The effects of paper supply-demand and freight costs on paper prices
With a complex nexus of factors affecting paper (and therefore, print) prices, breaking things down can help businesses be better prepared for every twist in the paper industry road.
Two primary factors are driving paper and print prices. The first is the ability of paper producers to get and keep their supply in line with demand. This is important because without a good balance, prices for manufacturers will continue to be below sustainable levels.
Eventually, this leads to massive mill closures (similar to the 1 million tonnes taken out of the system when International Paper closed its Courtland, Ala., mill earlier this year). This causes disruptions in supply, eliminates choices altogether, raises prices quickly (even after a printer has quoted a job and is bound by those prices) and impacts the industry’s ability to produce the profit levels necessary to reinvest in building new capabilities.
Some segments have done a better job than others. Coated free sheet producers, in particular, have faced challenges matching supply with demand, due in large part to the number of players involved, as well as the volatility of coated demand. Uncoated free sheet producers have done a better job of matching their supply/capacity with what they have forecasted demand to be. However, both have struggled, resulting in some of the larger acquisitions and mergers that have been announced. (See Verso’s impending acquisition of New- Page as an example.)
The second factor is the cost of freight and logistics. “Things are dramatically different than they were just five years ago,” says Greg Lovensheimer, vice president of operations at Millcraft. “We have a declining driver base — young people don’t view the trucking life as a desired career. Further, today’s drivers don’t want to go from, say, the Northeast to the Northwest. They want to be home more. Add to that increased traffic congestion, which results in slower runs, and federal legislation — such as the number of hours a driver can be on the road — and the result is that drivers are getting paid less. This further exacerbates the challenge in recruiting them.” These and other factors have strengthened the leverage of drivers, resulting in higher wages, which, in turn, escalate freight costs.
Future pricing trends
What does that mean for the average print job? Quite a bit, says Lovensheimer.
“As driver shortages and other freight issues have emerged, we have seen a measurable increase in prices,” he says. “We have suppliers who have seen freight rates from New Jersey skyrocket from roughly $1,000 for a container load to as high as $4,000 this past winter. Those costs are directly passed along in the supply chain and dramatically impact the overall costs of any print job.”
To varying degrees, these factors will affect all seg-ments of the print market.
“These kinds of rates make it harder for merchants to move LTL shipments or ‘specials’ in a timely manner,” he says. “If someone doesn’t have it on the floor, many customers may find that the time or costs associated with moving that order are prohibitive.
“To survive, customers should align themselves with mill and merchant partners who are prepared for the long haul. By committing to their partners, custom-ers will find that a local merchant can optimize freight and adjust their inventory to better support them. But a customer who bounces orders from one merchant to another may find that none of them has the product on the floor when they need it and where they need it. This results in higher prices and additional freight costs, and ultimately makes that customer less competitive.”