This Summer, Temperatures Aren’t the Only Thing Rising
Paper costs increased dramatically in 2018. And, based on early indications for 2019, this trend will continue. We are expecting up to three more increases in uncoated paper costs this year. (Uncoated paper is exactly what it sounds like – paper that has no extra coating or paper finishing. In direct mail, it’s used for everything from letterhead to envelopes to reply forms.)
We production folks don’t like to deliver news with any fluff, so here’s the latest intelligence we have on the paper situation based on what we are hearing in the industry.
The first paper increase of 5 to 7% went into effect in March 2019. Campaigns that started mailing in May were likely impacted by this increase. We anticipate two to three additional price increases this year. We are forecasting this will add up to 7% in additional costs.
Why the increase?
Here are some of the major factors impacting the rise in paper cost:
1. Raw Material Price Increases. Beginning in February 2017, pulp prices began to increase steadily, and the price of pulp continues to rise — it increased by 45% in 2018.
2. Supply vs. Demand. Despite the fact that the amount of business paper purchased (demand) continues to decrease (over 700,000 tons of printing paper capacity was removed in 2018), supply is also decreasing. Georgia Pacific, the fourth largest paper mill in the United States, announced it would be closing its Communication Papers and Pulping Operations in March. This means 650,000 tons of paper used for business has to be produced somewhere else.
3. More Demand. This August, the US Government will begin printing the 2020 CENSUS forms, with an estimated 25,000 tons of paper needed for just one job. This will likely be completed by several mills but will impact overall availability — and pricing — for the rest of us.
4. Lack of Capacity. Production plants are under “Allocation Reserves” which means they can only have a certain amount of weight from the mills each month to create paper.
5. Transportation Costs. Truth is, there are simply not enough truck drivers. The rollout of the Electronic Logging Devices (ELDs) resulted in strict adherence to the downtime required for truck drivers which means it takes longer for paper to get delivered to printers (it may also result in slower mail delivery). Adding to the general increase in transportation costs, this additional time needed for delivery means additional cost for paper.
Now that we’ve shared the latest…
Is there any good news?
Yes! While there may be some price increases in the next few months, analysts expect prices to stabilize next year. Some say there might even be some price reductions.
“The run-up of prices has been so unprecedented that it’s going to have to be reined in at some point. We are already seeing cracks in the run-up in pulp prices.” says Nicholas Meade, senior economist for the pricing and purchasing service at IHS Markit.
Not to worry! Our production team always plans four to five months ahead of schedule and includes a base increase for paper in your budget. This means you most likely won’t feel a big hit. Rest assured, we are monitoring the situation closely.