Addressing the Challenges in the Paper Supply Chain
It seems businesses are finally bouncing back after the past two years of the pandemic. However, even though business is picking up, there is one glaring issue: The availability of paper stocks has become limited and unpredictable, and as a result the price of paper stock is inevitably increasing.
Supply chain issues have been throwing curveballs at various manufacturing segments, and the printing industry is no exception. The availability of paper stocks has become slim as raw material costs rise, mills enact allocations and price increases, and labor shortages continue.
So, are we doomed? Not even close. During an hour-long Printing Impressions and In-plant Impressions webinar, Marco Boer VP of I.T. Strategies and President of Midland Specialty Paper & Film Mike Ratcliff discussed the reasons for printing paper supply shortages, the steps printing companies can take to address the limitations head-on, and what print providers can expect in the future of the paper supply chain.
Why We’re Experiencing a Shortage
What Boer wants print providers to understand is that even though the paper industry does have a history of cyclical ups and downs, we must avoid the temptation to believe that this is just another cycle.
“I don’t think this is the same thing as other times around, because if you look at the history of commercial printing and writing papers we’ve been seeing since about 2012, the supply of printing and writing papers go down about 3% a year,” Boer said. “What’s happened is along the way a lot of the capacity that was once there has now been taken out, so as things start coming back out of COVID you may not see the capacity come back.”
While the supply of printing and writing papers has been decreasing, in 2019, there was also a sharp decrease in demand for printing and writing papers that Ratcliff explained stemmed from the switch to digital communications and advertising, but that’s only part of it.
Boer explained the actual accelerant behind all of this goes much farther back in history than we realize, and that the printing industry as a whole has been devaluing for years.
“If you talk to the paper mills, what they get for a 100 weight of paper is basically the same as it was 10, 20, maybe even 30 years ago,” Boer said. “Right around 2017/2018, we saw an onslaught of paper imports coming into the U.S. and Europe and so all of sudden there was this surge of excess capacity and that resulted in people trying to jockey for market share and it caused the prices of paper to go down.”
While this was good for commercial printers, Boer said it was very bad news for domestic paper mills because once paper pricing reached a certain threshold, smaller mills couldn’t compete with the lower costs that commercial printers were providing. So, mills were closed, and smaller businesses switched to packaging papers, which then caused paper prices to slowly creep back up again in 2019, also aiding to the decrease in demand.
Ratcliff also explained that since the reemergence of businesses after COVID, there were going to be issues once demand came back for the mills that reduced their inventories down to the lowest levels they’ve been in years.
“Inventories were whittled down and when the economy and demand snapped back with a vengeance, there was this gap in availability of paper from the mill inventory plus all of those boats stranded out on both coasts,” Ratcliff said.
Boer also added while its natural to blame mills for the lack of paper, he explained it’s out of their hands. Because while yes, they do produce paper, if they can’t get the raw materials needed to make the paper, then nothing is produced. And with that, COVID-related illnesses caused labor shortages, so there quite literally weren't enough bodies to get the job done. Boer compared it to dominos, it’s just been one problem after the other.
Some Good News Out of This
Boer said that this latest shortage can be seen as something positive for those who do digital production printing.
“My view is that this is actually very good news for those involved in digital production printing because as the run lengths come down significantly, then all of a sudden it fits better on digital production printing people are going to want faster turnarounds out of these shorter run jobs,” Boer said.
Boer explained that as the price of paper continues to increase, the amount of expense that goes into digital printing like ink, toner etc., gets smaller. This helps close the gap between digital printing and offset printing. Boer believes that over time this will open a door for those who are on the digital production side of things, and that it will bring many opportunities their way.
In addition to expanding opportunities for the digital print market, Boer also sees this as a chance for commercial printers to become consultants/partner to clients rather than a supplier that’s getting “squeezed down” as Boer put it.
“As the cost of print increases the value of the procurement department is becoming less and less and what that does is it opens up the door for you as a commercial printer to now go talk to the marketing department or the CMO and say ‘Hey, look here’s the issue you’re gonna have less paper available its going to cost you more but we know its valuable let us help you figure out how to optimize what you are printing to have the highest ROI,'” Boer said.
When Will the Supply Chain Stabilize?
It’s the million-dollar question, and Ratcliff gave some insight when he was asked this question. He said he doesn't see anything changing in the first quarter of 2022.
“And I just don’t see it happening in the second quarter either," he said. "My hope would be that it's sometime in the late third quarter that the supply chain would begin to show improvement.”
To get to stabilization, Ratcliff believes that won’t come until the end of 2022.
Boer went a step further and predicted that we’re not looking at stabilization and some sense of normalcy until 2023.
“In the end, whoever picks the right date, it's sort of meaningless, it doesn’t matter because you as a commercial printer have to plan now,” Boer said. “The lesson you need to take out of all of this is that your communication with customers has to be tighter than ever.”
Facing the Problem Head On
Now that we know we’re in it for the long haul with an issue-riddled supply chain, what can print providers do to try and combat it?
Boer and Ratcliff both agreed: communication.
Ratcliff said that it’s important that providers talk to their customers now if they haven’t already about maintaining flexibility in the papers that they use and the projects that they’re doing.
“The basis weights, the grades, the sheet sizes, all of those things that they’re having those conversations with their end-user customers having those conversations now and saying ‘Look we may not be able to print on 100-lb. gloss text, but we may be able to do it on 100-lb. satin text,’ getting that approval upfront versus just saying no and having these types of discussions now is critical,” Ratcliff said.
Boer added, “A client can’t come to you and say they want 50 million direct mail pieces to go out in Q2 of 2022 because there’s just not enough lean-time, so particularly for these larger jobs you need to have far better communication with your customers to manage their expectations and in turn, you as the commercial printer need to communicate better with your paper supplier.”
Boer explained that commercial printers should do this because the paper suppliers need to have better insight six to 12 months out than they’ve ever had before because they also have to make commitments.
Ratcliff added that print companies can also optimize or implement value-added services with their customers about optimizing their print catalogues.
“Midland has a company, CohereOne, it’s a sister company of ours that does just that, it helps companies look at how do you optimize print and direct mail for your end-user customers, and I think that’s an area of initiative that commercial printers should take,” Ratcliff said.
As the webinar came to a close, Boer urged print providers to be honest with their customers about the paper shortage, emphasizing that they won’t lose their clients, in fact they might be even able to help their clients in ways they’ve never been able to before.
To hear the lively audience Q&A portion and watch the entirety of the webinar, register here.