In an exciting live poll at the top of this State of the Graphic Paper Industry Q3 webinar, hundreds of professionals including printers, end-users and agencies, suppliers and producers, distributors and re-distributors were asked in August 2024 to describe the current industry—-the terms slow, picky, in flux, flat, competitive, uncertain, and evolving ranked highest.
Millcraft Executive Vice President and Chief Operating Officer Greg Lovensheimer says in Q3, “The industry is anything but a freight train running full steam ahead, it’s inconsistent and unpredictable. If I were to sum up the graphics paper industry in one word right now, it’s ‘anticipation’. We’ve all expected year-over-year growth from a down 2023, we’ve all expected an uptick in demand from political printing, we’ve all expected financial printing tied to an interest rate change and some kind of return to normal seasonality of Q3...anticipation.”
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.”
Greg continued in Q2, stating, “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’s no real excess out there in the supply chain.”
Listen in on this State of the Graphic Printing Paper Industry Q3 2024: Anticipation? as Greg sheds light on current happenings—with the political print season really starting to hit and $15 billion in political spending still sitting on the sidelines—and shares his outlook for the balance of 2024.
Q3: State of the Industry
Economic Growth: With the GDP expected to slow in 2024, Greg says GDP in Q2 exceeded expectations. The American consumer accounts for 68% of the GDP currently, and government spending continues to play a large role.
Interest Rates: The Federal Reserve has settled at 5 ½% as the Terminal Rate, and has signaled a rate cut in September. Greg says to expect at least a quarter of a percent, or .25%, and potentially another one to two more rate cuts for the balance of the year. “Why is that important, how does that affect our print industry? Every time there’s a federal funds change rate, all the credit card statements have to get modified, anything tied to change rates has to be modified, and that means letters to the public... This absolutely matters to print.”
Labor Market: In Q3, the number of jobs open and the unemployment rate are back to pre-Covid levels. “Coming out of Covid, attracting and retaining talent has been difficult. The good news is, that ship seems to be turning around.” Greg says that return to work remains stalled, and he explains what that means for print. “It used to be like, ‘Tell me what the white collar employment rate is, and I’ll tell you what paper demand looks like.’ Because office workers print reports, forms, letters…return to work has a direct correlation to print. The reality is, since Covid, return to work rates [consistently higher than 50%] really hasn’t happened.”
Manufacturing: With instructions, manuals, and warranty paperwork included inside manufactured goods, Greg says manufacturing is a great proxy. While the Purchasing Manufacturers Index (PMI) posted its fourth decline in a row, Greg says the good news is that number has possibly bottomed out. Inventory is contracted and prices are moving up—but customer inventory is low, which may point toward a rebound in purchasing coming. The Conference Board’s Leading Economic Index® also shows improvements. “This is what gives me hope and anticipation, maybe we’ve reached the bottom’s end and we can see some decent demand as the American economy kind of wakes up.”
Postal Rate Increases: Postal rates have increased six times since 2021, and at a rate faster than inflation. In fiscal year 2023, the USPS lost $6.5 billion, and is estimated to lose another $6.3 billion in 2024. Rate hikes have contributed to driving steep declines in mail volume. Annual volume since 2020 has declined by 13 billion pieces, or 10%. “There are a lot of challenges. The USPS’ impact on the paper industry is massive.”
Imports: Domestic freight is stable. Greg says we shouldn’t expect any major moves, at least in truck transportation, and notes that diesel at $3.69/gallon is phenomenal compared to where it’s been for the last couple of years. Ocean cargo prices remain elevated. Millcraft keeps its eyes on these economic forces to be ready and able to protect customer supply chains.
Printer Market: May 2024 shipments came in at $7.43 billion, up from April’s $7.35 billion—and April’s shipments exceeded March shipments for the first time ever. Greg nods to an industry acknowledgement that digital marketing alone doesn’t produce sufficient response rates, which aids commercial print’s case to continue to remain active. “Direct mail has 4.4% response rate compared to digital at just .12%, and there’s $15 billion dollars of political spend that’s yet to hit the market. That’s a new high, like four times the number it was in 2016. We are anticipating an increase, as an industry.”
Inventory: Printer inventories are still elevated compared to historical levels, merchant inventories are at very low levels; approximately 35 days on hand for uncoated, 37 days for coated. “Back in time, pre-Covid, coated would have had 60 to 70 days.
They no longer have that. It’s still in the supply chain, it’s just been repositioned. Despite stagnant demand, the mills have been watching. Merchant distributors are carrying 60-65% of the inventory in printing and writing grades in North America. This inventory will be critical as demand returns, as the majority of the supply chain’s inventory is front end loaded.“
Demand: “Operating rates are where the impacts are being felt. Mills/suppliers have become very disciplined. They’re like, ‘If there’s no demand for it, they’re not just stockpiling it and storing it.’ Mill downtime is absorbing the lack of demand. They’ve burned off excess inventory with coated freesheet (CFS) at 67% and uncoated freesheet (UFS) at 83%. The industry is sitting and waiting in anticipation of demand.”
Prescription for Success: Balance of 2024
“With destocking near ending, we are likely between phases and various end use markets are at different stages along the Recovery Curve [which includes expansion, peak, contraction, and recovery]. I believe we’re in this trough, coming out of contraction and into recovery.
For the balance of 2024, I’d love to say postal promotions are going to move the needle; I’m just not sure right now, especially where postal rates are. The good news is, with the presidential election and $15 billion of political spending still sitting on the sidelines, direct mail will absolutely see a lift. We do know that presidential elections drive print.
With demand and print growth expected to improve September through October, this gives me hope that recovery is coming and normal seasonality will return thereafter.”
Millcraft’s “Prescription for Success” in this State of the Graphic Printing Paper Industry Q3 2024 includes strategic partnerships and collaboration and improving supply chain visibility.
“Talk with your supply chain partners about how you can better integrate. Over 67% of respondents [Q2 2024] reported having some level of system integration with their supply chain partners. Going forward, as an industry, the long term survivors, those who will survive and actually thrive, will have collaboration, system-to-system integration, and the greatest level of sophistication when it comes to their supply chains.”
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. We consider it our job 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 Q3 2024.
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