Pulp Fiction – Challenges Within the Paper Supply Chain

In Article, Industry Issues, Knowledge Base, Paper and Media by Elizabeth Gooding0 Comments

You ever hear that phrase “you can’t make this stuff up?”

That’s how I feel when I hear about all of the things going on in the paper industry.

First off, the former Verso paper mill in Bucksport, Maine is soon to become a giant fish tank.  Whole Oceans will raise Atlantic salmon using a state-of-the-art recirculating aquaculture system. I like salmon, but you can’t print on them. We lost a couple of other mills over the past year, West Lynn and Appleton, contributing to a 16% overall loss in inventory.
salmon
Those mills that are producing paper rather than fish face a number of challenges. The surge in the packaging market is drawing pulp supply from the freesheet market and driving up base prices. According to IBISWorld, the price of wood pulp is forecasted to rise at an annualized rate of 5.1% into 2019.

In terms of recovered raw materials for pulp, North America exports more than 20% of all recovered paper exported globally (source: RISI) while China consumes more than 50% of the wastepaper paper recovered worldwide. Chinese companies also control > 50% of the Northern Bleached Softwood Kraft (NBSK) supply in Canada. So, demand in China can have a big impact on the price of paper in North America – and we are under the threat of a trade war with China (a temporary reprieve was reached this week.)

Speaking of trade wars, if Canada wants to send us some of that remaining 50% of NBSK, they have to pay an “anti-dumping” duty to make up for allegedly selling at below market rates (something most US mills were pretty happy about). This cost, of course, will be passed along the food chain.

So, basically mills who aren’t producing their own pulp should seriously consider going into the salmon market.

Meanwhile, demand is up in the inkjet market for all varieties of paper and, because there are so many new presses, the mills are racing to deliver new formulations that will be compatible with the widest range of devices, or at least the most widely installed devices. It takes a long time to formulate a new paper and mills are constantly in a state of guessing which OEM, device or ink chemistry is going to generate the most demand for particular papers, leading to potential shortages if they guess wrong. For those reasons and many others, lead time for paper orders has been expanding, reaching a 12-week order cycle in March which jumped to 16 weeks in May. Not quite as crazy as the Salmon folks who claim to have their inventory committed for the next 10 years – but still pretty difficult to manage for paper buyers.

If you do have a place in line to get the paper you want, hopefully locked in to a price before the next pulp up-charge goes in to effect, the mills may struggle to get it to your location. There is a massive shortage in truck drivers for short-haul and long-haul work. Many drivers aging out of the work force with a low percentage of younger employee interested in pursuing that career (much like commercial print) and new regulations putting limits on the number of hours each driver can work. With 71% of all freight delivered by truck somewhere along the route, truckers are finally getting pay increases which drives up freight costs. They are also demanding better treatment and may refuse routes where shippers or receivers have a history of keeping them waiting to load and unload – don’t be one of those places if you want to get your paper delivered.

Here are some actions to consider:

  • Test a lot of different papers because you may find yourself needing to go to a back-up stock, or a back-up, back-up stock due to inventory shortages and longer lead times for orders. Take a look at Paper Finder for options.
  • Consider some substitutes as you test, highly calandered inkjet treated stocks can be a strong substitute for offset coated stocks for many applications. But there are caveats.
  • Factor the cost of increased paper prices into your bidding – consider an “index approach” that allows you to be cost-competitive now while building in flexibility as paper prices are expected to be volatile over the next year or two.
  • If your finances and warehouse will support it, consider taking on larger paper inventory for your house papers. Don’t forget to factor the additional holding and finance costs into your pricing – particularly as interest rates are on the rise.
  • If you are a large operation with older inkjet equipment, look into field upgrades to polymer inks or the addition of priming modules to allow you to work with a wider array of papers. This is not an inexpensive option and requires a lot of work as well as investment – but it may be worth it if these paper trends continue. Call us if you need some help with the analysis.
  • Respect the truckers. Make sure that your loading dock is prepared for scheduled deliveries and have efficient processes for intake and approval/rejection of inventory. Maybe keep some nice snacks on hand for the truckers. It can’t hurt.

The mills and merchants are doing their best to keep up with your demands, but they have a lot of issues to contend with. If we all pull together, we can keep on printing.

If not, can we get some bagels and cream cheese with that salmon?

 

 

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