they were just trying to drum up a bit of new business to plug their diminishing pipelines.

Whatever anyone says, packagers are bleeding to death as they find themselves edged out of the value chain.

A couple of things have shored up the packager proposition. First are 3% proc fees for adverse business, of which packagers would keep half.

Second is the ‘pass the parcel’ effect in the sub-prime sector whereby a customer takes out a sub-prime mortgage, goes into arrears, their house price goes up 20% and they remortgage with another sub-prime lender, thus fuelling high remortgage fees for packagers.

On the first point, all those products have all gone and on the second, the music has stopped and lenders no long-er want to play.

The business that is left can all be written direct by any decent broker using point-of-sale decisioning.

In fact, I’d go so far as to say that if a broker now needs the services of a packager, they should review their competence and consider a change of career.

I sympathise with professionals who have lost their jobs but the industry is going through a clearout that will see thousands made redundant.

The harsh truth is that only the fit will survive. Most packagers are not financially fit and are not wanted by lenders or brokers because they soak up profit that would otherwise result in lower rates for borrowers or higher fees for brokers.

Chris Gardner
Partner
National & Capital
By email