News: April 1, 2008 - April 30, 2008 [Archive]
Paper Prices Increase Again
To: All Publishers of Record as of January 1, 2008From: Lou Hannum
Re: Paper Cost Increases
Some of you already know that paper has and will continue to be a major concern for both printers and publishers throughout this year. Last year, starting on August 1, there were three (3) across the board increases – August 1, October 15 and December 20. AmMax passed on one-half of one of the increases to existing publishers before the first of the year, but did not implement the others until January 1, 2008.
The stretch of three increases over a 5 month period is almost unheard of, but to make it even worse, the supply of paper stock was sharply curtailed toward the end of the year and many printers, found themselves turning work away – not because they didn’t have the press times – but because the couldn’t get the paper! Another effect was that publishers who hadn’t made adequate arrangements to secure paper allocations and inventories were forced to print on whatever stock their printer had inventories or access to – regardless of cost. It went so far that some mills refused to honor negotiated pricing and basically told the printers… “if you don’t want it at the new price, someone else will.”
Attached is a reprint of an article that appeared in Publishing Executive Magazine on March 1, 2008 – “Weathering a Stormy Paper Market Forecast " - that explains in layman’s terms what’s going on in the markets; why it’s happening, and what we can expect. Please read it as it touches on some of the alternatives I’m discussing in this letter. Several publishers have asked why we don’t look at other printing sources if we’re going to continue to get increases, but this isn’t individual printers – its industry wide. Our printers don’t like it anymore than we do and because of their size and reputation (and our pricing and printing flexibility) I feel a lot more comfortable with them than taking a chance someplace where we’d be the new boy on the block. Most printers are more focused on securing paper allocations for their long time customers than costs.
The Bad and Good News
The bad news is there will be another paper cost increase effective April 15, 2008, and a potential 2nd increase for the year in July.
The good news – for publishers with us on or before January 1, 2008 - we’re NOT going to pass the increase on at this time. We will add the increases to any new publishers coming on board after January 1. This increase will be effective April 15.
Why aren’t we passing it on? First, we’ve already notified you that there’s going to be a postage increase in May that we can’t do anything about; and second, some of our publishers are feeling the effect of the turndown in the economy which will probably last through the election.
(There’s always’ a turndown in the economy in the months leading to a Presidential election. I think much of it is caused by the increasing “negative campaigning” that our “candidates” – regardless of party - seem to think works best – spurred on of course, by the media. Personally, I liked to better when politician’s just lied about how good it was going to be if you elected them (chicken in every pot – every Sunday!) – Not how bad the other guy was.)
That being said – ironically – some of our publishers in areas that the news media would make you think were drying up and blowing away – are having banner increases, producing the largest and most profitable books they’ve ever done.
Regardless, we’ll delay passing on the increase until July 1, 2008. We’ll send you a revised price matrix long before then, but for planning purposes you can figure that if you’re mailing an average of 25,000 magazines in your zone – the increase will equal about $5.00/page. The increase can be less or more depending on the size of the mailing. As far as the potential July increase is concerned, we’ll wait until we see how it’s going to pan out.
What about the future?
Page 3, of the attached article “Weathering a Stormy Paper Market…” outlines fairly well what the alternatives are to control printing costs re paper increases. Really there’s only three.
1. You can control costs by going to a lower weight.
2. You can control costs by going to a lower grade.
3. You can control costs by adjusting the size of the magazines.
As the article points out, these alternatives come with risks.
Weight - The higher the weight, the more “heft” the magazine pages have. For our magazines the 60# weight has been very acceptable. Some of our larger page count books could go to a lower weight like 50# and not see much of a difference, but the majority (32 pages and under) would see and feel the change. Also, since the lower the weight means thinner paper, there’s the potential for bleed-through in books with light colored page backgrounds.
Grade - The lower the number, the whiter the paper. High grade papers – 2’s and 3’s – are called “free sheet”, which means they’re very white and have a minimum content of “ground wood” ( pulp that has a tendency to make the page darker or cloudy). Obviously free sheets are more expensive. Ground woods are normally #4 and #5 grades. They’re not as bright or white as the free sheets, BUT if you specify heavy ink coverage as we do and don’t have a large amount of non-inked background, it’s not noticeable – especially with the #4 grade since it’s really a “crossover” from free to ground. It’s more obvious in the #5 grade as there’s a “brownish” look in areas where the background is supposed to be white, plus #5 grades are not very consistant coming from the paper manufacturers.
Size - Those of you who’ve been around a few years remember when we went from 8.5 x 11 to the 8 x 10 format. Remember how concerned we were? We actually lost a couple of publishers who felt they’d go out of business if they reduced the size. We all know that didn’t happen. In fact, the only comments we got were from a couple of customers in Florida, and I believe one in Texas, who said they “liked the smaller size". Nobody else even noticed.
The savings we realized when we changed sizes didn’t come from the height, but from the width. When you print with an 8” width instead of 8.5”, you can order smaller roll sizes and don’t have the waste. Of course it only works when you’re printing a number of magazines the same size (width) to justify stocking sufficient paper rolls to meet the schedules. (To meet our page options and gain the efficiencies of multiple press printing - we stock 3 different roll sizes in both Dallas and Jacksonville.) That’s why we’re always requesting updated schedules and track magazine page counts. Once we provide our projections – we own the paper – use it or not!
Could we save some money if we changed sizes now? Yes. We could go to a 7.5” width rather than 8” and it would almost negate the latest paper increase…but it would also mean your graphic artists would have to resize your magazine ads, plus we’d ALL have to agree to go to the narrower size. Why? Because we’d have to order and stock the smaller rolls (3 sizes) for the 7.5 width just like we have to do for the 8” width. I t’s just not practical to do both…not in the current paper market.
I like our size and think most of you feel the same. Since we can fluctuate the height between 10” all the way up to 10 7/8”, it’s given us more options such as the “pop-up” inserts and increasing the height to add a banner if desired…with no increased costs.
Please read the attachments. I believe you’ll find them informative and educational about an important part of our business – paper! As always we’re doing everything we can to control costs while introducing new products to enhance your revenues. I’m going to put together some cost comparisons of paper weights, grades and sizes so we can get your input prior to making any future changes if they become necessary.
Lou
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Weathering the Storm
