The print paper shortage and its resulting increase in costs for the publishing industry represents only a portion of the general supply chain malaise that is affecting the US and the world today. However, it’s one that keeps publishers awake at night, with every indication that the problem will not be resolved easily or quickly.
A Brief History
The supply chain problem has been more evident since the onset of the pandemic, but has its roots long before that.
Although the paper business is unquestionably cyclical, demand from publishers for print paper has been diminishing for over 20 years due to the general decline in global readership, and cannibalization by the digitalization of published books and over a similar period. Compared to other industries, demand for print paper from publishers was never a substantial line item for the paper mills, but as demand from the publishing industry diminished further, the mills understandably diverted even more of their capacity to the bigger, more profitable customers such as the growing packaging and box industry. This growth was due in part to the developing consumer taste for immediate delivery of all goods, including books, no doubt spurred on by Amazon and other trend setters. (So much for sustainability). Scour the paper industry news today and you will have little difficulty in finding examples of paper mills converting uncoated and coated paper making machines to machines for lightweight packaging products. Several domestic paper mills have closed after facing stiff foreign competition and domestic regulation, and the major waves of consolidation that we are seeing amongst mills and printers today is a direct result of these non-cyclical market changes.
Then the pandemic struck and the situation for publishers got much worse, very quickly. Sales and readership suddenly rose, (especially for printed children’s and adult books) as consumers were confined to their homes with little to do, at the very time that paper suppliers had been anticipating significantly lower paper demand from publishers. The pandemic’s supply chain breakdowns, with labor shortages, international shipping and container constraints, along with domestic delivery issues, had not been seen on this scale for generations.
As the raw material for paper is mainly wood, and with a breakdown in the global supply chain, the bigger industries dominated the demand and got most of what was left of the supply of wood-based materials. Even the building industry suffered – think of the shortages of plywood for example. Paper especially from foreign mills was in short supply, and prices soared and continue to do so still.
The paper mills are prospering right now with strong performances in Q1, with an ability to pass on raw materials cost increases to offset inflation, however there’s no question that printers and publishers are under immense pressure. Demand on publishers is generally back to pre-pandemic levels (with some notable exceptions such as higher education), but there is enormous uncertainty over the supply and cost of paper. There are several reasons for this besides the lingering hangover from the pandemic. Domestically, increasing inflation is putting pressure on business and consumers alike, with additional concerns that Fed tightening might even cause a recession. Internationally, there’s little good news with the threat of the continued war in Ukraine, and uncertainty from the vigorous lockdown in China – a major supplier of printed 4-color books. Shanghai, which is the world’s largest container port has been closed since late March and the effects of that will not become clear for some time. One likely outcome is that we will again see more container ship congestion at major ports like we saw in 2020 and 2021.
The recently resolved 16-week strike at UPM’s Finnish paper mills was costly in terms of supply and increased labor costs. UPM expects that some mills will be back in production as early as the end of May, but others are more problematic. The disruption following the massive layoff at P&O Ferries in the UK has severely reduced delivery capacities between the UK and Europe. As a result, printer’s inventories are rapidly diminishing and many book publication dates will inevitably be delayed. Industry leaders are predicting that prices in the near term will continue to climb.
With container costs having tripled over the course of the pandemic, and with 20% of global container capacity still stuck on the ocean, one thing is clear: the publishing supply chain problems in general, and print paper shortages in particular, are not going away until 2023 at the earliest.
What do we do about it ?
It’s useful to divide the measures that we can take into short term actions, and those that will take a little longer to accomplish but which will have possibly more impact for the industry. Let’s start with the latter.
The most obvious thing that publishers can do is to continue the move to content and delivery digitalization that the pandemic has already accelerated. Publishers must do this with caution as there appears to be a cyclical backlash to digital readership and a move back to paper in places. Digital-first or even mobile-first are good watchwords in some sectors. The deployment of Print-on-Demand processes will help improve efficient use of paper, lower waste, and by printing locally, will aid in the industry’s Sustainable Development Goals. “Think Globally, Print Locally” is a helpful mantra here.
And for the long term, publishers will need to make some tough decisions about the wide varieties of trim sizes, colors and shapes that they have used in the past. Managing the relationship with paper suppliers will be critical for the long and the short term, and the use of flexible planning and forecasting systems for paper consumption will be important for buyer and seller.
On the subject of systems, the most common method of costing in the past was to focus on unit costs, which of course became lower as more books were printed. A more efficient approach using the vast amounts of data that are now available to publishers, is to look at the Total Cost of Ownership (TCO) of each title, that includes important metrics like warehouse space, scrap, inventory turns and just-in-time production and delivery. Flexible ERP software such as knkPublishing can provide immediate insights into the impact on cost and delivery schedules of raw material supply constraints in the production process. In addition, knkPublishing software helps develop a better understanding of buyer behavior through Audience Building, Social Engagement, CRM and AI/Business Intelligence capabilities.
There’s no doubt that publishers must treat many of these new challenges as more than just a normal change in the business cycle, but more of a permanent transformation of the market that will demand flexibility, the use of technology and in some cases, a whole new look at old problems.
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