2023: Will the Paper Chase Persist?
The past few years have been one challenge after another. First the pandemic closed many business doors, then printing establishments were deemed essential and could open again, followed by a complete shift in applications as some verticals more or less shut down while others grew suddenly. And then when you add in weather-related hardships, labor shortages, increased shipping costs, and overall supply chain disruptions, and it’s no wonder there is a collective feeling of fatigue.
For commercial printers in particular, one of the challenges that has been difficult to navigate has specifically been around the paper supply chain. All of those challenges above were compounded by mill closures and capacity cutbacks, shifts to other products, and international labor strikes that reduced an already strained supply by significant degrees. In practical terms, commercial printers have been dealing with far less available supply, and paying a significant premium on it when they can get their hands on it — never a great position to be in.
That said, there is some light at the end of this proverbial tunnel, reports John Crumbaugh, the product manager ColorPRO Technology, Media Operations, at HP. “The supply chain for producing printing paper is still tight, but there are signs that it is beginning to loosen up and should be much improved in 2023,” he says. “In North America, the paper mills are operating at or near capacity, but the analog market appears to be slowing, and imports are beginning to increase, so paper is more available than earlier [last] year. Not ideal but looking better going into 2023.”
All across the country, print shops of all sizes and shapes have been stockpiling paper for months now, with every available space taken up with pallets and rolls of paper as they purchase virtually anything they can get their hands on. Mill allocations have played a part in that, with printers purchasing what they can, when it’s available, or risk losing it to another printer. And unfortunately, for now at least, that isn’t changing.
“We’re still on allocations,” Frank Smith, the director of purchasing for Wheeling, Illinois-based SG360°, notes. “We have had an offset mill come back online, but there has been nothing new on the coated side. I do think it will loosen up a little as printers use up inventory. We are hoping to see those allocations go away some time in the second quarter.”
Steven Burke, VP of sales and marketing at Neyenesch Printers in San Diego, California, agrees that the supply chain has improved in the past few months. “That being said, many items are still hard to get in large quantities.” He also notes that some of that improvement is due to stockpiling printers have been forced to do to ensure they have paper on hand when jobs come in the door.
“Our merchants are sending mixed messages,” Burke says. “They’re beginning to build inventory, largely due to printers canceling back orders due to lower demand and full warehouses. The time it takes to get paper from port to inventory has improved as well, which helps. Reduced domestic production has had a negative impact, especially for uncoated grades. Moving forward, I would say we’re mildly optimistic.”
Some sectors of print are slowing down and consuming inventories, which will loosen the paper supply and provide more availability if that continues, according to Crumbaugh. “As 2023 progresses, the situation should be one of stabilization of supply and a return to more normal availability. That said, there are less mills producing paper than pre-pandemic, and that reduces the resiliency of the overall supply chain.”
Price Impact Due to Supply and Demand
One of the unfortunate consequences of increased demand and decreased supply is that prices tend to go up. Smith notes that SG360° saw two price increases already, although he doesn’t believe there will be another one for the first half of 2023, at least.
That stabilization of pricing is something with which Crumbaugh concurs. “Pricing for printing grades of paper have increased up to 40% over the past five years, with increases of up to 30% in the past two years coming out of the pandemic,” Crumbaugh states. “Supply chain issues, transportation, and increased cost of production have driven pricing up very quickly. Pricing is likely to stabilize as opposed to dropping quickly, as many of the increased cost factors are still in effect.”
And those increased prices for printing grades have impacted the bottom line for commercial printers. Burke notes, “Our prices have gone up with paper prices — we’ve had to pass additional costs along to our customers. We’re beginning to see a bit of downward pressure on pricing as the supply chain improves and our competition looks to reduce their paper inventories, but we don’t expect to see a major drop in the marketplace any time soon."
“For the last year it felt like we were getting price increases weekly,” says Jay Sheffield, director of operations for Direct Edge Media in Anaheim, California. “Over the last month or so we have seen that slow down a bit. Having said that, I don’t see the prices coming down much, if at all, in 2023.”
While mill and distributor allocations have begun to ease in some cases, unfortunately they are likely going to continue for the paper stocks that are the hardest to get, at least for the foreseeable future. For Neyenesch, Burke says uncoated text and cover are still the toughest to get. 9-pt. coated cover is in high demand, as well as 60-lb. coated sheet stock. He adds that some packaging grades, especially premium grades, are also still difficult to find.
“Uncoated wood free papers in popular weights are still being sold in advance, and this is due to the mills producing at or near capacity,” Crumbaugh says. “Coated, as well, is difficult for both popular mid-range weights, as well as heavyweight point stocks. Imports are beginning to enter from Asia, but that doesn’t offset the capacity reductions that occurred over the past few years.”
Every day is different at Direct Edge, according to Sheffield. “You can check the inventory in the morning with the paper supplier and they will have 100,000 sheets. And an hour later it’s gone. We have been fortunate to have clients that understand the supply issues and are open to alternative choices for different grades. Communicating this early in the process is key.”
But it’s not all bad news. On the flip side of that coin, some grades are starting to become easier to get. In particular, 70-, 80-, and 100-lb. coated book weights are more widely available in a range of sheet sizes for printers that deal in those types of jobs. Mid-range weights, in general, seem to be easier to get right now as they are being produced in the highest quantities. Shops are finding it easier to get their hands on them across the board, which will continue into 2023. While it still isn’t back to pre-pandemic levels, commercial offset printers are finding it easier to plan jobs and get the right papers for the particular application.
Gazing Into the Crystal Ball
Unfortunately, divination is only useful if your name happens to be Harry Potter. While the paper supply chain seems to be showing signs of easing up in 2023, there are still a number of challenges on the horizon that no one can really predict how they will play out.
“I wish I had a crystal ball,” Burke laughs. “The supply and demand pendulums are definitely swinging. Commercial printers did a lot of panic buying in the past year, so there is a mix of inventory in printers’ warehouses. We’ll all want to get that inventory off our books. This will slow short-term demand, and give [merchants] an opportunity to build inventory. Maybe that’s the breather we need to help get us back to the ‘old normal.’”
“There are a lot of questions yet to be answered in the coming year — inflation, recession, interest rate hikes, etc. — that will need to be answered as we move ahead,” Smith notes. “Success will come in the form of adaptability.”
Sheffield says just-in-time delivery is gone. “It’s not enough to have just a couple house sheets in inventory — stockpiles of multiple grades and weights are now a necessity. We are also relying heavily on accurate forecasting from our sales team.”
“Many customers stockpiled paper, and now that the market is beginning to ease, they are consuming those stockpiles,” Crumbaugh notes. “Planning will still be prudent for the near-term, but the market should return to a more normal level of availability at some point in 2023. Fewer mills are producing printing grades with so many conversions to packaging and closures over the past five years. I expect that many will return to a just-in-time paper procurement strategy, but that is no longer without risk.
“One key to preparing for the next tight market is for printers to have strong relationships with their suppliers,” he advises. “Customers who were spot purchasers prior to 2020 were the most exposed when the market tightened up.”
Some Strategies for Printers to Consider
So what strategies should commercial printers be taking today to prepare for the uncertain 2023 paper supply? Here are a few things to consider:
- Balance the stockpile. You don’t need to have every available space crammed to the rafters with paper anymore, but it is still prudent to keep a good supply on hand of certain stocks that are hard to get. Balancing what to buy and when should be a monthly decision, rather than once a quarter.
- Keep an open line of dialogue with your suppliers. While allocations from some mills will begin to ease — likely more toward the latter half of 2023 — that doesn’t mean you shouldn’t still be communicating with those mills regularly. Make sure you know what they expect their inventory levels to be at for the weights and papers you anticipate needing, and ensure they have a rough idea of what your needs will look like at least a few months in advance.
- Continue to plan ahead. While many customers would like to place an order a week or two before they need it, the reality is that is still risky business for large or complex jobs. Continue to have an open dialogue with your customers about what their needs will be in the months and even year ahead so you can coordinate with the mills to have the right paper stocks on hand when they’re ready to start printing.
- Continue to diversify. While it might seem counterintuitive to invest in new equipment and verticals in the middle of challenging economic times, the reality is that it can help insulate your business from major problems. While some paper stocks are still difficult to come by — making the presses that would run them sit idle or at reduced capacity — deploying another press where paper stock is plentiful might be able to pick up the slack.
Today’s print buyers typically don’t care what technology is used to print a job, just that it’s done on time and at the quality levels they expect. Having a variety of options on your production floor means you can shuffle work as needed to keep jobs moving.