What’s Going On?! Insights on Printing, Paper and Postage
By Greg Meeker, Vice President, Sales/Co-owner
It’s a challenging time for all of us associated with the printing industry. Publishers, print buyers, marketers, paper companies, printing companies – we’re all in this together.
Here’s our take on where things are and how the future looks for 2022 and beyond.
Paper – where we are. To put it simply, demand for paper is outpacing supply. After the pandemic hit, global paper inventories immediately swelled. In response, paper mills fast tracked retooling and repurposing paper machines accelerating what was already a long-term business strategy – to rightsize supply with demand. When the economy rebounded at an unexpected pace, inventories were quickly drawn down to record low levels while the paper companies were not positioned to meet the demand. There’s more to it than that, including global labor issues related to Covid-19, ocean container transit and cost, and domestic U.S. freight constraints. But the bottom line is that the supply chain is a mess and may not right itself until Q4 2022 or into 2023.
Compounding things, a labor strike called on January 1, 2022 is impacting UPM’s Finnish pulp and paper mills. UPM is a major supplier of coated sheets to the European and North America markets. Each day this operation is shuttered pushes the supply rebound out farther.
Paper – forecasting availability for 2022. Paper companies (mills and merchants) are strictly allocating paper supply to their customers, meaning that companies are only eligible to purchase a reduced percentage based on the amount of paper bought in the previous year. There are many industry examples already, and many more to come, where print orders are not able to be placed because paper is not available. At Modern Litho, we have turned down more jobs in the past six months than in the entire 85-year cumulative history of our company due to paper availability and production capacity limitations.
Looking ahead, you can help us help you. While we have over 2 million pounds in our supply pipeline and we are progressively sourcing every day, not all sizes, weights, and finishes (gloss vs. matte, coated vs. uncoated, etc.) are always available.
How you can help:
- Plan ahead. We are seeing unprecedented lead times in the supply chain so planning ahead and communicating your needs allows us the best chance to source the paper you need.
- Be flexible with paper stock selections. The more options, the better the likelihood of sourcing the paper.
- Allow us to make spot market purchases when necessary. We may locate the paper you need outside of our available allocated supplies or regular suppliers, and by the time we present you (the customer) with a price and wait to receive your approval, the product is gone, and we start the cycle again – many times, ending with a higher cost.
Paper – 70 lb. gloss or matte text sheets. The availability of 70 lb. coated sheets is extremely limited and will be until approximately 120 days after the settlement of the labor strike at the UPM Finnish paper mill. That likely puts us into September/October at best before supplies start to normalize. There are not enough alternate producers, domestic or foreign, to fill the void in the North American market and again, allocations are restricting availability. Please be ready to work with us to find a temporary alternate solution for your projects that use 70 lb. coated sheets.
Paper – price. Not great news here either, at least in the foreseeable future, as we’re subject to the basic economic principals of supply and demand. As paper companies rightsize their output (supply) to match long-term marketplace demand, they’re doing so with the intention of minimizing the inventory surplus that has existed since the 2008-2009 recession. Though it’s little consolation to most of us in the short term, it’s in all our best interests for the paper companies to operate at a profitable and sustainable level. It’s well documented that has not been the case for the past decade or so with multiple bankruptcies, closures, and acquisitions.
There are many other contributory factors impacting the cost of paper and other materials. Transportation (ocean/trucking/rail), fuel, energy, utilities, labor, and the Russian/Ukrainian war are the big ones. Eventually, South Korea produced paper will be flowing into to the North American marketplace again at volumes that will alleviate some pressure on both supply and price.
We anticipate paper prices will continue to rise through 2022 though hopefully not at the pace we’ve seen the past 12 months. Another round of increases was just announced for May 1.
The price of printing. It’s just not paper, every single input cost of print manufacturing is escalating. Aluminum printing plate costs are up over 40%. Direct costs such as ink, UV and aqueous coatings, binding glue, shrink wrap, corrugated cartons, and labor are all up significantly. Same with indirect costs such as equipment service and parts (repair and maintenance), freight transportation, utilities, waste disposal and workplace disruption due to Covid-19.
Modern Litho follows the practices of lean manufacturing with constant focus on efficient production, cost control and delivering an outstanding value for every dollar you invest in printed materials. We have exceptional relationships with our suppliers which has greatly helped us navigate the choppy waters of the past two years and positioned us well for the future. But we are not insulated from the broad inflationary reality, and operating margins in our industry are too thin for any of us to absorb these kind of cost increases and survive.
Probable postage rate increase July 10. The United States Postal Service recently filed notice with the Postal Regulatory Commission of a 6.5% overall rate increase to take effect July 10, 2022. The 6.5% increase is a blended number for all mail classes. Unfortunately for our magazine publishing and catalog clients, the rate increase on USPS Marketing Mail will be just over 8.5% for flats. There is a reference link below for more information.
Our take on it all. The events of the past few years are accelerating an industry trend that began with the Great Recession in 2008. Marginally operating companies, those who have not chosen or been able to reinvest in modernizing their organizations, or those operating at unsustainable profit margins, are succumbing to a hyper competitive marketplace where there is not only competition for customers, but also for supplies. Relationships, credit history and worthiness, organizational nimbleness, technology, and an ample and skilled workforce are a few of the keys to survival, health, and success.
Printing still pays off. The ROI on well-integrated direct mail marketing, including catalogs, has never been higher as more people engage and shop from home. The data shows the value of content delivered with a printed magazine exceeds that of any other media, including digital alone. Non-profit organizations continue to drive engagement and promote fundraising through direct mail and collateral marketing pieces.
Our mission is the same. To be your most valued and trusted print partner by providing you exceptional service and quality products.
The past couple of years have not been easy. And we’ve been far from exceptional at times. But please know we’re doing our best to overcome these challenges and feel confident we are positioned to serve you well into the future.
We appreciate your business.
Here are a few links to topics that were addressed above if you would like more information:
Paper Supply Shortage
Postage Rate Increase