By Ed Avis
Among all the talk of inflation this summer, one area is undoubtedly affecting the reprographics industry: Paper prices. Increases of 5 percent to 8 percent – and in some cases much more – are pinching margins and forcing many shops to increase prices.
“We have responded with appropriate increases to our customers,” says Barry Malkin, chief operating officer of Crisp Imaging in California, who says he’s seen increases up to 8 percent for paper and up to 7 percent for other media, such as some vinyl substrate, in the past 60 days. “We are aware that cut sheet paper prices will continue to increase and are reaching out to vendors frequently to be ahead of the increase events.”
Kevin Howes, executive director of the Reprographic Services Association, confirms the trend: “We’ve seen multiple price increases from all the major players. The first round was 8 to 9 percent, and the second round is just hitting.”
What’s behind the increases? Lots of factors, ranging from pulp price increases to logistics problems to historic pricing battles.
Shipping Costs More
Every industry is suffering because of a massive backlog of shipping this year.
“Logistics is probably one of the largest causes of the increases,” reports Jim Walsh, senior vice president of digital media for Felix Schoeller of the Americas, a paper manufacturer based in Germany. “The supply chain shut down over the pandemic and now it’s restarting and people are bidding on containers and trying to reserve them months in advance.”
Walsh says the cost of a container is predicted to reach $20,000 for a trip from Asia to the United States, which is 10 times the normal cost. The price for a container from Europe to the United States climbed $1,500 in the past month, he adds. He explains that companies that ship expensive items can eat greater increases in shipping costs, so they’re bidding up the prices to lock in capacity. That means commodity products – like paper – which have much smaller margins, need to increase prices to afford the shipping.
Not all paper is manufactured overseas, of course, so some suppliers have less of a logistics problem. But even paper made in the United States is usually made with pulp grown elsewhere in the world, so the shipping costs still come into play.
Pulp and Paper Prices Up
Another factor affecting the situation is that the supply of pulp and paper declined over the past decade. A main driver of that decline was the expectation that the demand for paper would drop due to digitization. Georgia Pacific, for example, stopped producing a certain grade of paper often used for reprographics media altogether.
Other factors included that one pulp mill in Chile was damaged in an earthquake, Walsh says, and some paper manufacturers consolidated over the past decade. More recently, during the pandemic some mills reduced capacity because demand dropped and some pulp production shifted to hygiene paper products.
But now that the pandemic is easing and the economy is jumping back to life, demand for paper is suddenly up. Media manufacturers cannot add capacity quickly, so per the law of supply and demand, that caused prices to increase. Add in the fact that tariffs on cutsheet paper coming from China imposed by the Trump administration have not yet been lifted by the new administration, and it becomes clear why paper prices are up.
“Pulp pricing has gone up pretty significantly since January,” Howes says. “It has come down some in the last month, but the big thing we need to pay attention to is the still continued consolidation of the mills.”
Lack of Leverage, Low Margins
Another factor affecting the price of reprographics paper specifically is that, simply put, we lack leverage. Reprographics media only represents about 1 percent of the paper market, Howes says, so we don’t have much influence in the market.
Also, reprographic paper – at least for monochrome applications -- is relatively low tech, especially compared to paper used for high-end graphics. The more sophisticated the media is, the more margin exists for the manufacturer. So when capacity is at its maximum level, which type of paper do you think gets moved to the end of the line?
“Full capacity creates an approach where you’re only going to fill your assets (manufacturing equipment) with the highest margin products,” Walsh explains. “Everyone is doing that, and what gets bumped is the low-margin products. Media for high-end proofing applications, for example, requires a high-tech resin layer. [Paper suppliers] would be selling that for, say, 25 to 35 cents a square foot, where reprographics paper is 3 to 4 cents. So with which paper are you going to fill your assets?”
The sad irony is that the reprographics industry brought some of this upon itself. Remember all those years when blueprinters raced to sell prints for the lowest price, and consequently pressured paper suppliers to drop their prices? The consequences of that are being felt now, since the suppliers don’t want to make low-margin paper.
“It all goes back to having to walk into a partnership saying, ‘If you’re not making money, we’re not making money,’” Walsh asserts. “A good supply has to be a healthy relationship for both parties.”
When Will it End?
How long will these high prices exist? Prices that go up typically go down much more slowly, so don’t expect relief soon. And the “perfect storm” that caused the current increases has hardly abated – the economy is growing so demand is not decreasing, shipping is still ridiculously expensive, and paper mills are not suddenly increasing supply.
“I believe we’ll see prices going up until things stabilize in the economy and this market,” Walsh says. “What’s interesting is that when you read articles about the 1917-18 pandemic, you see that it gave birth to the roaring ‘20s, because the economy really opened up. History repeats itself.”