This article was originally published Vol. 30, Issue 1, of our newsletter, Ideal Perspectives. To view/download the full newsletter, click here.
With the advent of the internet, plus other factors, the paper industry has been thrust into turmoil. Due to major paper mills across the country closing, plus the rising cost of raw materials in which to make pulp, the paper industry is seeing major across-the-board increases in prices.
WHY IS THIS HAPPENING?
Paper demand has diminished over the past two decades due to more digital delivery methods. Paper mills have been reluctant to invest in expensive production equipment and often deciding to instead close indefinitely.
Freight costs, fewer over-the road drivers, increased paper demand in China (now the world’s biggest and fastest-growing consumer of pulp), plus, closer to home, Canadian imposed tariffs on U.S.-made paper product exports have also led to inflation of the packaging market. With these shifts in raw material prices and the loss of capacity, the few remaining mills finally have the power they need to increase prices to end users.
Beginning back in early 2017, pulp prices began to increase exponentially by nearly 25%. Chemicals used in the production have seen far larger increases, sometimes as much as 600% just in the past few years. Weather has also been a factor – in 2017 alone, hurricanes forced 18 mills across the country to close or halt production. Now, with the more recent closure of several mills, most of the coated sheet market is now controlled by fewer than five players. Today’s paper market does not currently have the capacity to support current demands, which drastically can affect availability and lead times. Unfortunately, single-stream recycling has resulted in contaminated paper that is no longer usable as pulp.
Compounding the supply problems, back in 2017 the Department of Transportation instituted new rules requiring electronic logging devices to record consecutive driver hours. While the initial intent was to improve driver safety, the reduction in hours had unintended consequences of also reducing overall delivery capacity, which increased costs.
Increased demand for direct marketing and packaging markets have also tightened the supply market. This gives paper producers incentive to increase prices.
So far, 2019 does not appear to be slowing the ongoing price increases. As a result, we anticipate that paper costs will continue to rise, and could potentially lead to necessitating longer lead times, especially for custom sheets.
This article was originally published Vol. 30, Issue 1, of our newsletter, Ideal Perspectives. To view/download the full newsletter, click the ‘view newsletter’ button found below.