There has been a profusion of paper industry news in 2021 and printers and publishers alike are dealing with the impact. Mill closures continue, as do mergers, acquisitions, and mills shifting focus to produce packaging materials. Production capacity is diminishing. Raw materials (pulp, chemicals), fuel and energy, and transportation costs are experiencing double- and in some cases triple-digit increases. The effects of the pandemic and inflation are contributing factors as well.
Supply is low, demand is high. Paper mill order books are full, with limits now being imposed on paper purchasers to prevent stockpiling. Resultingly, lead times are being extended, some now at 10 to 12 weeks out. Quick-turn paper orders are rare.
With mill closures and reduced production comes scarcity or elimination of certain brands. Thankfully, the Grade Paper Program allows for substitutions within a grade of paper at the same quality and specifications as a brand that may no longer be available.
Price increase announcements have been coming with increasing frequency. Coated freesheet, uncoated, newsprint, groundwood… paper type isn’t the issue. Increases are occurring across the board, and indications point to more increases on the way for the summer. The afore mentioned contributors – pulp prices, rising energy costs, and pervasive freight issues – are significantly eroding mill margins, which in turn spurs the mills to raise prices to try to recoup their losses. The price of pulp alone, already high due to Asian pulp speculation activity, has skyrocketed over 35% just this year as a result of increased lumber demand during the pandemic, among other factors.
Here’s a quick look at specific products and resources that are experiencing extraordinary circumstances:
Lumber: Lumber prices are up over 400% vs. year ago! Why? It’s not about a shortage of trees. Canadian lumber tariffs and an unexpected intense spike in home remodeling and home building brought upon by the pandemic are the primary factors, as well as transportation delays.
Corrugated Shippers & Cardboard Boxes: Think endless Amazon orders and take-out deliveries. 2020 and 2021 saw some manufacturers paying up to 22% for boxes—all a result of our stay-at-home lifestyle during COVID.
Crude Oil: Crude oil is up about 40% since the beginning of the year, with prices expected to hit $80 per barrel. As the economy surges back, Americans are driving and flying again and will feel the effects. Oil production hasn’t kept pace with demand and the U.S. in particular may be slower to rebuild supply due to new initiatives to reduce hydrocarbon assets and goals toward net zero emissions.
Workforce: The national workforce shortage – deemed a “national economic emergency” by the U.S. Chamber of Commerce – is a direct result of the pandemic. The main drivers of the labor shortage are fears of returning to work and getting the virus, child care due to at-home schooling, elder care as nursing homes became unattractive due to COVID outbreaks, and the $300 per week in emergency federal unemployment, which has kept many who otherwise would be in entry level jobs at home. Although the extra unemployment benefits are set to expire in September 2021, at least half of the states have announced plans to cancel them ahead of schedule, to hopefully motivate more people to seek jobs. The rollout of vaccinations and the resultant drop in COVID infections have set the stage to reverse the drivers of the labor shortage, but over what period of time we do not know.
Transportation: Trucking and shipping woes continue, with reduced freight load-to-truck ratios – particularly in the North American south and west – driving transportation costs up significantly. Availability of drivers, ports disrupted by COVID outbreaks, and the resulting disarray of container locations/availability all contribute to a less predictable delivery process. Oh – and then there was that ship that got stuck sideways in the Suez Canal!
Putting pricing in perspective
While all these factors are contributing to the rise in paper costs, it’s important to get perspective on the overall average increase across all grades in the last year. CJK Group procurement officer Martin Sullivan estimates that it’s up about 10 -11% vs. year ago – certainly not at the dramatic increases that some of the contributing factors have experienced. And looking at paper costs over an 8-year period, the year-by-year increases average anywhere from less than 1% to about 3% per year.
What’s on the horizon?
Forecasts are predicting more cost increases into next year, but at a slower, steadier pace. Supply will be tight with continued extended lead times. As the economy rebounds, the demand for paper should show an increase largely as a reaction to the slump of 2020.
We may not have a crystal ball or an inside track to anticipate what’s next, but you can be assured that the CJK Group companies are proactive in acquiring paper. Our reputation and relationship with the merchants and paper mills is and always has been strong. Getting “in the book” is something all CJK Group companies navigate with skill. Our purchasing group’s number one goal is to secure the stock our customers need.
While we feel the current situation is very manageable, we do offer these suggestions: Give us as much notice as possible on any special-order materials or unusually large print runs, and in general, try to place your orders as early as possible. Add lead time to your schedules, knowing they could be extended, and, be open to utilizing available stocks, if the situation warrants.
As always, we value the commitment and trust you have placed in us to effectively act on your behalf.