Follow the Paper Trail: Uncovering Opportunities in the Tumultuous Paper Industry
It’s no secret that market conditions have not been kind to paper products. Earlier this year, Georgia-Pacific became the latest victim of an industry undergoing violent shifts in demand. The mill, which had built a reputation as one of the world’s leading makers of tissue, pulp, packaging, building products and related chemicals, raised eyebrows with the news that it was exiting the communication papers business, taking 650,000 tons (or 8 percent) of uncoated paper and roughly 650 jobs at its Port Hudson, Louisiana facility off the table.
Cases like Georgia-Pacific, where producers shut down capacity with relatively little forewarning, coupled with the rising cost of materials to make pulp, have resulted in across-the-board increases worldwide for the paper industry. According to data from Fineline Printing Group, paper prices have increased by 3 percent to 5 percent since January 2019.
“With paper mill closings and consolidations these past couple of years, the paper market has been a mess,” lamented Richard Ghelerter, president of Apex Color, Jacksonville, Fla. “It’s tough to know what each new quarter will bring.”
He isn’t alone in his sentiments about the current state of affairs. Steve Patton, president of HCF Inc., Hillsboro, Ohio, began to notice more supply changes about 18 months ago. Mill closures and machine shut downs caused several lesser-used grades, including 7 pt. reply card and a few other heavy grades, to become harder to source. To provide some perspective, Patton said two years ago, there were maybe “five or six different mills” to choose from when he needed a particular product, whereas today that number is less than half.
Steve Reifel, business unit director at Midlothian, Texas-based Ennis Inc., not only has seen a tightening in supply for certain grades, but also a push for the distribution practice known as allocation—something that hasn’t happened in quite a while. For those unfamiliar with the term, Karen Weil, director of procurement for direct mail marketing services provider IWCO Direct, Chanhassen, Minn., explained 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 is 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 percent of the volume consumed in the previous year.”
When manufacturers face blips in availability, they feel the consequences.
“On occasion, a different grade or size may have to be used due to current inventory,” Reifel shared when speaking to Patton’s earlier point. “The grade changes are more often to a higher grade, and when sizes change, it results in more waste that ends in the recycle bin.
“The main challenges that we’ve been met with are when certain grades, colors or sizes are discontinued,” he went on to say. “There are alternatives available, but more work goes into selling the alternatives through our customers to the end-users.”
In regard to material price increases, suppliers can absorb only so much of the costs before they have to pass it on to their customers. HCF Inc. did what it could to prevent this from happening, but as Patton tells it, when the increases continued, there were no other options.
“At this point, every item we consume in production has increased—tapes, shrink films, inks, cartons and plates, so we must pass these increases along,” he said. “Depending on how often a distributor might order a particular product, they may have seen as many as four price increases over the past 18 months.”
“All manufacturers have been affected by raw material price increases,” Reifel concurred. “Although some increases can be offset or delayed with cost-savings programs, alternatives, efficiencies and the such, raw material increases are a true hard cost that must be passed through the entire supply chain. Failure to do so weakens the supply chain whether it be the paper supply, the manufacturer or distributor.”
Being partners with your paper provider is the best approach here. For more than 20 years, Ennis has expended significant time and effort trying to cultivate relationships of trust and mutual benefit with key suppliers, a group led by Pixelle, formerly Glatfelter, and Mead Paper, Reifel remarked.
“As our partners benefit from our loyalty during certain times, we, too, benefit during these times of tightening supply and price increases,” he said. “Without these partnerships, we wouldn’t be in the position we are to help our customers meet their needs today and for tomorrow.”
However, this doesn’t mean that printers don’t feel the need to keep a watchful eye on the bigger picture. For instance, Ennis’ operations team is in contact with its key suppliers on a daily basis. Reifel believes that understanding the current and potential future supply gives the company the necessary tools to make informed decisions.
The Bright Spots
The news hasn’t been uniformly grim, and paper providers, such as Monadnock Paper Mills, are eager to assuage concerns from clients. Celebrating 200 years of American papermaking, the self-proclaimed oldest, continuously operating mill in the country has survived and thrived through significant changes in the paper business.
“As the industry evolved, so did Monadnock,” said Lisa Hardin Berghaus, director of marketing communications for the Bennington, New Hampshire-based mill. “It continues to seek out lucrative, new business—oftentimes, where paper has not gone before.”
The non-integrated paper mill is family-owned and best known for its “beautiful printing papers,” but it also makes gift card stock, medical packaging and indicator papers, chart papers, wallcovering, graphic application tape, folding box board for luxury packaging, wide-format signage, humidity and printable blotter, retail hang tags and price tickets, abrasive backings, drywall bead and trim, and archival board facing and backing.
Berghaus believes its most compelling and successful plastic-replacement product is Envi Card Stock.
“Billions of gift cards are produced every year, and before Envi Card, they were pretty much all made with PVC,” she recalled. “Today, there is widespread adoption of this product across the globe.”
Before it was fashionable, the company set its sights on environmental sustainability. Monadnock operates under a third-party certified ISO 14001 Environmental Management System that requires it to set annual impact reduction goals. In order to meet these goals, the company put together a “green team” that consists of people across all of its operations from accounting and manufacturing to marketing and maintenance.
Brian Maloy, Monadnock’s environmental manager, detailed some of the progress it has made.
“In 2018, we had a strong focus on waste reduction, achieving an approximate 9 percent improvement in our Zero Manufacturing Waste to Landfill objective,” he explained. “Through a variety of equipment upgrades, we achieved an electrical savings of 18,626 KWh and an oil savings of 41,924 gallons.
“... We continue to improve the efficiency of our hydroelectric facilities,” Maloy added. “On average, Monadnock can produce up to 50 percent of its own electrical requirement with on-site, low-impact hydropower. With Mother Nature on our side supplying abundant rain, we actually exceeded 60 percent last year.”
In addition to supplying plastic-replacement products for gift cards, Monadnock has alternatives for retail signage, beverage labels and more.
“Movie posters and bus shelter advertising don’t have to be made from plastic,” Berghaus stressed. “For over 15 years, Monadnock has been selling moisture-resistant, UV-stable, recyclable Ultraform Backlit Poster, a fiber-based alternative to rigid polystyrene.”
The push for eco-friendly initiatives isn’t unique to Monadnock. According to Berghaus, as more consumers and brands denounce plastic and discover that there are fiber-based alternatives even for the most challenging applications, like meat packaging and backlit signage, other mills are responding and working to reinvent themselves.
“Paper has a very good reputation today; paper recycling rates continue to rise and chain-of-custody standards ensure responsible use of forest resources,” she said. “I don’t know of a single paper mill that isn’t working to reduce its environmental impacts across a wide spectrum—renewable energy, emissions, water and waste.”
She also was quick to dispel the common belief that paperless statements save trees, a cause that is important to the independent nonprofit organization, Two Sides. In its continued quest to promote the sustainability of print and paper, Two Sides has successfully engaged with 441 companies worldwide to remove or change “go green – go paperless” and “save trees” claims. Sectors showing the highest occurrence of greenwashing included telecom providers, banks and financial institutions, utility providers and governmental organizations.
“It’s a cost-saving measure, that’s it,” Berghaus said of the anti-paper myths. “You don’t ‘save trees’ by not producing paper statements. It’s critical to have markets for responsibly sourced wood products; otherwise, land owners will have to turn to other sources of income that will probably not benefit the forests in the long run.”
If Two Sides’ research is any indication of consumer mood, the public is cutting through the clutter and reading the true message. An international survey of 2,094 consumers in the U.S. and 1,044 consumers in Canada commissioned by Two Sides in February 2019 unveiled the following key findings:
- 86 percent of U.S. respondents and 82 percent of Canadian respondents believed they have the right to choose how they receive their communications (printed or electronically) from financial organizations and service providers.
- 66 percent of U.S. respondents and 63 percent of Canadian respondents didn’t agree that corporations were really going paperless because they regularly needed to print out documents at home if they wanted a hard copy.
- 61 percent of U.S. respondents and 58 percent of Canadian respondents thought claims about the switch to digital being ‘better for the environment’ were made primarily because the sender wanted to save money.
- 45 percent of U.S. respondents and 34 percent of Canadian respondents would consider switching service providers if they were forced to go paperless.
In fact, Monadnock is seeing an increase in demand for premium 100 percent PCW recycled coated papers and high performance papers with characteristics that can be achieved through additives and coatings. The latter option has performed well in grocery stores, with more consumers calling for plastic-free aisles. Berghaus pointed out that there are a lot of single and short-term use retail merchandising plastic products, like shelf talkers, channel strips, signage and gift cards, that could easily be served with renewable fiber options.
She gave the example of Monadnock’s Duraprint, paper for horticulture hang tags for plants and shrubs that remain outside in garden centers all summer long. Duraprint is durable enough to withstand weather elements, but because it’s constructed out of renewable fiber, it will break down in soil more quickly than plastic, leaving no harmful substances behind.
“Foreign countries don’t want our plastic waste anymore,” Berghaus said. “There is a lot of confusion about what plastics are recyclable. To my knowledge, there is no recycle stream for rigid styrene or vinyl signs. The situation has created a huge opportunity for papermakers.”
The cannabis market is another growth area for paper suppliers, particularly surrounding packaging for hemp and CBD products.
“The industry would like to use the plant stalk by-products to make paper and packaging,” said Al Bobst, director of new business development for Monadnock. “There is a surge in demand for all types of packaging for these products. Not a day goes by where we don’t get a website inquiry or telephone call. The availability of viable fiber is still a hurdle, but it will catch up soon.”
Where Does Paper Go From Here?
Berghaus admitted that the paper industry doesn’t come without challenges. To begin, the price of wood fiber has “swung dramatically” over the past few years, impacting profitability. Specifically in Monadnock’s homebase of New Hampshire, the high cost of energy impacts the mill’s competitiveness in many markets by driving up the cost of manufacturing its products. And, as Bobst suggested earlier, there isn’t enough quality recycled fiber to meet demand in the United States.
Then, there is President Donald Trump’s ongoing trade war.
“Our customers, and their customers, are impacted by uncertainty and trade tariffs that ripple through the supply chain,” Berghaus commented. “We’re seeing it in varying degrees across a broad range of markets, from price tickets to wallcovering.”
Similar to Reifel, Patton is monitoring the pricing of paper and other raw materials. He believes the cost of paper will “stabilize close to where it is today,” while raw materials will continue to see increases “a couple times a year.” For him, though, there is a more urgent problem at hand. Without skilled workers, there will be no reason to follow the paper trail.
“We will need to adapt and change as the market changes, but there is a lot of print, and print works,” Patton concluded. “My biggest concern is labor. As an industry, we are not viewed as being very ‘sexy,’ and I think this drives a lot of young talent away. Hiring personnel is tough. It takes a long time to train operators, and, today, people tend to switch jobs every couple years, which makes it [even tougher] to staff production facilities.”