Paper … What in the World is Going On?
Photo compliments of The Dingley Press
I began my career in catalog marketing almost 50 years ago. Never can I recall the paper market being in such a state of flux. There is no way to sugarcoat it, it’s bad. I want to explain what has occurred, what the future holds, the impact of the paper shortage and when will it stabilize.
Paper is a requirement that we have seldom worried about. Paper prices go up and down, but availability has not been an issue, for the most part, until now. We have always assumed, rightfully so, that there is plenty of paper around to print on. Let’s put paper in perspective. Paper expense accounts for almost 30% of total direct selling expenses. Postage and paper together represent 70% of the total cost to print and mail a catalog. Paper is a big deal. Often, we change the weight or grade of the paper to control costs and/or to improve quality which we have been able to do easily. Not today. It is not a time to be picky. Be glad your printer or paper merchant has paper reserved for you.
There are three main reasons for the current paper shortage, starting with high demand. As we begin to exit COVID, the demand for paper has increased, catching paper manufacturers off-guard. They didn’t expect it or see the demand coming. Two large mill closures in Europe are another reason why we are in this pickle. According to Wikipedia, the pulp and paper industry in Europe accounts for about a quarter of the world production. Perhaps a lot of the paper you print on is coming from Europe. The leading producing countries are Finland, Sweden and Germany. Coated paper closures in North America include mills in Duluth, Catawba, Wisconsin Rapids. And finally, paper making machine downtime for maintenance is occurring now, which is bad timing. But again, the demand for paper is greater than the mills anticipated. One of the biggest drivers is also the machine conversions from graphic papers to packaging, kraft and other papers.
Conditions are so bad that mills are arbitrarily reducing quantities. Some printers are also telling their customers they can no longer print for them or telling them how many catalogs they can print. You may not be able to circulate the number of catalogs you would like to mail. It’s that bad. If you are a “want-to-be” start-up catalog, be patient. Paper will be difficult to procure. It will get better, so hang in there.
Paper prices have always fluctuated. It’s an industry where supply and demand influence pricing. A common strategy is for mills to shut down a paper making machine to create an artificial shortage of paper causing the price to increase. In early October 2020 paper prices came down approximately 5%. This decrease represented a significant savings which continued until recently. In March 2021 mills began announcing price increases. It was a period when they had strong operating rates and low inventories of paper. We started seeing increase announcements for all grades of paper in the market. Additional increases were announced to be effective June 1. The paper market continues to be oversold and all the mills are responding with price increases. We do expect to see at least one more paper price increase this year.
When will the paper market return to normal? Don’t expect any improvement until the end of the 1st quarter 2022. It is going to be a while before mills can respond to current conditions. In the meantime, expect more disruptions and shortages. Work closely with your printer and paper merchant. Believe what they tell you and follow their advice.
Print volumes are still declining. What’s more, there is a major postage increase coming August 29, 2021. This increase will be in the magnitude of 8%. This increase will likely cause some mailers to reduce catalog circulation. The pressure put on mill capacity will begin to shrink. This is part of what may help the paper market recover and return to somewhat normal.
You can basically summarize current conditions with one word … ugly. As with most economic and business conditions, this too shall pass. The paper market will improve. Until it does, be willing to be flexible and to compromise. Low imports, low inventories, increase in demand and reduction in supply (due to shutdowns and conversions) and all contributing factors. Short term, it’s bad. Long term, it will be much better.
Stephen R. Lett is Founder & Chairman of Lett Direct, Inc., a catalog consulting firm specializing in digital marketing, circulation planning, forecasting and analysis since 1995. Mr. Lett spent the first 25 years of his career with leading catalog companies; both business-to-business and consumer. He is the author of a book, Strategic Catalog Marketing. He can be reached at 302-539-7257 or by email at steve@lettdirect.com.