It’s no secret marketers have been feeling the squeeze of a tight paper supply. The size of the North America pulp and paper market was $64.32 billion in 2021, with the U.S representing $59.54 billion of the total, as reported in Fortune Business Insights, April 2022 Market Research Report. North American production capacity of uncoated freesheet paper declined from 8.3MM tons in Q1 2018 to 6.5MM tons in 2022, while coated freesheet capacity declined by 48% since January 2017, down to an estimated production of 2 million tons in 2022.
Paper mills are reporting operating rates at 94% – 96% capacity, with some North American uncoated paper mills reportedly operating at 99% capacity. Operating rates in North America were in the low 80s just three years ago.
With paper mill inventories for uncoated and coated stocks at extremely low levels in 2022, as calculated by Fastmarkets RISI, most print and direct mail providers are under tight allocation from mills and merchants.
Product allocations are in many cases less than 70% of pre-pandemic paper order volumes, forcing some printers to spend countless hours searching for paper, as well as identifying alternative stocks in an attempt to meet client demand.
Our Paper Purchasing Team Leverages Buying Power for Affordable Options
Fortunately, at IWCO Direct we’ve been able to leverage our buying power with key paper sources, which helps us meet our clients’ needs and take on new production opportunities. The team at IWCO Direct is in constant dialog with paper mill and merchant representatives to keep up-to-date on the paper market―including product availability, order timing, and shipment schedules to ensure paper stocks arrive in advance of scheduled production.
Market experts have predicted additional price increases for the back half of 2022 due to still rising input costs―pulp, labor, energy, chemicals, and freight. In fact, many of North America’s paper mills recently announced increases effective in August and September―encompassing uncoated and coated freesheet, and board stocks―with increases applying to most all basis weights, bulks, and finishes.
Transportation issues are another factor impacting the paper market. The conflict in Ukraine has created cascading effects on supply chains, causing higher line-haul trucking rates and other transportation costs due to rising oil prices. Fuel surcharges remain in effect by several mills, impacting paper delivery costs with no change anticipated for the balance of 2022.
With paper costs on the rise, IWCO Direct works with clients well in advance of need to ensure we have clear visibility into paper requirements and program timing. This allows our all-star Paper Purchasing team time to assess product availability and pricing to find affordable solutions.
A Bit of Relief for the Paper Market and Transportation
On a more positive note, both the transportation and paper industries show some signs of improvement:
- Driver availability has been improving over the last few months, which is a key factor in facilitating on-time paper deliveries.
- As of June 2022, the load-to-driver ratio averaged 4:1, down from nearly 10:1 in January.
- The average pump price for diesel is around $5.54 per gallon, down from an all-time high of $5.88 in May 2022.
- Ocean freight volume for global shipping containers has decreased to Q2 2021 levels, which will help international paper deliveries to arrive in a more timely manner, and at more reasonable rates.
- 7% of paper consumed in the U.S. was recycled in 2020, per the American Forest & Paper Association (AF&PA), continuing its decade long increase.
- The availability of coated paper is expected to normalize enough to limit shortages. Year-to-date demand remains robust compared to 2021. While capacity remains low, coated freesheet production is reportedly performing better than end-of-year 2021.
At the end of Q2 2022, print demand is still high. Domestic paper production remains stretched thin. With paper imports the unknown for the second half of 2022 and into 2023 (and if the percentage of imports stays relatively flat) the uncoated freesheet market could remain tight well into 2023. It seems an increase in international supply remains the best way for the paper market to find balance again, and experts expect to see this starting in early 2023.
So while the paper market remains tight, IWCO Direct is working diligently with our clients and suppliers to secure paper stocks for the balance of 2022, and identify first quarter 2023 needs to ensure we get commitments from mills to meet future demand.