Are you handling the supply chain or is it handling you?
World events have put stress on everything in the paper business––from manufacturing to logistics to delivery. One major result is an inability to access paper that has many businesses caught in a boat without a paddle.
Word to the wise: having a strategic distribution partner can help you keep business churning while avoiding many of the headaches that come along with today’s new normal.
Some of the reasons the paper supply chain is fractured
Consumer spending has changed dramatically during the global pandemic. In fact, consumer spending on goods is up 20% from 2019. Spending on services like restaurants, entertainment, travel, and hotels all screeched to a halt as the world sheltered in place. Meanwhile, spending on goods went through the roof as homes transformed into offices, classrooms, gyms and media centers. More goods means more shipping containers to get them across the ocean and more trucks to move them once they get here. Paper is being squeezed off containers in favor of higher margin luxury goods.
Because of strict COVID-19 protocols at the ports, ships have longer dwell times. Delays were even more compounded after the Ever Given was wedged in the Suez Canal, effectively halting 15% of the global container flow.
Today, the world is reopening after the global pandemic. A historical, “hockey-stick” shaped economic recovery is in progress, meaning even more goods flowing into the States. Consumers and retailers have responded by ordering early for the back-to-school season and the winter holidays.
And then there’s the issue with coated freesheet paper.
Southeast Asia and Western Europe have been major exporters of coated freesheet papers for years. The rapid fall-off in paper consumption during the pandemic created excess inventory in the States resulting in the Southeast Asia paper supply chain being cut-off. Domestic capacity was reduced and at the same time demand began to shift to the domestics to fill the gaps resulting in their mills experiencing operating rates well over around 100%, which is way out of their comfort zone of 85-95%. (Note: operating rates measure capacity utilization.) Add this to the fact that now the herky jerky overseas non-integrated supply chain is not consistent and reliable enough to support all the demand that has moved. The result is a bunch of demand for paper without a source.
Don’t expect recovery in inventory from domestic producers.
Domestic mills adjusted capacities during the pandemic and have depleted much of the excess inventories that were built during the pandemic. While they are doing the best they can to make more, they are having a hard time keeping up with demand.
Will it get worse? Perhaps. However, mills are trying to get their arms around the issue and have started to reserve more capacity for existing customers so that customers can plan for the future. There is a chance that it could begin to normalize in a few months, but more realistically, things won’t settle down until 2022.
9 ways to keep business uninterrupted
1. Pay a fair price. We know that because of the recent pandemic, more people than ever are buying goods instead of services. Paying a fair price for the paper you want helps manufacturers justify the costs of laborious production and delivery logistics. Additionally, lower margin grades and customers get squeezed first, so customers that pay a fair price will have fewer problems sourcing paper.
2. Source standard sizes. Now is a good time to ask, “How important is that custom size for my business?” Domestic manufacturers have an overrun of standard products. The more you can purchase what is available to you, the better off you will be.
3. Buy higher value products. When supply and demand is tipped their way, manufacturers minimize production of lower margin grades to force demand to higher value grades. Buying more premium products ensures you get the most bang for your buck. The old adage, “You get what you pay for” certainly applies here.
4. Source locally or securely. Quite simply, the closer you are to the mill or the more integrated the supply chain, the more likely you are to continue to get product.
5. Buy what they make. In times of limited paper availability, manufacturers frequently raise prices and adjust their portfolio mix for profitability. This usually means a reduced priority on new product development. Purchasing what's available will save delivery time and money in the end.
6. Buy what is available. COVID-19 has put tons of pressure on the supply chain, complicating ocean logistics, land freight, and increasing the cost of pulp to make paper. Don't rely on timely delivery (or delivery at all) of specific products. Buy what's available to keep your business churning or be prepared for extended delivery times.
7. Communicate. Everyone is working hard to meet end user demand, but getting orders on time takes more planning and communication than ever. Provide as much information to your supplier as possible regarding your customers needs. Providing information like what they need and when they need it as early as possible goes a long way.
8. Fill out trucks. Land freight makes up 15% of the cost of paper delivered to your floor. Spot freight rates are up almost 70% and there’s a shortage of drivers nationally. Maximize your truckloads to offset unnecessary costs and become a receiver of choice for shippers.
9. Offer to pay more. Already in 2021, we’ve experienced wide-spread increases, some totaling more than 20% on some grades. Prices for goods will continue to rise until after the pandemic is fully behind us and the supply chain has normalized. Customers who can pay a premium will be prioritized.
Veritiv is here for you through it all.
Our long-standing relationships, both domestic and abroad,with private brand manufacturers and global paper suppliers ensures you’ll still have access to the products you need. Our integrated supply chain means we can protect you from unnecessary delays. Read more about our family of exclusive brands.