Since early last year, paper prices have continued to increase as paper mills, like the rest of North American businesses, cope with rising costs across the board—and there appears to be no end in sight to this trend.
Keith Hammerback, director of manufacturing services at Advanstar Communications, said his company's paper costs will by year's end have gone up 25% compared with the end of 2007. He's predicting a 20% increase next year.
Rich Zweiback, executive director of manufacturing at Lebhar-Friedman Inc., said paper prices have probably gone up 30% to 35% in the past 12 months, and he expects more of the same over the next 12 months. That's equal to a $2 to $3 increase per hundredweight per quarter, he said.
In response to the price hikes, publishers are slimming their titles even further and pushing online initiatives. Some are shuttering titles altogether due to the increase in paper prices as well as the rise in oil prices, which has had a big impact on printing and distribution costs.
For years, publishers have been battling incremental cost increases in distribution, paper and printing. Now they are dealing with a growing flood of price hikes that seemingly can't be stopped.
“There is a sobering day of reckoning coming shortly for paper mills when they begin to accurately assess the effect that the last five price increases have had on the product,” said Gerry Chisholm, VP-sales at paper broker Gould Paper Co. “The demand for our product has been hugely eroded, and that isn't going to come back.”
Chisholm pointed out that even with all the increases of the past five quarters, some mills are still closing down machines. “The profitability just isn't there,” he said, “and I don't know when it will be.”
“Demand has been cut significantly,” said Mike Bennett, a sales executive with paper broker Bulkley Dunton Publishing Group, who estimated the decline might be as high as 20%.
Bennett said that while publishers will attempt to push more readers online, “on both the catalog and magazine sides of things, when the print product comes out, there is suddenly demand and movement from the consumer. So print isn't going to go totally away. It's a key business driver for them.”
Bennett said that one upshot of the rise in paper prices could be fewer magazine launches.
Michael Cohen, director of manufacturing and distribution purchasing at Reed Business Information, said these are among the most difficult times he's seen in his nearly three decades in the business.
“Continued quarterly increases will result in additional product changes designed to offset the additional costs,” Cohen said. “The only way for us to reduce the impact of these price increases is to reduce our consumption of paper. I'm afraid marginal titles will be forced to cease their print publications.”
Bennett said one plus in the poor economy for North American paper producers is that their European counterparts aren't going to try and make inroads in the market while the exchange rate is so poor. Meanwhile, Asian producers, which have been picking up more business in the North American marketplace, won't spend too much money trying to generate more sales because shipping prices from Asia are currently so high, he added.
Robert Brai, production director at Northstar Travel Media, said he is hopeful that relief may be in sight. He said that while paper mills should have leverage to impose price increases for the rest of this year, publishers and catalogers will respond by cutting consumption, thereby driving down prices.
“Maybe we'll see some price relief at year's end or first quarter 2009,” he said.