Print needs on the rise…but so are related costs

As the economy strives to correct itself and return to normal, manufacturing companies (and specifically, printers) are feeling the effects of the Covid-19 pandemic and recent weather events that have brought uncertainty onto the supply chain. The need for crucial components to keep their press rooms operational while meeting the increase in demand for books and other printed materials has become increasingly challenging.

Let’s take a look at some of the primary market drivers.

In the paper market:
• Wood pulp prices rose 3% in January and have continued to rise. Current transactional pulp prices are 6% higher than they were at this time last year, and paper suppliers have already announced price increases in February, March, and April.
• Mill closures, idling of paper machines, and conversion of paper machines to running “brown paper” used for corrugated packaging, have led to less available capacity, creating a “tight” paper market, leading to increased lead times for delivery with the potential for allocation at certain mills.
• With fewer coated paper producers remaining in North America, coated freesheet (CFS) mills are operating at full capacity, with coated groundwood (CGW) mills operating at approximately 70% capacity. A CFS price increase in January was successfully implemented for rolls, and CFS producers have announced an 8-10% price increase on sheetfed brands March 1. CGW mills are sought a $2/cwt increase effective March 1, sparked by rising mill costs.
• Shipments for UFS (uncoated freesheet) offset rolls were down 4% in 2020, while UFS cut-size grades were down by 25%. UFS markets had been strengthened in late 2020 with election activity and the re-opening of schools in the fall. Recent demand has since decreased and UFS mill operating rates are still below normal operating levels. Suppressed demand due to the pandemic and the closure of offices and schools, is expected to return. Increases in this market had been implemented in March up to 7% in office and printing papers, more recently passed along at 6-8%.
• An announcement for an increase on certain board grade stocks effective May 1st of $2.50/cwt ($50/ton) was put in place in late March.

In the resin and petrochemical markets:
(raw materials used for items such as stretch/shrink films, packaging applications, adhesives, and printing substrates)
• Widespread production issues and force majeure allocations have greatly restricted the flow of resin into the market.
• Global tightness has also led to “panic buying” in some consumer industries that are desperate to maintain security of supply as demand increases.
• Since May of 2020, resin materials overall have increased an unprecedented .29/lb overall.
• The high commodity petrochemical price environment is likely to persist given current constraints of supply and current patterns of demand, but production volumes will hopefully return gradually through 2021

In the corrugate market:
• In February, major producers of corrugate materials announced a $60/short ton increase on linerboard material. (Approximately a 5% increase on cartons)
• Continuing into 2021 it appears demand is outpacing supply, signaling to paper mills to initiate price increases.

In the freight market:
• Significant concerns exist with congestion of freight, shortages of trucks, drivers and railcars to meet the surging demands, resulting in bottlenecking.
• Pricing has already been reset higher. Driving these increases has been the combination of reduced industry supply—fewer drivers and fewer trucks—and improving and steady demand after we emerged from the lockdowns. The sudden rebound in demand has created a 30% increase in activity.
• We expect carriers to take advantage of the rise of LTL over TL capacity to push for rate increases closer to 5% rather than 3% in 2021.

What can you do?
• When possible, plan ahead! Tightening markets lead to increased lead times for delivery.
• Involve your sales and/or customer service partners to help you navigate through these uncharted waters.
• An order placed earlier has the best potential to allow for materials to be secured, allowing customers to meet their critical schedules.

As always, we are working diligently to mitigate and do what we can to offset the impact to our business and customers of these significant cost increases. It is apparent that material manufacturers and freight carriers are struggling to adapt to the changing demand. We expect market stabilization to hopefully occur the second half of the year. Nevertheless, the magnitude and speed of these cost increases is such that they will have inflationary impacts that we have not seen in many years, consequently translating into higher product pricing.