What’s behind the paper shortage? Whether it’s for business forms, invoices, or statements, paper is in short supply. Often, there are longer than usual lead times, if you can get the paper at all. Customers are demanding an explanation. What can you tell them?
First, it’s important to understand that this isn’t an issue that is exclusive to their relationship with you. Every print distributor, commercial printer, direct mail house, and print production vendor in the country is facing the same shortage. They could defect to another distributor and be in the same situation.
We’re all in the same boat.
Customers tend to be more forgiving when they understand why things are happening. What should you say? The nutshell is that the paper industry has a capacity problem, and bringing that capacity back online isn’t as easy as it might seem.
Let’s look at some of the reasons why.
1. Paper mills have been closing for decades.
The paper industry is one of the most capital-intensive and heavily regulated industries in the United States. Margins are slim, and competition is fierce.
With growth in digital communications, demand has been dropping for years. Printing Impressions recently listed more than two dozen mills that had shuttered all or some of their operations. That’s a lot of capacity. There just isn’t as much paper out there as there use to be.
2. Enter the COVID-19 pandemic.
The global pandemic put pressure on every business system at every level of supply. Paper is no exception. During the pandemic, with the economic shutdowns around the country and the globe, demand slid even further. Many paper mills — many of which were already struggling — couldn’t hang in there. The pandemic accelerated the demise of those already on the brink.
Now, even though demand for paper has returned (and sharply so), paper mills can’t simply reopen or turn their paper machines back on. With the combination of tough business model and market factors, there is no quick or simple solution.
3. Paper mills have a maintenance and repair problem.
Why is it so difficult to boost capacity by restarting paper machines? The reason has to do with maintenance and repair. Turning on a paper machine that has been idle for some time is like pulling a classic car out of storage and expecting it to run. These are large, expensive machines that need significant maintenance and repair. Some machines need to be replaced entirely. Many of the employees who have knowledge about how to run and maintain this machinery have left the industry.
The magnitude of the problem is staggering.
4. Paper mills are having trouble restaffing.
Many employees have found other jobs or relocated permanently out of the area. Finding new employees isn’t easy, especially when papermaking isn’t the most glamorous job. The work is hot, dirty, and can be dangerous. It’s difficult to get people on board, especially when they have other options.
5. Raw materials costs are spiking.
Papermaking has always been a tough business, even in the best of times. Now, increases in raw materials costs have eroded profitabilty further. Supply chain shortages span the globe, and mills that formerly could augment supply with fiber from overseas are seeing shortages and spiking prices (with inflation in the range of 20%). There isn’t enough fiber to meet the demand. What fiber is available is expensive.
6. Energy costs are a killer.
Russia’s war in Ukraine is disrupting supply around the world. Paper mills are massive users of energy. Even before Russia’s invasion, paper was facing significant pressure from energy prices. U.S. natural gas prices spiked more than 150% between 2020 and 2021. (Six mills in Italy closed because of surging energy prices alone.) Add the impact of the war and the impact on paper mills is crippling. Historically, the EU has gotten 41% of its natural gas from Russia, and EU nations are now seeking alternative sources. The ripple effect impacts mills here in the United States.
7. Mills are shifting capacity.
In light of all of these things, U.S. mills are shifting capacity. Those that are remaining open are shifting their production from less profitable paper grades to more profitable ones such as recycled packaging and containerboard. This puts pressure on the supply of other paper grades, such as those used for forms, invoices, and statements, as well as direct mail applications.
What Can You Do?
How do you respond to these challenges? Urge patience, planning, and flexibility.
- Turn times are longer than they used to be, so encourage your clients to plan around them.
- Encourage flexibility in the stocks they use. Even though their favorite stock might not be available, enough stock might do just fine.
- Start early — make their purchases when paper is available and stock up, if possible, based on availability.
Experts believe that the paper market will eventually stabilize, but there is no estimate for when this might happen. In the meantime, we’re being asked to pack our patience and, to the greatest extent we can, plan ahead.
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