Q4 UPDATE SUPPLY CHAIN IMPACTS ON THE PRINT MARKET
navitor.com 2 SUPPLY CHAIN IMPACTS ON THE PRINT MARKET A distributor’s strategic guide for navigating disruption - 10/2022 The supply chain crisis has the printing industry continuing to fight an uphill battle when it comes to the availability of materials, substrates and consumables, coupled with increasing costs that are making a significant impact on many bottom-lines. Wholesale prices have risen for the first time in three months and show inflation is still raging. CPI shows inflation remained near a 40-year high in September. Paper price increases continue in Q4 and are projected into 2023. Our Strategic Sourcing team closely monitors a number of different markets to gauge the impact on our business as well as on our valued distributors. In this overview, you will find insights into the print markets, impacts to manufacturing, and mitigation steps we’re taking to minimize the impact. Last, we will also share specific steps you can take to reduce the impact to your business. Executive Summary - 10/2022 • Rising Interest Rates and Money Supply: The Federal Reserve raised interest rates by 75 basis points for the third time this year, stepping up their fight to curb inflation that’s near the highest levels since the 1980’s. In addition, the M1 money supply time is at an all-time high. • Material Constraints: Supply constraints continue. Two examples include an Ingredion plant strike (starch) and a Pixelle mill closure that impacts many paper-based products. • Transportation Challenges/Improvements: While challenges still remain with many transportation modes, there are several experiencing improvements. Global ocean container rates hit a 17-month low, down more than 70% from its peak, and wait times at U.S. ports have decreased. • China’s COVID-zero Policies: China’s COVID-zero policies continue and have impacted the supply chain in the U.S. and worldwide. By some reports, the country is battling its broadest COVID outbreaks yet. • European Energy Crisis: The European energy crisis is severe and the effects are being felt all over the world. A longer and deeper recession is expected in Europe.
navitor.com 3 Good to know: Graphic communication demand remains steady overall, yet there are pockets that are slowing. E-commerce deliveries and corrugate pricing are moderating. The U.S. dollar continues to strengthen. An index of the dollar versus other major currencies is trading on a 20-year high. Core markets that impact our business: • Paper Market • Labels Market • Packaging Market • Retail Signs & Graphics Market • Logistics Market • International (Imports) Market • Labor Market What we’re watching CONTENTS Executive Summary.................................................2 Paper Market............................................................4 Labels Market...........................................................6 Retail Signs & Graphics Market..............................8 Packaging Market..................................................10 Logistics Market.....................................................12 International (Imports) Market.............................14 Labor Market...........................................................18 Wholesale Pricing Impacts.................................20 Sources & Recommended Articles......................21 Riding Out Supply Chain Disruption...................22 Manufacturing Mitigation.....................................23 Appendix.........................................................24
navitor.com 4 Mills and Manufacturers Sappi accepted an offer to sell three European graphic paper mills to focus on other segments, including packaging and specialty papers, pulp, and bio materials. Neenah announced an expanded moratorium on key grades, specifically index and tag. Neenah also continued to discontinue SKUs to focus on their premium grades. Fedrigoni and Mohawk forged a manufacturing partnership. Pixelle Specialty Solutions announced the closure of the Jay, Maine mill to take place in Q1 2023. This mill produces specialty label and release papers, as well as industrial and packaging solutions for e-commerce and food service. Capacity removed will be 230,000 tons annually. Stora Enso will divest four paper mill sites to focus on strategic growth areas. ND Paper is rationing grades and weights and discontinuing their Escanaba brand. Shipping and Distribution Ongoing shipping and distribution issues continue and warehouse capacity remains at a premium. Mill price increases and freight and fuel surcharge announcements continue in October. Thermal Paper Thermal paper costs are at an all-time high and the record price increases are not expected to slow down soon. Thermal mills are running at 100% capacity. End-users are ordering much more volume than in previous years. Their reasoning is to hedge against future price increases and prevent future supply outages. This habit seems to be slowing, which could reduce demand from paper mills. However, the political environment with China is heating up. China supplies most of the chemicals for the thermal coatings. As to such, there will most likely be a price increase before the end of 2022. Envelopes The envelope industry continues to face significant pricing pressures, inflation, and raw material and labor shortages. Supply chain problems and paper allocations continue to plague the industry. These conditions are expected to continue throughout Q4 of 2022 and into 2023. Backlogs are very tight going into Q4, which is traditionally the busiest time of the year for the industry. PAPER MARKET October 2022 Though there have been reductions, demand is still outstripping supply on all grades. This continues to create an allocated and oversold market where securing paper and delivering it on time remains an overwhelming challenge. Compromises will continue to have to be made on a daily basis.
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navitor.com 6 Paper Allocations, pricing pressures and long lead-times continue with paper. High demand for pulp, shortages of paper making/coating chemicals, and production capacity shortages continue. The Pixelle mill shutdown (more details below) will have a large impact on liner availability and alternatives in 2023. Adhesives Hotmelt adhesives have stabilized for supply and pricing. There is upwards pressure given the volatility in oil and gas feedstocks globally. Acrylic adhesives have improved the past quarter and most allocations have been removed. Pricing is expected to be flat for Q4. Hurricane season is ongoing and can also impact the supply chain. Films Polypropylene (PP) film has stabilized and may see downward movement in Q4. Polyester (PET) has been challenged YTD but starting to stabilize. It may also see downward movement in Q4. Demand for PET liner is projected to grow in 2023 given the paper liner shortages. Packaging and Freight Ocean-bound freight rates are down significantly but still higher than pre-pandemic norms. Truckload rates have stabilized. FedEx recently announced the largest general rate increase in its history. Supply of corrugated, cores, steel drums and totes have stabilized. Paper Mill Closure - Liner Impact The Pixelle Mill in Jay, Maine, will officially close its doors. This news comes during a volatile time in the label industry where raw material shortages continue to run rampant. But paper mill closures aren’t new. Many mills have shut down over the last decade. So why is this closure different from others? The mill was a huge supplier of paper release liners in North America, and there is currently a release liner shortage. In addition, many suppliers are monitoring the ongoing starch strike. Starch is an important component to the production of paper, liner, corrugate and more. LABELS MARKET October 2022 Label demand remains high with some pockets of improvement. Paper shortages and inflation will continue into 2023, worsened by a paper mill closure impacting around 25% of the 40# SCK liner market in North America.
navitor.com 7 Labelexpo 2022 Labelexpo Americas 2022 was hailed an outstanding success by show organizers, exhibitors and attendees, as over 13,000 flocked to the Donald E. Stevens Convention Center in Rosemont, Illinois. In total, the event attracted 13,569 attendees from 77 countries. It was notable that attendees stayed at the show longer than in previous years, up from an average of 1.8 days in 2018 to 2.0 days this year, and that it welcomed large numbers of first-time attendees, particularly from Latin American countries. The key theme at Labelexpo Americas 2022 was the digital transformation of the label industry. The focus was squarely on the latest developments in digital printing and digital embellishment, along with sustainability and workflow automation. Company Updates Avery Dennison, Mactac, and Raflatac recently announced price increases on all paper products, effective in November. This follows many other recent supplier price increases throughout the label industry. UPM Raflatac unveiled digital swatchbooks for wine, spirits and beverages. The tool allows designers to bring ideas to life by downloading HD images and utilizing the selected label material in their preferred design software. As of September 1, Technicote, a North American company specializing in self-adhesive solutions, is the latest addition to Beontag’s growing family of international companies. The acquisition marks Beontag’s entry to the North American market and is another step in its global expansion and internationalization strategy initiated in 2020. Besides the United States, Beontag has operations Italy, France, Finland, China and other countries. TLMI announced that the association has become a signatory of the U.S. Plastics Pact (the U.S. Pact), a consortium led by The Recycling Partnership and World Wildlife Fund (WWF) as part of the global Ellen MacArthur Foundation Plastics Pact Network. The U.S. Pact brings together businesses, government entities, not-for-profit organizations and other stakeholders who are working collectively toward the common vision of a circular economy for plastics, as outlined by the Ellen MacArthur Foundation’s New Plastics Economy.
navitor.com 8 Availability and Decreased Revenue While availability has decreased for nearly every substrate, it has remained relatively unchanged for the last 60 days. However, coatings and toner seem to be less available. Supply chain disruptions have contributed to decreased 2022 revenue for many. Pricing Regardless of availability, price increases have been the most significant change over the last 60 days for both printing substrates and consumables. The majority report higher prices for all substrates, with nearly all reporting increases for coated paper (96.7%) and uncoated paper (95.4%). More than half report price increases for all consumables; with coatings (84.8%), plates (78.1%), ink (77.6%) and emulsions (76.5%) topping the list. Economic Trends There are real reasons for concern when looking at current economic trends. According to the numbers and expert opinion, the odds of a recession are increasing. As the economy slows, so will the printing industry. PRINTING United Alliance estimates that total industry sales adjusted for inflation will grow by less than 1.0% during the final quarter of 2022. There are actions you can take to prepare, and the time to do it is now. Actions include stress testing your company, acting on early warning signs and exploring credit options. RETAIL SIGNS & GRAPHICS October 2022 Challenges continue to plague the printing industry overall. Supply chain disruptions are again a significant concern. The prices for substrates and finishes continue to increase while the availability of both is on the decline.
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navitor.com 10 Aluminum While aluminum remains tight in the market, the availability of magnesium is improving, as US MAG is coming out of their lawsuit looking like they will be producing again. Resin Resin is holding steady and there may be downward movement on pricing at the start of the year. Hurricane season is here, so it will be important to watch plants that produce resin. Corrugated Pricing has been holding steady through Q3 and is expected to remain steady for the remainder of the year. There may be downward movement on pricing heading into Q1. Capacity is starting to increase with a few major suppliers. All paper products produced in the U.S. have been affected, including boxes, paper collateral, paper mailers, publications, paper stickers and labels, paper tape, paper tubes, and paper void fill. Packaging Materials The availability of liner board boxes remains tight, and there are still lead times of 6-8 weeks to secure material. Wood Pricing Pallet prices on new/used is holding steady, and pricing may drop at the start of the year. PACKAGING MARKET October 2022 The market trend for corrugate is indicating consistent pricing through the rest of 2022. Packaging supply availability will continue to stay tight as demand remains high heading into the retail heavy season. Although price increases have started to stabilize in the packaging market, overseas conflicts and fuel pricing are items still being monitored. While packaging supply is expected to remain steady for the remainder of Q4, it is still recommended to source products ahead of time. With hurricane season approaching, more supply chain disruptions could be on the way as well.
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navitor.com 12 Small Package Outlook Small package capacity is expected to exceed volume in 2022. Expected capacity for small parcel carriers in 2022 is estimated at 110 million parcels per day, with an average daily demand of just 92 million packages per day. This is good news as Q4 is typically the busiest time for small parcel shipping. It is expected that there will be capacity to ship all parcel shipments during peak of 2022. Many retail consumers are shopping earlier and this along with added capacity is driving what looks to be a much smoother peak season for parcel carriers. LTL Outlook LTL continues to demonstrate freight volumes at, or exceeding, industry supply capabilities. The manufacturing industry is the historical foundation of the LTL trucking segment, and it continues to demonstrate growth in both the Purchasing Managers Index and job creation. The August ISMPMI registered 52.8, which illustrates 27 months of consecutive growth. Growth rates do seem to be slowing, but with what growth there has been, there could be shortages of capacity in Q4. In addition, manufacturing employment increased by 22,000 in August according to the Bureau of Labor Statistics, continuing its expansion. With LTL’s foundation freight of manufacturing expanding, LTL continues to grow due to the expansion of the e commerce retail that middle-mile freight needs. TL Freight Outlook Rates have dropped some in Q3 and it is expected that there will be small increases for the holiday season. If spot and contract rate deflation continue for another quarter or two, it will likely push capacity out of the market, leading to the start of the next cycle of increases in mid-2023. There is much uncertainty in the market currently, as some analyst are projecting rates to remain steady and others slight increases. LOGISTICS MARKET October 2022 The busiest time of the year is almost here, especially when it comes to small parcel shipping. FedEx and UPS are gearing up for another strong peak season. Planning and communication with vendors will be key for success during this time.
navitor.com 13 Fuel Prices Fuel costs are expected be steady to slightly higher in Q4. The U.S. government release of oil from the strategic reserve did lower fuel costs during Q3. OPEC has announced a slowdown in production of oil, which along with the continuing unrest in Ukraine, could drive fuel costs higher again in Q4. Below is the DAT History of rate per mile and their projections for October, and a YTD diesel graph showing the increase in early 2022 and the decrease in late Q2 and Q3.
navitor.com 14 The Strengthening of the U.S. Dollar and Weakening of Global Currencies The U.S. dollar continues to rise in value against other major currencies, after the U.S. central bank increased interest rates again earlier this month. USD soared against major currencies from Euro to the Chinese RMB. An index of the dollar versus other major currencies is trading on a 20-year high. A stronger dollar will make purchases overseas cheaper. Exchange Rate for 1 USD to RMB $1=7.2287 Chinese yuan renminbi Golden Week Holiday Prepare for the long holiday in China from October 1 through October 7. • There will be slowdown for production and outbound/inbound traffic will be impacted. Production will mostly stop, which traditionally leads steamship lines to ration services and set up blank sailings to adapt the capacity to the lesser volumes. • Prepare for increased additional shipments AFTER the public holidays as folks ramp up shipping and production again. Zero-COVID Policy in China China’s COVID worries to take shine off Golden Week holiday. • Travel during this yearly holiday when folks go back home for extended visits is set to hit its lowest in years as COVID-19 concerns spur calls for people to avoid travel. • Chinese President Xi Jinping is set to begin a third five-year term in October, breaking the precedent of stepping down after two terms. • Lockdowns are expected to continue at least through the meeting of the 20th National Chinese Communist Party Congress. INTERNATIONAL (IMPORTS) MARKET October 2022 The U.S. dollar is showing strength against RMB and other currencies – this will help lower the material cost of imports. Freight is showing signs of declining container costs as well. U.S. Customs is increasing its audits and inspections.
navitor.com 15 Section 301 China Tariff The U.S. Trade Representative (USTR) recently announced that the Section 301 China Tariffs will not expire on their four-year anniversary dates and will remain in effect, subject to further review. This announcement comes because of the USTR receiving 434 requests from domestic industries and trade associations to continue the tariffs in response to the public comment period from earlier this year. U.S. Customs Released Operational Statistics U.S. Customs released the August 2022 Monthly Operational Update. Some of the updates for August include: • CBP seized nearly 2,099 shipments that contained counterfeit goods valued at more than $159 million. • CBP targeted 838 entries valued at more than $266.5 million for suspected use of forced labor in the production of imported goods, including goods subject to the Uyghur Forced Labor Prevention Act and Withhold Release Orders. • CBP issued 6,964 emergency action notifications for restricted and prohibited plant and animal products entering the United States. • In August 2022 alone, CBP processed more than 3 million entry summaries valued at more than $294 billion, identifying estimated duties of nearly $9.4 billion to be collected by the U.S. government. Lockdowns in China • China’s official case count remains minuscule, with only 949 locally transmitted cases reported nationwide last week, out of a population of 1.4 billion. • Chengdu, the capital of southwestern China’s Sichuan province, was locked down on Sept. 1 after COVID cases were detected, becoming the largest Chinese metropolis hit with curbs since Shanghai’s lockdown in April and May. • Some of the worst reports are coming out of the Ili prefecture in China’s northwestern Xinjiang region, where a lockdown began early last month.
navitor.com 16 Congestion in the U.S. Continues West Coast • LAX/LGB: around 9 ships at anchor/loitering with vessels slow-steaming as well. Berth wait time averages 7 days. Chassis shortage port wide and rail car shortage. • OAK: 9 vessels at anchor // Average dwell to berth is about 19 days. Westbound railcar supply is slightly improving. • SEA/TAC: No ship at anchor, but the terminals are operating at 80%+, and lack of WB rail car supply driving increased dwell times on IPI cargo. • VCR: 1 vessel at anchor, but berth time is about 19 days due to freight backlog on the terminal and lack of westbound railcars. East Coast • CHS: berthing activity is smooth this over the past few days. Still high dwell on IPI cargo driven by congestion with the off-dock dray to the rail ramp. • HOU: 19 days berth delay, 21 vessels at anchor. Emergency dredging of berths has been completed but it will take 6-8 weeks to work through the backlog further challenged by seasonal labor shortages. • ORF: 8 vessels at anchor, 3 days berth delay, rail cargo dwell time is increasing. • NYC: 14 vessels at anchor with 6 days dwell times. Chassis supply remains extremely tight due to high import street dwell. Empty returns continue to be a challenge in NY/NJ market. • SAV: 32 vessels at anchor, 15 days berth delay. INTERNATIONAL (IMPORTS) MARKET Continued
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navitor.com 18 Jobs by Industry Most industries, including construction, manufacturing, retail, transportation, finance, wholesale trade, information, professional services, education and health, and leisure and hospitality, are now above or close to their pre-pandemic level of employment. The recovery has been slowest in the leisure and hospitality industry, where early job losses were steepest. Labor Market Resilience The labor market’s resilience has been attributed to a reluctance by businesses to lay off workers following difficulties hiring in the past year as the COVID-19 pandemic forced some people out of the workforce. U.S. Jobs Openings Drop Sharply U.S. job openings fell by the most in nearly 2-1/2 years in August, suggesting that the labor market is starting to cool as the economy grapples with higher interest rates aimed at dampening demand and taming inflation. • Job openings fell 1.1 million to 10.053 million in August • Healthcare, retail trade lead decline in vacancies • Job search activity has cooled among employed adults since the beginning of March. • Quits, layoffs, hiring increase moderately LABOR MARKET October 2022 Reuters reports that U.S. job growth is strong as the labor market forges ahead. Employers hired more workers than expected in September, while the unemployment rate dropped to 3.5%, pointing to a tight labor market. Though the 0.2-point decline in the jobless rate from 3.7% in August was partly because of people leaving the workforce, the Labor Department’s employment report also showed fewer Americans working part-time for economic reasons last month. The labor market continues to show resilience despite the Fed’s stiff interest rate hikes.
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navitor.com 20 Name Badges 0-10%* Folders Announcements & Invitations Promo Products Envelopes Labels Business Identity Forms Indoor Signs 5-20%^ 4% 15-19%† 5-12% 3-6% 6% 5-12% 0-5%†† Stamps 0-3%** *Full Color Acrylic Badges will see increases of 15-20%. **Embossers will see increases of up to 20%. ^Report covers and Tri-Panel Folders will see increases of up to 25%. †While most product SKUs in the Promo category will see increases of 15% - 19% (primarily in the Writing Instruments and Calendar categories) some individual SKUs (primarily in Drinkware and Bags & Totes) will see increases of up to 66%. ††Clear Acrylic Signs, Metal Signs, and Floor Mats will see increases of up to 15%. Floor Decals, Permanent Decals and Vinyl Art will see increases of up to 10%. ‡Banners with metal stands will see increases of up to 20%. ‡‡Magnets, Metal Signs and signs with frames or holders will see increases of up to 15%. Banners 0-8%‡ Outdoor Signs 0-5%‡‡ Manufacturing Price Increases by Major Category Overall material costs are forecasted to increase by 0-25% by the end of 2022. *Individual product costs vary and categories may not be all-inclusive WHOLESALE PRICING IMPACTS
navitor.com 21 QUESTIONS? Expect to hear from your sales and merchandising teams to help you understand the exact implications that the supply chain effects are having on your specific product categories or programs. In the meantime, for questions or concerns on how to get on top of the price increases in order to fare better in the long term, please reach out to them today. SOURCES & RECOMMENDED ARTICLES October 12, 2022 Source: MarketWatch Wholesale prices rise for the first time in three months and show inflation is still raging October 6, 2022 Source: SupplyChainBrain The Trucking Industry Needs to Prepare for the Q4 Retail Boom October 5, 2022 Source: CNBC Businesses added 208,000 jobs in September, better than expected, ADP reports October 4, 2022 Source: Quartz The US lost more than a million job openings in August October 4, 2022 Source: Pixelle Specialty Solutions Pixelle to restart Paper Machine in Chillicothe, Ohio September 28, 2022 Source: SupplyChainDive Costco says higher supplier wages to keep prices elevated September 28, 2022 Source: Corridor Business Journal A new wave of UK port labor strikes begins, with ‘massive impact’ for Christmas supply chain September 26, 2022 Source: Corridor Business Journal No talks slated as Ingredion strike nears end of second month September 23 ,2022 Source: Freightwaves FedEx announces largest general rate increase in its history September 22, 2022 Source: yahoo!finance Supply Chains easing but ‘still a major problem,’ economist explains September 22, 2022 Source: Paperage Pixelle Specialty Solutions to Close Specialty Paper Mill in Jay, Maine September 21, 2022 Source: MarketWatch Fed’s tough task: History shows inflation takes average of 10 years to return to 2% September 16, 2022 Source: CNBC FedEx CEO says he expects the economy to enter a ‘worldwide recession’ September 15, 2022 Source: SupplyChainDive Rail strike averted as employers, unions reach tentative deal September 15, 2022 Source: Supply Chain Brain U.S. Manufacturing Output Increases for a Second Straight Month September 12, 2022 Source: Supply Chain Dive Inflation is a lot worse than it seems, as companies do not always pass on the costs September 19, 2022 Source: Supply Chain Brain Supply Chain Problems Are Getting Worse, Not Better, for U.S. Food Retailers August 29, 2022 Source: Bloomberg China Is Battling It’s Broadest Covid Outbreak Yet August 29, 2022 Source: Oilprice.com The World’s Energy Problem Is Far Worse Than We’re Being Told August 12, 2022 Source: WhatTheyTh!nk Commercial Printing Establishments -2010 –2020 July 19, 2022 Source: Packaging Impressions Target Report: Stronger Players Continue To Move Upstream From Pure Print Providers
navitor.com 22 Managing Proactively RIDING OUT SUPPLY CHAIN DISRUPTION SUPPLY SHORTAGES • DELIVERY DELAYS • INCREASED COSTS HOWTO WEATHER THE STORM: Plan and place orders far in advance to avoid disappointment and delays Use “house stocks” or choose alternatives in case first choice is unavailable Adjust budget to account for price increases Initiate frequent and open communication to manage expectations, reduce surprises and discuss options
navitor.com 23 PAPER Promoting our “house stock” as a first option. Increasing our inventory on house sheet grades for primary sizes. Working with distributors to get forecasts on expected units of products to be sold. Forecasting our paper needs with our suppliers so our distributors’ paper needs can be accumulated and added to our inventory orders. JIT (just-in-time) orders will be difficult during the current paper market challenges. LABELS Obtaining production forecasts to share with suppliers. Seeking safety stock with customer commitments. Helping set expectations with distributors on current market conditions and lead times, and seek alternative materials when needed to provide more supply options. Continuing weekly supplier performance meetings to effectively manage, elevate and prioritize orders. LOGISTICS Continuing to engage our small package carriers to better manage our ability to keep our supply chain stable throughout 2022. Shifting our small package strategy as we look to alternate and other regional carriers to be a bigger part of our plan. It is no longer advantageous for Navitor to rely so heavily on a single partner as our carrier of choice in the small package market. Navitor’s proactive investments in efficient equipment and improved technology will enable us to keep rate increases at a minimum - today and in the future. MANUFACTURING MITIGATION
navitor.com 24 APPENDIX
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navitor.com 31 The number of ships waiting to get into Port of LA/Long Beach has declined to only 6 as of late September. It had peaked at 106 ships in January 2022.
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