Papering over the cracks

The international paper shortage has been created by a variety of factors, but it seems set to have a long-term impact on the sector. The age of cheap paper could be over –and dealers will have to educate customers on the need to reassess their expectations

Steve Carter, Advantia

The problems in the paper market are myriad. The decision of some mills in Central Europe to focus on higher margin products -such as pressboard and packaging -rather than paper has added to these problems, as the product cannotbe readily sourced from elsewhere. It is too expensive to ship paper from Asian mills, and those in South America have enough work with demand from North America to look to ship to Europe. While the Finnish paper mill strike is over, we won’t see the benefits of that in terms of physical products for another six months, but it does take the pressure off the other mills in the short-term.

From speaking to people in the sector, we are now starting to see a slight recovery. From June onwards I think we will see more paper come back into the market and, hopefully, at that point there will be more continuity of supply. We are likely to see more increases in price, maybe in September/October, but then it might even out after that point. However, if you want paper, you have to pay whatever the going rate is –that is the reality.

What this does mean is that the era of cheap paper is over –as an industry we have been selling it at too low a price for years. This means dealers will have no choice but to pass the increases in paper costs onto customers and, as with most paper products, there is little margin in it –indeed, some dealers have used it as a loss leader as new customers often judge dealers on the price of their paper. That won’t happen anymore as dealers will not be able to afford to do it.

Going forward, for dealers, it will be about educating the end-user about what has gone on in the sector, and will happen in the coming months. Many businesses in other sectors will not know about what has happened in the paper sector, so it is up to dealers to explain this and why paper prices have to rise. As costs have risen in many other sectors this year, they are likely to understand, and be accepting of it, if they are given the right information.

Paul Savill, Antalis

Understanding the overall picture regarding the current challenges in the office papers market requires us all to consider the supply situation through several different lenses. There has been a ‘perfect storm’ of difficult and demanding contributory factors. In a post-pandemic world, we looked forward to a new normal, and are all still adapting to what that looks like today -and what it may present tomorrow.

Aside from the expected decline in paper demand due to digitisation, there have been several other factors that have come into play, such as industrial action in Finland, capacity decline due to mill closures or machine repurposing, ongoing shipping disruption as well as the spiralling costs in energy, pulp and chemicals. Thereis also a level of complexity added when we review the impact on supply/sanctions associated with the terrible situation in Ukraine.

The long-term industrial action now appears to be at an end and, although welcome news, this will not immediately rebalance the supply demand dynamic into the market as the current challenges will continue for a significant period of time. Whilst the situation is expected to improve, it would be unwise to predict a definitive time period for that.

This is, of course, having a huge impact across the supply chain, from manufacturer right through to end-user, with difficult strategic decisions having to be made throughout as we all look to service our customers to the best of our abilities.

The watchwords in managing this issue are ‘openness’ and ‘flexibility’ coupled with an engagement process with resellers to provide relevant and well-researched information to help them continue that discussion with their end-users. At Antalis, we have provided several market infographics for our resellers to be used as supporting documents to assist such conversations.

Whilst our customers may have preferred brands or products the reality is that, at some point, supply may be stretched and those preferences may not be readily available. Helping our end-users understand why this has happened in a broader supply context will undoubtedly help resellers not only retain and manage customers, but will also enhance their position as trusted and knowledgeable suppliers.

Lawrence Savage, ExaClair

A multi-faceted selection of factors has been influencing the paper supply chain across the globe for some time. For example, with the introduction of the plastic packaging tax earlier this year, more people than ever before are now seeking to replace disposable plastic packaging by choosing more ecologically aware alternatives, such as paper-based solutions. Similarly, the growth in online retail, especially since the pandemic, has continued to drive significant demand for card and paper packaging.

Over recent months this has been intensified still further with the strike action being taken in the Finnish mills owned by the forestry group UPM Kymmene, as well as the impact from Russia’s conflict with Ukraine, which has resulted in some of the larger paper mill groups ceasing production.

However, now that the strike action is over, there’s hope that we’ll start to see more stability towards the end of 2022, though there is a likelihood that the uncertainty might continue, in some form, into 2023.

Before COVID the main cost associated with paper production was driven by pulp. Although the cost of pulp has increased significantly, it’s an energy-intensive process and, with gas being one of the main sources of energy, this has now surpassed pulp as the biggest cost factor. The uncertainty surrounding Russia and Ukraine at the moment will continue to influence this, as different governments look for alternative sources for their energy solutions.

To add to the woes in the industry, freight costs are at an all-time high and availability of empty containers, in addition to the port delays and lengthened shipping schedules, is still an ongoing issue.

With the pandemic driving many organisations to stockpile products, warehousing capacity inthe UK is stretched. However, once this manages to stabilise, along with energy costs, we should start to see the pressures on pricing and lead-times lessen.

In the meantime, there are things that dealers can do to mitigate the effects of the shortage. For instance, where possible, dealers should seek to source from suppliers which have more localised manufacturing facilities, as this can help mitigate some of these issues.