Purchasing co-op delivers large cost savings to members
By Matt Kinsman
Magazine publishers have enjoyed a steady decline in the cost of paper-particularly for coated, mechanical-grade paper preferred by magazines-for almost the last two years. A combination of publisher tactics such as lowering paper weights and grades and broader market forces such as low demand, ready availability, and a weak dollar for Canadian and European mills, has sent prices on a downward spiral, a trend that will continue through the remainder of 2007.
However, in 2008, corrective measures by the paper industry will start prices climbing. "We are at the turning point in the market and we are going to see a reversal of the trend of the last 18 months that could last two to three years," says John Maine, vice president of Resource Information Systems (RISI), an information and research provider for the forest products industry. "We will see significant recovery in pricing in the second half of 2007, extending into 2008 and 2009."
Mill closures and paper mills focusing on select grades will affect the industry as well. Fraser Papers got out of the magazine business altogether due to lack of profitability and the desire to focus on higher-value specialty markets. Tembec shut down a mill that produces 325,000 tons of various coated papers, while UPM put a temporary halt on a Canadian mill that can't make a profit in the U.S. thanks to the weak dollar. "The closures will kick-start the pricing," says Maine. "It will take a while to regain ground. But in 2008 and 2009, there will be quite a dramatic increase."
The upcoming presidential elections will boost print demand for both the magazine and newspaper industries, yet publishers may have fewer grades to choose from. "We're seeing a huge shift in the paper industry with people saying, `We're not making money in certain grades` and getting out of it-Number 5 especially, which tends to be a publication grade," says Bruce Jensen, vice president of U.S. and Quebec sales at Transcontinental Printing. "We're definitely seeing people try to drive the weight down in their books, especially with the latest postal increase. We're seeing more people explore lower weight grades, but also lesser quality grades. They are at levels today I bet they never would have even thought of five years ago."
Publisher Response
Don't fall into the trap of focusing purely on paper prices. Savings can be realized in many other related areas, according to Rob Brai, director of manufacturing and production at Northstar Travel Media. "One thing you have to monitor is paper pricing, but that's only one side of the equation," he says. "Often that side is given too much attention. The other side is how much paper you use overall in terms of pounds. That's often overlooked, especially by publishers who let their printer buy their paper for them. There are a variety of things you can do on the consumption side that will reduce paper costs but give you the double effect in some cases of reducing your distribution."
Work out the details with your printer, especially if it buys paper for you. "When people sign contracts with their printer, they don't pay attention to putting clauses in there that monitor things such as over and under consumption, which is the difference with what the printer says it will use on a particular press and what it actually uses on a particular press," says Brai. "At the end of year it can do a tally on over consumptions and under consumptions, and the printer will either owe you money or you're splitting savings with the printer."
Some of the clauses Brai puts in his contract allow him to adjust the waste percentages that the printer is using on specific forms and presses. "That's a way that you can drive down the amount of paper that you use on a year-to-year basis," Brai adds.
Larger publishers, such as Forbes, have the muscle to negotiate. The magazine monitors paper pricing on a quarterly basis. "We still maintain a strong emphasis on cost savings in all our areas of influence; pre-media, paper, printing, distribution," says director of manufacturing Mary Nemeth. "Since paper is a significant component of our costs, it's one of our main focuses. We operate on continual review, by quarter, to determine if price adjustments are warranted."
Still, both large and small publishers advocate being a partner with your printer. "We have a partnership in which we can evaluate price/performance," says Nemeth. "We don't remain married to a particular sheet or mill, and leave ourselves the flexibility to respond to the marketplace. We watch our inventory closely and therefore manage cashflow."