For printers in search of paper, the distribution practice known as allocation can be either an insurance policy or an injection of uncertainty. Michael Ratcliff of Midland Papers explains it as follows:
“Allocation is a function of production time available at the mill versus orders coming into the mill. In an allocated market, operating rates at the mills tend to be in the mid to high 90% levels. Producers [paper mills] have a finite amount of machine time to make paper, and they will allocate that time to ensure the best returns are possible for their company.
“Traditionally, in an ‘allocated’ market, mills will gravitate toward producing and shipping tons to the more profitable segments or customers and will not take on new business that is lower profit or unprofitable. They may go as far as eliminating unprofitable portions of their product or customer portfolio.”
Writing in the IWCO Direct blog, Karen Weil states that allocation occurs “when the manufacturer utilizes the historical volumes from the previous year to determine the volumes to be made available to users going forward. In some instances, the term ‘curtailment’ may be used. This describes when a mill reduces the historical volumes used or curtails the amount available to users. For example, a user may only have access to 75% of the volume consumed in the previous year.”
When supplies are tight, allocation tends to protect high-volume users of paper by guaranteeing them the tonnages they customarily order. Smaller printers, and especially those with problematic payment histories, may face temporary restrictions on what they can obtain, obliging them to spot-buy from other sources to make up the difference.
According to Ratcliff, allocation happened during the 1990s when the mills were operating at close to full capacity and fewer foreign-made papers were available. Today, he says, “Midland spends a considerable amount of time providing our mills with accurate forecasts for ongoing program business so that the mills know what business to expect and when, and our clients can rest easy knowing they have paper allocated for their projects.”
Related story: Paper Chase: Coping With a Tight Paper Market