Plan Now: Paper Prices Will Continue to Rise

No doubt, catalog paper prices will continue to rise each quarter well into 2009. So catalogers need to build future paper price increases into their cost budgeting and break-even planning. Here’s why we can assume the price of paper will continue to climb:

* We’ve suffered through six quarterly increases in a row with another increase announced for Oct. 1.

* The paper companies are committed to maintaining price discipline and improving profits by increasing prices.

But Why?
If you’re trying to figure out why the paper companies have the power to keep raising prices, consider the following factors:

* Consolidation has occurred, and only a handful of paper companies remain. The paper companies are now owned by venture capitalists and have a laser-like focus on short-term profits.

* Because there are so few remaining, the paper companies have been able to maintain price discipline by raising prices and not cutting deals or negotiating with large printers.

* The paper companies have squeezed out production capacity by closing paper machines. The dwindling supply means paper is on allocation with lead times stretching out six weeks to eight weeks.

* The weak dollar has meant that Canadian and European paper has become more expensive and isn’t a factor in the price of catalog paper in the U.S.

* The rising cost of pulp, petroleum and other raw materials has continued to put profit pressure on the paper companies in spite of the price increases. The paper companies have gone from being unprofitable to marginally profitable.

These factors continue to put pressure on the paper market. The discipline to maintain high prices means that catalogers should expect to absorb quarterly price increases for the foreseeable future.

What You Should Do (About Paper and Ink, Too)
First and foremost, budget for these increases. Plan for paper to increase $3/cwt (or about 6 percent) each quarter. Know that the Oct. 1 price increase has been announced, and paper for jobs printed after Oct. 1 will reflect the higher prices. Build into your 2009 cost budgets the price increases that have already happened and will happen in the near future.

Plan for ink prices to increase, too. Prices for ink increased last month and may increase again given the high price of oil. Ink is a major manufacturing cost for printers. So work with your printer closely to understand what your manufacturing costs will be in 2009.

Other Options
What else can you do to buffer the costs of printing your catalog? Review potential savings from cutting your trim size and paper weight. Work with your printer to co-mail your catalog and minimize postage costs. Know your breakeven, and make sure your circulation maximizes profitability.

As for gauging just when/if these increases will subside, as long as the paper companies can maintain their cartel and not discount prices or start cutting side deals to sell excess paper, plan on the price increases to continue indefinitely. Given that the increases have happened like clockwork each quarter, look for the next round of increases to be announced six weeks before the beginning of a business quarter. Talk to your printer and paper merchant to keep up-to-date on all the happenings in the paper market.

Don’t get caught assuming the paper price increases won’t continue. Sorry to be the bearer of such bad news, but all indications are that prices will continue to rise in the short term!

Jim Coogan is president of Catalog Marketing Economics, a Santa Fe, N.M.-based consulting firm focused on catalog circulation planning. You can reach him at (505) 986-9902 or jcoogan@earthlink.net.