Long-Term Packaging Agreements — Pros and Cons

Posted on September 11, 2025

by Alan Wright

Packaging companies, ours included, often negotiate long-term agreements with customers. Typically, these agreements run for a year and may or may not involve multiple products.

Is it wise to enter into such an agreement with a packaging supplier? Let’s take a look at the pros and cons.

Typical advantages of long-term agreements

Better pricing
More favorable billing terms
Monthly, quarterly, or annual rebates
Concierge service
Value-added services at low cost or no cost

Possible disadvantages of long-term agreements

Less flexibility
Penalties for early termination
Relationships might deteriorate if personnel changes
Complacency

When does an agreement make the most sense?

If you know the supplier well and/or have had successful dealings in the past.
If your goal is to consolidate purchasing to take advantage of volume discounts.
If your goal is to obtain a higher level of service, or a greater range of services.

The financial benefits of a long-term agreement are potentially substantial, which is why large-volume buyers of packaging frequently push for or exclusively buy under annual contracts.

But even if you purchase only a small number of packaging items, an agreement may still be very beneficial if —

You need leverage to obtain affordable value-added services such as JIT.
Your business is likely to grow rapidly, and you want to lock-in a reliable packaging supplier now, before you become too busy to find one.
Your ordering volume and service needs are very consistent.

Long-term agreements from the packaging supplier’s point of view

Customers sometimes view long-term procurement agreements as merely a tactic used by a packaging supplier to lock up business. While it’s true that a long-term agreement takes some pressure off the supplier, you gain important advantages when your supplier is operating under an annual agreement, such as:

A long-term agreement enables your supplier to warehouse your custom packaging with more flexibility — very important if your demand fluctuates or is unpredictable.
A long-term agreement may enable your supplier to have your custom packaging items manufactured in a larger quantity — which translates into significant cost reductions.