‘Paper’ Money

In an all too familiar refrain for catalogers, paper prices rose again earlier this month — the third such increase since last summer. Catalogers using coated groundwood sheets have been dealing with an average increase of $9 per hundredweight (cwt) over the past six months. And there’s no end in sight.

In fact, these increases are just the tip of the iceberg. The paper industry is fundamentally changing. Even with the latest price increases, the industry is barely at breakeven. The consolidation of paper companies and the closing of many paper mills have given the remaining corporations the economic muscle to raise prices and have those prices stick.

This development has sent shock waves rippling through the catalog industry. Here’s a look at some of the issues catalogers are facing:

* Prices are non-negotiable.

* Paper availability is being stretched out, forcing catalogers to contract for deliveries three months or more in advance.

* Mills aren’t producing some sheets, forcing catalogers to use the paper that the mills can produce most economically.

* Budgeting for higher production costs for both paper and postage is cutting significantly into bottom-line profits.

* Paper companies have reduced paper merchants’ and brokers’ negotiating strength, essentially allowing negotiations for allocations and delivery dates only. These merchants have almost no ability to negotiate price.

* In some cases mills have walked away from contracts with price caps, successfully renegotiating paper prices with the largest users.

Reality = No Negotiation
Catalogers are being forced to deal with a new reality this year, one where paper cost increases are no more negotiable than postage increases. The question is not if, but when we’ll see another round of paper price increases. They could come as early as April 1, even though the spring is traditionally a soft period for paper demand. Regardless of when, the reality is that more increases are inevitable. Catalogers must budget for increased costs and must plan their printing and paper contracts further in advance to secure paper deliveries.

For a recap of the paper price increases announced by the mills for 2008, click on the chart below.

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 .