Preparing for the Paper Crunch
Magazine publishers have enjoyed a steady decline in the cost of paper;particularly for coated, mechanical-grade paper preferred by magazines;for almost the last two years. A combination of publisher tactics such as lowering paper weights and grades and broader market forces such as low demand, ready availability, and a weak dollar for Canadian and European mills, has sent prices on a downward spiral, a trend that will continue through the remainder of 2007.
However, in 2008, corrective measures by the paper industry will start prices climbing. "We are at the turning point in the market and we are going to see a reversal of the trend of the last 18 months that could last two to three years," says John Maine, vice president of Resource Information Systems (RISI), an information and research provider for the forest products industry. "We will see significant recovery in pricing in the second half of 2007, extending into 2008 and 2009."
Mill closures and paper mills focusing on select grades will affect the industry as well. Fraser Papers got out of the magazine business altogether due to lack of profitability and the desire to focus on higher-value specialty markets. Tembec shut down a mill that produces 325,000 tons of various coated papers, while UPM put a temporary halt on a Canadian mill that can't make a profit in the U.S. thanks to the weak dollar. "The closures will kick-start the pricing," says Maine. "It will take a while to regain ground. But in 2008 and 2009, there will be quite a dramatic increase."
The upcoming presidential elections will boost print demand for both the magazine and newspaper industries, yet publishers may have fewer grades to choose from. "We're seeing a huge shift in the paper industry with people saying, ďľ‘We're not making money in certain grades' and getting out of it;Number 5 especially, which tends to be a publication grade," says Bruce Jensen, vice president of U.S. and Quebec sales at Transcontinental Printing. "We're definitely seeing people try to drive the weight down in their books, especially with the latest postal increase. We're seeing more people explore lower weight grades, but also lesser quality grades. They are at levels today I bet they never would have even thought of five years ago."
Don't fall into the trap of focusing purely on paper prices. Savings can be realized in many other related areas, according to Rob Brai, director of manufacturing and production at Northstar Travel Media. "One thing you have to monitor is paper pricing, but that's only one side of the equation," he says. "Often that side is given too much attention. The other side is how much paper you use overall in terms of pounds. That's often overlooked, especially by publishers who let their printer buy their paper for them. There are a variety of things you can do on the consumption side that will reduce paper costs but give you the double effect in some cases of reducing your distribution."
Work out the details with your printer, especially if it buys paper for you. "When people sign contracts with their printer, they don't pay attention to putting clauses in there that monitor things such as over and under consumption, which is the difference with what the printer says it will use on a particular press and what it actually uses on a particular press," says Brai. "At the end of year it can do a tally on over consumptions and under consumptions, and the printer will either owe you money or you're splitting savings with the printer."
Some of the clauses Brai puts in his contract allow him to adjust the waste percentages that the printer is using on specific forms and presses. "That's a way that you can drive down the amount of paper that you use on a year-to-year basis," Brai adds.
Larger publishers, such as Forbes, have the muscle to negotiate. The magazine monitors paper pricing on a quarterly basis. "We still maintain a strong emphasis on cost savings in all our areas of influence; pre-media, paper, printing, distribution," says director of manufacturing Mary Nemeth. "Since paper is a significant component of our costs, it's one of our main focuses. We operate on continual review, by quarter, to determine if price adjustments are warranted."
Still, both large and small publishers advocate being a partner with your printer. "We have a partnership in which we can evaluate price/performance," says Nemeth. "We don't remain married to a particular sheet or mill, and leave ourselves the flexibility to respond to the marketplace. We watch our inventory closely and therefore manage cashflow."
Look for buying deals that cut breaks on price. "Ask your printer if they are willing to lock down your paper pricing if you will commit to buying a certain brand of paper for the entire year," says Vicki Gardner, production director at SpecComm International. "Your publication's commitment to a certain volume of paper will give your printer greater price leverage at the mill."
As a small publisher, SpecComm International has changed the trim sizes of several of its titles to either fit on a press that delivers more pages per signature or use a smaller sheet size or cut-off. "Both of these changes consume less paper, either by saving a press makeup because we're able to deliver more pages in fewer signatures or because we're wasting less paper by printing on a better fitting sheet size," says Gardner.
Technology Can Share the Weight
Advancements in technology are helping printers on the makeready side. "With closed-loop color systems and better presses, you should be able to reduce the makereadies" says Brai.
Transcontinental invests more than 7 percent annually of its net sales back into its business. "Last year we spent over $150 million on new equipment designed to print on lighter weight paper and produce superior results," says Jensen. Closed loop color and stochastic printing, which enable printing on cheaper paper, are generating good results. Transcontinental is also looking at lower grade paper and changing the shorter cut-off to fit new gap-less presses with cut-off capability.
Join a Co-Op
Joining a buying cooperative can help, especially for a smaller publisher. Both Northstar and SpecComm have benefitted from their membership in the Integrated Media Consortium. "The feeling is that if you're a small publisher, you can't get good pricing," says Brai. "If you join a cooperative you have the benefit of being with a much larger group. Can you avoid increases? No. But cooperatives can mitigate those increases. Let's say an increase is $3, maybe with a cooperative it's only $1.50. In some cases, you can mitigate it totally. It's a case by case basis. Some of it is just avoidance of increases or increases being less than what they would have been out in the market."
Northstar buys about 2.5 million tons per year and Brai says that being part of the cooperative helped him save an additional $75,000 last year. SpecComm now benefits from direct buying. "Our participation in the IMC allows us to buy directly from the mill," says Gardner. "Purchasing our own paper saves us 10-13 percent even after insurance and printer-imposed storage costs."