By Ed Avis
Last week APDSP hosted a webinar on supply chain issues, and our two panelists – Dan O’Malley, vice president of sales for RB Converting, and Jim Walsh, vice president of sales and marketing for Felix-Schoeller – offered some hopeful information about the paper price issue. (You can watch the recording of the entire webinar by logging into the Member Portal and clicking on the Reports and Recorded Webinars tab on the left panel.)
Reprographics shops have seen constant media price increases dating back even before COVID, but they spiked during COVID. One reason cited for those increases were that some major paper mills had shifted away from making bond paper because other products – such as cardboard for boxes – were more profitable, especially with home-bound consumers ordering more and more from online vendors. Another reason was logistics, since the cost of moving goods dramatically increased during COVID.
According to the panelists, both of those issues have eased somewhat in the past year.
“I think the mills have relaxed a little bit. As we talked the last time, the mills were very, I guess I'll just say, ‘high and mighty’ when it came to their policies of selling to converters,” O’Malley said. “Since that time, the demand has gone down and the supply has gone up, so therefore they're wanting to dump some more product out there.”
The logistics situation also has improved, Walsh explained. Logistics costs vary greatly depending on where the media and/or the raw materials are coming from, but one example is the cost of shipping containers, which are used to ship raw materials to mills and finished products to customers.
“The supply chain is starting to smooth out the wrinkles and the cost of containers – which I heard were as much as $35,000 during the peak of the supply chain issues – are starting to relax back down to where they were, not exactly, but kind of where they were pre-COVID, around $4,000 coming out of China,” Walsh said.
That hasn’t translated to better prices quite yet, O’Malley added, but at least prices have plateaued. “They haven’t lowered any prices to us, but the products are more available and the mills aren’t increasing the prices to us.”
Why haven’t prices dropped yet? Because companies in the media supply chain are reluctant to drop prices any sooner than they need to. And if they weren’t able to quickly ramp up prices at the beginning of the crisis, they want to earn more money at the end of the crisis to make up for that. That’s called the “lag effect,” Walsh explained.
But we may be nearing the end of the lag effect. “We started to see after the first of the year, particularly towards the end of January, pulp [prices] stabilize, and they actually took a little bit of a dip,” Walsh said.
And when the raw supplies costs drop, everything else should eventually follow. Walsh said paper mills have not yet been adjusting prices down, but that is coming.
“The plan is as the costs continue to stabilize, we are committed to…getting prices back down to a more normal level,” he said. But, he added, there’s not a straight line between dropping materials costs and lower end-product costs. “Pricing doesn’t flow through a rigid set of rules. There’s a lot of fluidness to it. The customer may pay more or pay less at times, due to the volume and the strategic nature of the particular piece of business.”
O’Malley shared Walsh’s outlook about dropping prices: “I would be very optimistic in terms of seeing price decreases, if things keep going in that direction, in the second or third quarter…. The good news from this whole webinar is that our people, the IRgA, have gotten to take a little peek behind the curtain, whether we wanted 'em to peek behind the curtain or not. They got to learn something today that none of us really knew before.”
This is just the tip of the tip of the iceberg of information from the webinar. You can watch the recording of the entire webinar by logging into the Member Portal and clicking on the Reports and Recorded Webinars tab on the left panel.