Seven Trends Affecting Paper Manufacturing and Costs

Since the Great Recession of 2008-2009, the paper manufacturing business has undergone some major changes. As the U.S. economy enters a growth mode, some of these changes are now creating paper shortages.

These shortages are driving up the costs of the coated and uncoated paper stocks that are used for everything from marketing materials, manuals, and packaging to office documents, engineering drawings, and architectural renderings.

Paper manufacturing plant
Pulp and paper mill. (Photo: ©hxdyl/www.123RF.com)
Background

During the Great Recession, marketers and publishers slashed printing costs by publishing more content online instead of printing catalogs and magazines. As the big printing companies suffered sharp declines in the demand for high volumes of printed publications, the demand for printing paper dropped too.

Big printing companies and paper mills both started focusing more attention on package printing, because printed packaging can’t be replaced with digital content. Some U.S. paper mills started exporting more of their products overseas.

The rising interest in sustainability also affected paper manufacturing. After environmentalists called attention to problems associated with paper manufacturing, the mills adopted long-term goals to:

  • Increase paper recovery for recycling
  • Improve purchased energy efficiency
  • Reduce greenhouse gas emissions
  • Promote sustainable forestry practices
  • Improve safety
  • Reduce water use

According to the 2016 “The Better Practices, Better Planet 2020” report, by the American Forest & Paper Association, some goals have already been surpassed and mills are making substantial progress on the other goals. The 2020 goals were established in 2011 and based on 2005 benchmarks.

Paper manufacturing is a very capital-intensive business. Higher energy costs and environmental investments have made it more costly for paper companies to operate or expand their existing facilities.

As U.S. paper mills revamped their operations for environmental improvements over the past 30 years, they didn’t invest in the newer, faster, and bigger manufacturing machines that are used by paper manufacturers in Europe, Asia, and South America. Most paper-making machines in the U.S. are more than 40 years old.

Paper mill cogeneration facility
Many paper mills have invested millions of dollars on high-efficiency power co-generation facilities. With these on-site facilities, pulp and paper mills use biomass such as wood waste and short-fiber cellulosic residuals to generate some of their own electricity. (Photo: ©Moreno Soppelsa, www.123RF.com)

Today, the demand for paper continues to be difficult to predict accurately. As the use of printed materials continues to evolve, major printing companies are keeping their customers informed about some of the trends that affect the cost of coated paper stocks. Here are facts reported in printing-industry blog posts and paper-industry associations.

Trends That Drive Up Costs

The number of paper mills in the United States has decreased. Two major U.S. manufacturers of coated paper closed in 2017. And 18 pulp and paper mills in the Southeast were shut down either temporarily or permanently after Hurricanes Harvey and Irma.

Plus, the new owners for Appleton Coated have announced they will no longer make coated paper. SAPPI is shifting some of its paper-manufacturing capacity from coated paper to packaging grades of papers.

But there is no shortage of paper worldwide, and some paper distributors are replacing domestically manufactured papers with imported papers.

The price of wood pulp is rising. There is global competition for the raw materials used to make paper. Analysts predict that wood pulp costs will rise at an annual rate of about 5.1 percent through 2019.

A shortage of truck drivers is driving up shipping costs and delivery times. According to the American Trucking Associations, nearly 71% of all the freight tonnage moved in the U.S. goes on trucks. Moving 10.5 billion tons of freight annually requires over 3.6 million trucks and over 3.5 million truck drivers. But the number of applicants for truck-driving jobs has been shrinking. Currently, there are about 51,000 fewer drivers available to meet the existing demand from product manufacturers and national retailers (such as Amazon and Walmart). To attract new drivers, shipping companies are offering signing bonuses and other incentives.

Trends That Influence Demand

Print and paper still have value. For a long time, some analysts have predicted that offices would eventually become “paperless.” That hasn’t happened.

Multiple surveys have shown that many people prefer to read printed books and magazines and keep hard copies of financial and legal documents. Many people believe prints on paper are easier to proofread.

Plus, printed copies offer a way to keep important information from being hacked and preserved for future generations. Photographs, engineering drawings, and architectural designs printed on archival papers can last for decades. The long-term accessibility of files stored on outdated formats and technology is less certain.

Print is an integral part of the multi-channel marketing mix. Brand marketers have discovered that personalized, printed direct mail is still an effective marketing tool, especially when used in conjunction with online marketing.

Brand marketers are also testing technologies to make printed materials (including packaging) more interactive. When printed materials can instantly be augmented with online content, brands can use print as a measurable, direct-to-end-user marketing channel.

Paper is recognized as a renewable resource. Two Sides North America has done a great job making corporations and consumers aware that “going paperless” doesn’t necessarily save trees and forests. Today, 91% of U.S. consumers agree that print and paper can be a sustainable way to communicate when responsibly produced, used, and recycled.

Some companies that formerly used flexible plastics for packaging have switched to to paper packaging because it’s a more environmentally friendly option.

The percentage of paper that is being recycled and re-used is growing. Paper recovery for recycling helps extend the useful life of paper and paper-based packaging products. The American Forest & Paper Association has announced that 65.8% of the paper consumed in the U.S. was recovered for recycling in 2017. Paper is recycled more than any other material in North America.

The Bottom Line

Despite all of the good news about the sustainability of paper and effectiveness of printed communications, the prices of uncoated and coated papers are rising.

Over the past year, paper manufacturing companies have announced several price hikes. Distributors such as Freedom Paper have absorbed some of these price increases by diversifying into other types of products and becoming more efficient in daily operations. But at some point, every buyer of printing paper may be asked to pay higher prices.

Many paper merchants, including Freedom Paper, are confident that today’s manufacturing and shipping issues will be resolved so price hikes can be minimized.

In the long-term, the uptick in costs might be a small price to pay for making paper manufacturing a more environmentally sustainable, less wasteful process. Thanks to advances in digital printing and recycling, you can print only as many copies as you need and recycle outdated versions.