Global events surrounding the pandemic have led to various challenges in the supply chain of the paper industry. Everything from manufacturing to delivery has faced a paradigm shift that has left many clueless on the way forward. This post will discuss the current state of the paper, packaging, and print industry, the changes to expect, and the actions to take to keep your business afloat.
The Current Situation of the Paper Industry
Several challenges have arisen as a result of the COVID-19 pandemic, which led to higher transport costs and labor shortages. As a result, the paper supply chain has been considerably affected by lower product availability and soaring costs that have caused operating rates to go low.
The operating rates of a company refer to the current production level in the facility compared to the maximum capacity it can deliver. If there is a higher demand than the paper company can satisfy in terms of shipments, the operating rates go low. Ideally, paper mills need to keep operating rates ranging between 85-95% to ensure supply and demand are perfectly balanced.
Optimal operating rates are characterized by smooth inventory management, consistent paper prices, and effortless production. Unfortunately, when there are low operating rates, the machines are underutilized, affecting the profits, especially in the long term. This causes paper mills to set competitive prices to try to improve operational efficiencies. Sometimes, excessive price competition can lead to inventory accumulation, which necessitates pausing productions to avoid losses. This means that manufactures will have to take some downtime which isn’t great for business.
While customers may feel a short-term benefit to low cost of materials, when pricing is suppressed for long periods, mills begin to make more permanent changes to the supply lines such as decommissioning paper machines that focus on low-margin papers, or re-tooling existing machines to focus on higher-margin papers like packaging materials.
In markets with excessive demand for paper products, we see operating rates go up, in some cases exceeding 100% capacity. Once rates exceed 95%, manufacturers begin to increase pricing in an attempt to rebalance supply and demand. If demand does not go down with price increases, limitations on supply will be placed, forcing us into an allocated market. This means there simply isn’t enough paper to meet demand and customers downstream will feel limitations to the supply that they can access. This impacts a broad range of industries from manufacturers and printers to packaging suppliers.
What to Expect
Since the Covid-related supply chain shock of 2020, there’s been a spike in the acquisition of domestic paper products, following a long period of contraction paper manufacturing globally. This has lead to an environment of excessively high operating rates. Some products have been affected by this condition more than others. Let’s look at which products have taken the hit from the high operating rates below.
- Coated freesheet is one of the paper mill products affected by the surge of operating rates. This has led to a low inventory of coat freesheets which is unlikely to change.
- Cut size products are also facing diminishing inventory, with operating rates going beyond 100%. Plus, since cut-size products and coated freesheets are regularly imported, they are gradually getting less room in shipping containers because of supply chain and shipping issues.
- Uncoated freesheet is another product being pushed to the bottom of the inventory list. Fortunately, there’s hope for uncoated freesheets as students start going back to school and office workers get back to work. There’ll be an increase in demand for uncoated freesheets allowing supply and demand to balance out eventually. However, offset rolls still have a lower profit margin but will possibly get priced higher in the near future.
- Recent events have also affected SBS, including a malware attack directed at a primary manufacturer of SBS. Additionally, labor shortages and bad weather have made crucial chemicals unavailable, lowering the production of coated boards. Luckily, as the economy re-inflates, the demand for SBS will level off by the end of 2021.
How You Can Keep Going Amidst the Paper Industry’s Challenge
With the numerous challenges affecting the supply chain, many businesses have faced shipwreck over the past year. However, you don’t have to stay hopeless waiting for your business to collapse when you can take strategic steps to keep you going. So, let’s look at how you can keep your organization uninterrupted even while the paper, packaging, and print industry faces various changes.
1. Buy Paper at a Fair Price
Currently, people are more invested in buying goods than paying for services, probably due to recent events caused by the pandemic. When you pay a fair price for the paper you need, manufacturers will be able to keep production and delivery operations running without hiccups. Also, the customers who prefer to pay less will probably face numerous challenges sourcing paper, so if you can pay a fair price, the chances of this will be reduced.
2. Go for Standard Sizes
If you’ve been taking large-size products, now is the time to see whether custom sizes can also meet your needs. Unfortunately, the product sizes you are used to might be unavailable, but you can buy standard-sized products from domestic manufacturers since most of them have the products in excess. Choosing available products can be a great way to ensure you meet your needs before things get back to normal.
3. Pay for Higher Value
The changes in supply and demand in the paper industry necessitate minimal production of lower-grade products. As a result, consumers are left with high-value products as the only option. So, if you get premium quality items, you won’t have to suffer while other businesses do.
4. Source Locally
It’s easier to access the supply chain when the manufacturer is close by. You’ll have better chances of getting what you need from local sources than out-country companies.
5. Buy What’s Available
With production and delivery constraints, manufacturers have faced limitations in the types of paper they can produce. So, if you want to save on time and resources, buying the available paper could be your only option.
The challenges of meeting your demands can be reduced with effective communication. Providing accurate orders early enough will help you get what you need in minimum time.
7. Take Full Trucks
Labor shortages have also affected truck delivery services, leaving the available trucks to charge higher rates. Maximizing your truckloads can help you lower extra costs by taking a few large shipments rather than many small ones.
There are numerous factors that have affected the performance of the paper, packaing, and print industry over the past year. However, while it seemed like things were coming to an end, there’s still reason to hope. The steps we’ve discussed can help you navigate around the challenges crippling the paper industry. Work with your Norkol Sales representative on strategies to proactively ensure business continuity and avoid disruption in your supply.