A Positive Outlook for Paper in 2022
It’s been several months since we talked about how the print industry has gone berserk. From operating rates causing price increases, to the resultant impact on capacity, to the ultimate effects on your purchasing decisions, the paper supply chain has now been in a very difficult place for some time.
But we’re starting to see some good news! Forecasts for the rest of 2022 expect a decrease in demand for both coated freesheet and uncoated freesheet. As a result, some of the depleted inventory will start to build back up. Now, the projected decrease in demand isn’t quite enough to get things fully back to normal, but it does mean things are finally shifting in that direction.
Having said that, we’re not quite there yet. Several key factors continue to pose problems. The import supply chain is still strained. Pressure remains on domestic availability. Mill inventories are still depleted. And allocations are often quite strict. Plus, with the recent increase in inflation, those rising costs will continue to get passed on. In other words, you’re still in a tight spot.
Let’s dive into why and how inventory plays such a big factor in this. Inventory, in effect, is a buffer for variability. This can be on the supply side, like mill maintenance, in which case inventory allows suppliers to continue to fulfill orders during downtime needed to do that maintenance. It can also be on the demand side, like seasonality or larger one-time orders. But if that inventory is depleted, suddenly that flexibility vanishes. If they can’t produce it, they can’t supply it.
What’s happened for the past twelve months is that mill inventories have continued to dwindle, which means demand simply can’t be met. To return to the “normal” levels of early 2020, there’s still a lot of inventory that needs to be rebuilt. But the projected decrease in demand for the remainder of 2022 means that for certain categories the pressure on inventory is beginning to lighten.
If that trend continues, then inventory levels can begin to rise back toward where they were a couple years ago. And what does that ultimately mean? It means at least one of those frustrating factors won’t be such a frustration anymore.
There are also two other ways the inventory outlook can improve: production and imports. The production side is fairly simple: manufacturing more paper. The difficulty is, how can that be done with existing assets? One option is to reduce complexity. When manufacturers do this, they’re able to increase capacity, and that’s something we’re seeing—which is some more good news for the inventory situation.
What this means for you is that it’s important to identify potential consolidation points for sku rationalization efforts or have a backup ready in case this reduction in complexity means that a product you had been using is no longer being manufactured. Having a greater degree of flexibility will be sure to ease some of the strain that you might be feeling.
The import side is also showing some signs of improvement. Whereas many manufacturers lost their spots on shipping vessels during 2020, making it more difficult and more expensive to get paper supply from overseas sources, they’re starting to earn those spots back.
The downside to this source is that container costs remain far, far higher than prior to 2020—around $20,000 to $25,000 as compared to the average cost of $1,500 in late 2019. Obviously those expenses will often be passed along, so while the improvement in imports will certainly help inventory levels, they could come at a very literal cost. Plus, the variability in costs also creates variability in delivery. An import order might arrive in a couple months. Or it might take four or five, which is the sort of uncertainty that you may or may not be able to deal with.
As for what to expect in the rest of 2022? Paper availability is unlikely to improve, even if things are moving in that direction. As such, communicating your needs to suppliers early and often is going to be crucial, as will being proactive about planning and prioritizing. Cost inflation and supply chain woes will continue to cause frustrations. Being a customer of choice and understanding your suppliers’ pain points could be key for helping ease some of those frustrations. If you have the ability to help with any of those pain points, it will likely help with some of yours, too.
So that’s the situation at the moment. The question is, what can be done about it? We dive deeper into that in our other post, but here’s the general upshot of what’s likely to happen and how you need to be prepared.
- New supply chains and service models are already being created. Some of these—the successful ones—will last, which means you may need to change, too. This may also require new capabilities to be developed.
- Forecasting and planning will need to be a standard practice and may even need to be quite precise.
- SKU rationalization is likely to continue and have a potentially long impact.
Ultimately, your success will come down to having flexibility, having scale, and being able to plan. Read more about that here.