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In many industries stock constraints have begun to ease over recent weeks. Fears over virus cases and transmission seem finally to be dissipating and although the reasons behind empty shelves remain complex, there is a ‘feeling’ that things are getting back to some level of predictability. This may be the case for electronics and auto manufacturers and even some food and beverage producers to an extent, but an emerging worry is not about having the staff to manufacture or even the drivers to transport goods, but how and what to package them with when the print industry continues to experience extraordinary supply chain challenges.
The paper mill and printing industries were already challenged long prior to 2020. Demand had been falling since the early 2000s, with increased digitalization and transition towards sustainability driving paper mills to closure or reinvention, it’s easy to see how a sudden, unprecedented surge in demand threw the industry a real curveball.
The pandemic ecommerce boom caused demand for packaging in all forms to skyrocket. Containers and labels for most fast-moving consumer goods, including groceries, are estimated to have up to half a year lead time and conversations are moving to which goods should be prioritized for labeling. Fresh foods might be the first to fall foul of paper shortgages as without proper labeling they won’t make it to the shelves in time and alternatives are few and far between.
It’s a scenario that no business owner wants – huge demand but zero capacity to cater for it. The paper industry has been no stranger to harsh economic conditions caused by the pandemic, including labor shortages, rising costs and logistical challenges. Not only do these factors linger, a union strike by one of the biggest paper suppliers in Europe threatens to squeeze smaller print players out of the market completely.
UPM, possibly the biggest paper mill in Europe, has been on strike since January. This mill supplies three of the $bn+ printing companies in the US with 50% of their supplies. Since these huge print businesses are now turning to local suppliers to pick up the shortfall, smaller printers are being pushed down the line and are struggling to get what they need to fulfill their orders.
Although the US and Canada have some big processing facilities themselves, they are all at 120% or more capacity with no means of fulfilling further orders. Paper mills have started to impose excessive terms on their customers too, including payment up to ten weeks in advance just to secure a delivery slot and unrealistic timings to commit to orders. Even for those printers that are fortunate enough to be able to source paper through their strong and long-standing supplier relationships, with the costs of paper spiraling fourfold in recent months, profit margins are dwindling.
This situation could not be unfolding at a worse time; given wider inflationary concerns and rising interest rates, mounting costs and drawn-out supply chains in an industry that affects so many others, could derail economic recovery globally.
In short, this is a very tough time for printers and any business reliant on paper products in the small-to- mid-market space. There isn’t really much time to sit and wait on materials coming in and furthermore, cash flow is severely restricted for print companies who have significant funds invested into orders that aren’t coming through quickly enough.
Business owners find themselves in a very unfortunate position from every angle. They either lose customers as raw materials take longer and longer to materialize or they can’t afford the rising cost of paper or indeed the ability to pay for it so far in advance. Alternatively, they have to attempt to mitigate risk by spreading business to additional suppliers; not feasible when paper mills are already running on empty and have moved to an allotment-based system for their existing customers. Switching to other forms of plastic packaging is not an easy nor quick fix either and not only does it seem counterintuitive to the progress that’s been made towards greener products in recent years, implementing this would also be capital-intensive.
Of course, printers know their business better than anybody and will already be having difficult conversations with customers about switching materials out to those more readily available as a first step to saving orders. Whilst the situation does present an opportunity to provide value to clients in this way, business owners will want to be prepared for paper supplies to be restricted at least for this year and maybe beyond.
The packaging industry is set to grow by a CAGR of around 4% up to the year 2026 driven mainly by ecommerce, transport packaging and last-mile delivery servicing. Printers that prepare ahead to have creative solutions for their clients and financial solutions lined up that optimize liquidity, will be well placed to take a part of this growth. Whether you need additional working capital to commit to bigger orders or invest into technology to diversify your print solutions and materials, planning ahead is crucial.
Sallyporrt works with several businesses in the printing industry to create financial solutions which enhance working capital and support the companies through these challenging trading conditions. Reach out for more insight into how we’re supporting similar businesses and some of the steps you can take to secure the future of your print business now.
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