Millcraft State of the Graphic Printing Paper Industry Q2 2024
Slow, lethargic, stagnant, spotty, spikey, pivoting—when asked in May 2024 to describe the current industry, hundreds of professionals including printers, end-users and agencies, suppliers and producers, distributors and re-distributors responded with the above terms. A commercial printer in Chicago furthered with, “We had a good Q1 vs 2023, but Q2 feels like it's slowing, our healthcare segment is stable. Overall, it feels like our volumes are steady to slightly declining. Employees are still very hard to find. We have had open positions for months!”
In this Q2 Industry Update, Millcraft Executive Vice President and Chief Operating Officer Greg Lovensheimer says, “The concept of being balanced on a knife’s edge is absolutely the reality. Currently, it’s steady. Demand is kind of indifferent. So is supply, and while destocking is nearing an end, inflation is impacting print, postal hikes…inventories are stabilizing but interest rates are curtailing any kind of inventory build. There may be optimism around 2024, but we’re really trying to understand consistent demand versus seasonality.”
Previously, in Q1 2024, Greg shared, “Printer inventories are correcting to historical levels while merchant inventories are at very low, historic low levels. If demand were to pick up because of the general election…if interest rate cutting takes place and demand takes off, I’m not sure merchants have the inventory or the mills to counteract that. When we talk about the bullwhip effect, be mindful of that. Everything remains balanced on a knife’s edge.”
Heed warning, as Greg echoes a similar message in this State of the Graphic Printing Paper Industry Q2 2024. Heading into the Olympics and election, he says, “There’s no real excess out there in the supply chain.” However, with optimism around 2024, Greg shares definitive ways to best navigate this industry through Q3 and Q4—be sure to cue in as Greg expertly presents Prescription for Success 2024.
Q2: State of the Industry
Economic Growth: The GDP is expected to slow in 2024. In Q2, Greg says the American consumer accounts for 68% of the GDP, consumers are spending more on services and less on goods, and the cost of money is taking its toll, especially in capital investments and inventories.
K-Shaped Recovery Underway: Greg introduced us in Q1 to a term economists use to reference “as the economy recovers, it’s not going to raise all boats equitably,” and Greg predicted, “It’s very likely that the economic data we see from Wall Street doesn’t translate to Main Street.” In Q2, Greg says the K-Shaped recovery is absolutely happening, with healthcare and technology sectors seeing profit and revenue, middle segments (retail sector) holding, but manufacturing sectors down and relying heavily on borrowing.
Interest Rates: In Q2, Greg says a terminal rate is in sight, but inflation persists. “The Federal Reserve has settled at 5 1⁄2% as the terminal rate.” The market may now expect only 1 - 2 rate cuts in 2024, noting that the 2% range would be ideal.
Labor Market: Currently, with approximately 1.4 jobs available for every person out there, the labor market is slowly correcting towards the Federal Reserve’s desired end. The return-to-work rate, which has a big impact on print and paper consumption, remains stalled. Greg says, “This may actually be closer to the long term norm, the ‘return to the office’ may not be a reality anymore. Covid left a long term mark on where we are with office employment.”
USPS Rate Hike: The USPS announced its seventh increase in three years, an additional 5 cents to .73 for First Class Stamps beginning July 14. Greg says, based on postmaster’s comments, July is necessary but likely the USPS will be able to pause there. “There’s a possibility of no increase in December. It’s not guaranteed, but hopefully we’re at the end of this rate increase cycle.” Greg says there are ways to offset costs, and to contact Millcraft who can help you apply and receive some of the discounts available through six programs created to help offset rate increases.
Imports: In Q2, Greg refers to the domestic freight market as “absolutely stable” with domestic truckload freight being extremely stable for the last five months. Ocean cargo, which impacts our imports, is disrupted but improving and fleet capacity is expected to grow 10% in 2024.
Paper Market Analysis: Be sure to tune in at 29:36 for a thorough walkthrough of printing and writing papers, and the differences between coated freesheet (CFS) – marketing collateral, labels, box-wrap – and Uncoated freesheet (UFS), copy paper, envelopes, greeting cards, etc.
Demand: True print demand remains challenging to pin down in 2024. In Q2, shipment and commercial print volumes in February 2024 came in at 6.91%, down from January’s 7.04%, but right in line with ‘21 and ‘22 levels. Greg says while demand is down 10% in uncoated and 32% in coated, these rates are nearing relatively historical norms. “Is this the new norm?” Greg asks for us all.
Inventory: The norm was 60 - 80 days worth of inventory pre-Covid. Inventory levels were up to 120 days during Covid. Now, In Q2 of 2024, Greg reports that UFS is approximately 30 days on hand and CFS closer to 40 days. Printer inventories are improving, but merchant inventories are at very low levels. “While destocking is taking place, there is still room to go. It may just be that this is the new operating rate. However, on the merchant side, that’s at a 25-year low.” Greg says, “Numbers are relative, not absolute, and are based on current sales. If sales pick up, these numbers will change.”
“The current inventory levels,” Greg says at 34:18, “is a testament to suppliers out there taking some down time, which is absolutely painful to those who are in mill towns…we really appreciate all the sacrifices you are enduring.” Suppliers are keeping lower levels of inventory, doing that through their operating rates. Operating rates are where the impacts are being felt, and mill downtime is absorbing the lack of demand.
“The concept of being balanced on a knife’s edge is absolutely the reality,” Greg says. “There may be optimism around 2024, but we’re really trying to understand consistent demand versus seasonality. There’s no real excess out there in the supply chain.”
Prescription for Success in 2024
Watch for Wildcards: The general election and political print provides huge potential; implications are fully unknown at this time. But consider what Greg said in Q1: “Expected to lift 1.5 to 3.5% GDP growth…This is the most highly contested general election and presidential election that has ever been, with estimated $10 billion in political spending. Yes, you’re going to see postcards in your mailbox and ballots mailed out. The hope is that you are doing everything possible to protect your supply chain to be able to participate in this growth.”
Keep watch, too, Greg says of inflation and interest rates and how they affect spending. “Marketers are on the sidelines. Projects being kicked around, possibly in the hopper, but deferred not only due to inflation but the conflict in the Middle East.”
Be Mindful of Post Office: While major promotions are only accessible to the top 17% of mailers, there is help available to offset rate costs. Contact Millcraft for assistance. TIP: Greg shares, “For direct mail, 12x18 and especially 80 pound cover is a goldmine…has been a huge mover in the primaries and is expected to go crazy as we get closer to the general election.”
Partnerships With Visibility: “We truly believe the future is about integrated supply chains that have high level of trust and high level of visibility—so there are no surprises for us to them, and them to us.” Partnership transparency is the only proven solution to overcoming market forces that create bullwhip effects. Information sharing from end users back to suppliers results in the lowest total supply chain cost structure.
World-Class With Millcraft: Millcraft remains committed to providing a world-class supply chain strategy for our customers. Leveraging our supply chains on a global basis, we are engaging technology and AI in a unique way that will give Millcraft a long term competitive advantage. We’re truly dedicated to relationships, not only with customers but with our supply chain partners. As Greg says, “Our job, quite candidly, is to protect our customers’ supply chains.”
Discover how Millcraft provides a world-class supply chain strategy for customers in the Millcraft State of the Graphic Printing Paper Industry Q2 2024 Update.
If you have questions, or you’re interested in positioning your print/paper spending in 2024 for optimal price, service, and availability, Millcraft can help. Just ask.
By: Jen W. O’Deay