By Jeanette Clinkunbroomer
Reprinted by permission of the author
This article originally appeared in Printing News, January 2005.

With shifting economic conditions, new communications technologies, changing demand, and the impact of global currency markets, the paper industry has been on something of a roller coaster for the past couple of years. During 2004, which began unhappily with the abrupt shuttering of Eastern Papers, the largest producers have knuckled down, reassessed their operations, and done what is necessary to return to profitability. By the third quarter 2004, the last quarter with financial data available at press time, most mills were reporting earnings on the plus side, as well as a list of one-time charges for closings, restructurings, and discontinued operations. The end of 2004 would be predictably flat, they noted, and virtually all the companies made some mention of the rising cost of energy and raw materials.

In other areas, the paper manufacturers reshuffled some capacity in deals like Idaho-based Boise Cascade’s spin-off of its manufacturing capacity into a new Boise Cascade. Meanwhile, the other (much larger) side of the business adopted the name of its subsidiary, OfficeMax, and committed to distribution. MeadWestvaco ( Stamford, Conn.) expanded its capacity for office papers and products as well as back-to-school items with the acquisitions of DayRunner and Brazilian firm Tilibra S.A. Productos de Papelaria. International Paper, also of Stamford, has shed vast tracts of forest lands and, at the close of the year, announced its intentions to sell its Fine Papers business, including the Strathmore, Brite Hue, Via, and Beckett brands, to Mohawk Papers of Cohoes, N.Y.

Neenah Fine Papers, headquartered in Alpharetta, Ga., has become a standalone company after spinning off from parent Kimberly-Clark. Though Neenah shares began trading at the end of November, the company reported a 75 percent increase in net income for the first three quarters of the fiscal year. Montreal-based Domtar, suffering from a weak U.S. dollar against a strong Canadian dollar, continues to restructure—consolidating its paper distribution business in the U.S. and shutting down some production capacity—although the company also has seen improving profits.

Prices rose on just about every grade of paper in 2004. Printing Industries of America (PIA), Alexandria, Va., notes that paper prices increased an average of 5 percent over the third quarter of 2004. However, prior to the increases, the price of paper had hit unsustainable lows, triggering the usually temporary, sometimes permanent, elimination of pulp and paper capacity. The terminated assets were usually described as older, less productive equipment and facilities, those no longer competitive in today’s unforgiving markets.

So what can printers anticipate from paper makers over the coming year? Expect more efficient production, for one, with supply achieving some balance with demand. Most manufacturers have tightened their focus along with their belts, concentrating their assets around related core product lines. Prices will likely remain where they are, the companies claim, but then they’ve also been careful to mention rising production costs. This includes energy, or most significantly, oil.

Barring an unforeseeable surge in demand, availability will remain tightly controlled in order to maintain and even further improve earnings. However, says Stan Lancey, chief economist at American Forest & Paper Association (AF&PA), Washington, D.C., the greatest threat to the paper industry this year is the same threat facing printers: a proposed increase in postage rates.

Paper, Printing, Postage

At Print Outlook, an early December conference held by graphic arts supplier/vendor association NPES, Dr. Lancey, along with speakers from the printing, advertising, publishing, and direct mail business segments, reported on a much-improved economy in 2004. In general, they said business during 2005 would grow a little slower than last year, but with no major downturn on the horizon. The greatest concern, expressed particularly by PIA Chief Economist Ronnie H. Davis and Dr. Lancey, is that a looming double-digit increase in postal rates, proposed to go into effect early in 2006, will put a damper on printing and paper demand.

Consider, for a moment, that not only printed materials, but also envelopes and other mailing wrappers and containers, are made of paper of one kind or another, from corrugated and kraft to premium writing. In his presentation, Dr. Lancey discussed how closely the demand for advertising-based papers, primarily coated printing grades and uncoated groundwood, is married to postal rates and even to what can be termed “postal events,” such as the anthrax scare in late 2001.

In addition, although the USPS has seen delivery points (the number of delivery addresses) on the rise, the mix of mail has been changing. First-class deliveries continue to decline, attributed to the growing use of e-mail and services like Federal Express and/or UPS, while “standard mail,” which is made up largely of advertising and periodicals, has been recovering as the economy recovers, and now eclipses the volume of first-class mail.

A price hike on first-class mail isn’t likely to help the USPS much, but rather would drive users even more quickly to other forms of personal communication—including cheap long-distance telephone service. Postal authorities will have to shift their attention to standard mail, which has become the bulk of what is being delivered. But in many cases, an increase in standard mail rates, particularly for large mailers like catalog retailers, direct-mail marketers, and magazine publishers, will make the price of postage higher than other production costs, forcing them—and, in the case of magazines, their advertisers—to look at cheaper, possibly electronic, means of reaching customers.

Regarding publications, at Print Outlook, Rita Cohen, senior vice president of the Magazine Publishers Association (MPA), New York, discussed the growing niche in custom publishing, or corporate-sponsored periodicals. These are produced and distributed regularly to the sponsor’s customers and prospects, with a more select and targeted circulation than a general-interest consumer magazine. Special-interest consumer publications is the fastest-growing area among periodicals. The best-selling are those in the hobby, games, and entertainment industries, and those written about and circulated within a given geographic area, typically projecting a luxurious lifestyle and advertising high-end consumer products.

In addition, the latest poll from MPA’s PIB research group indicates that advertising revenues were up 10.5 percent for the first nine months of 2004, with the number of advertising pages growing by 3.1 percent. Ms. Cohen noted that, while recent studies show that magazines remain a viable and attractive vehicle for advertisers, even when compared to TV, radio, newspapers, and outdoor newsstands, sales have been steadily declining. Most magazines are mailed. Thus, the MPA, too, has joined efforts to promote postal reform in order, at least, to moderate proposed rate increases.

While the paper companies have worked diligently to streamline their own operations in order to cut costs and increase profitability, they’re still subject to many of the same economic variables that printers face. Key among these are things beyond their immediate control—the price of energy and, given the USPS request for rate increases, uncertain demand in the marketplace.

The results of a significant increase in postage rates could have a seriously negative effect on the printing industry, with a similar effect on paper producers. It seems a hike of some kind will happen, although with proposed reforms in postal financing and operations, the 12 to 15 percent increase the USPS has requested may be reduced to about 9 percent. That, too, will take a toll on the printing and paper industries. Hopefully, however, a smaller increase is one that print and paper buyers would be willing to absorb. PN

Jeanette Clinkunbroomer, a freelance writer, can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it