Graphic paper industry 'balanced on a knife's edge,' Millcraft COO says in Q1 market update; about 39% of survey respondents think demand will improve March-May with normal seasonality after that, while 39% think demand will remain soft, returning in Q3

Described as balanced on a knife’s edge, discover projections for the graphic paper industry in this Q1 update titled “What’s Next?” When asked to describe the industry, hundreds of industry professionals including printers, end-users and agencies, suppliers and producers, distributors and re-distributors responded with words like: Chaotic, scary, sleepy, challenged, uncertain, nuanced, stabilizing, slow, lacking, sporadic, risk. 

The words Millcraft Executive Vice President and Chief Operating Officer Greg Lovensheimer used to describe the industry in this Q1 update: The industry is balanced on a knife’s edge. 

“It’s not all rosy looking forward, we’re all concerned,” Greg says, “Yet, as some are identifying, there are opportunities out there.” According to respondents in the Millcraft State of the Graphic Paper Industry Q1 2024 Update webinar, approximately 39% stated they believe demand will improve in March - May with normal seasonality after that, and 39% believe demand will remain soft for the balance of the year, with demand returning in Q3 2024. 

Greg says that true print demand remains challenging to pin down in 2024 with destocking still taking place, inflation and interest rates impacting marketing budgets, and postal rate hikes driving down volumes. Venture in with Millcraft as Greg delivers a macro- to micro-level overview of current domestic and global graphic paper industry trends and provides insight, strategy and actionable guidance on navigating a commercial marketplace that remains in a state of flux – as we head into seasonal demand with a postal service incentive, election year, and the Olympics on the horizon into 2024.

Q1: State of the Industry

Economic Growth: Growth is fueled by American consumers, but may lose steam – the GDP is expected to slow in 2024. Right now, the American consumer is 68% of the GDP. However, Greg says they’re doing it on the back of credit cards and it’s going to catch up, with the cost of money taking its toll. “Where is the GDP headed? Where is the consumer price index, inflation, unemployment, federal funds rate all headed? We were at 3.3% in the fourth quarter, we’re a little more than 1% in Q1 and sliding into less than that into Q2. Then, it kind of rebounds but nowhere near 3%. It’s going to feel like a pullback, if you will. Not technically a recession, but will feel like it.” 

K-Shaped Recovery Underway: Tune in at 9:00 as Greg introduces a term economists use to reference “as the economy recovers, it’s not going to raise all boats equitably.” In terms of the U.S. consumer, and the markets served, the upper portion of the K includes upper income households who are doing very, very well; many companies in various healthcare and technology sectors are currently breaking historic profit and revenue thresholds. Middle segments are in question (retail sector) with 55% living check-to-check. The lower portion of the K includes lower income and manufacturing sectors, finding it even more difficult under the weight of inflation; 85% living check-to-check. Greg says, “It’s very likely that the economic data we see from Wall Street doesn’t translate to Main Street.”

Manufacturing: The American Manufacturing sector is contracting, at 47.4%. Some say that anything below 50% indicates recession; the manufacturing sector is experiencing a 14-month trend of being in decline and below 50%.  

Interest Rates: A terminal rate is in sight, but how many cuts will there be in 2024? What’s going to happen with interest rates? “It’s very expensive to hold inventory right now. How long do these rates hold out? Rates are stalling investment.” Greg says that most likely the Federal Reserve has settled at 5.5% as the terminal rate, and the market is expecting 3 - 4 rate cuts in 2024 – to which Greg says, “Don’t hold your breath.”

Labor Market: Data is starting to turn, the labor market may be returning to historical norms, but return to work is still stalled which affects the amount of office paper in rotation.

USPS Rate Hikes: A rate increase went into effect January 21, 2024; another is expected in July. How long does this last? The complaint is that they’re killing print, which drives mail volume. Greg shares that the USPS, after 14 years of lack of investment, says it needs these rate increases to survive. “Are postal increases killing volume? Data doesn’t support it. The reality is that 1st Class mail volumes have dropped since 2008. A .68 stamp in 2024 is equivalent to an .18 in 1980.” 

Imports: Imports remain very low, and issues in several major waterways will impact import cost and lead times. This will take months to recover and may result in a bullwhip effect. At 24:30, Greg discusses domestic freight, calling it a shippers market; domestic truckload freight is still soft; and carriers have the pricing power despite the lack of volume. Ocean cargo is experiencing rapid price escalation due to drought, terrorism, and war, with cargo rates rising 2.47 times in a two-week span. 

Commercial Printers Diversifying: Tune in at 32:00 in Millcraft State of the Graphic Paper Industry Q1 2024 Update where webinar respondents show 56% of commercial printers moving into adjacent print markets, with 65% having diversified beyond commercial and wide-format printing into package printing, 28.1%, and promotional product imprinting, 16.3%. More than 50% of webinar respondents expect to see growth in 2024 – with more than 20% expecting a 6% to 10% increase. 

Inventory Levels: Despite a 20 - 30% drop in demand, mill inventories remain low. Every supplier wants to know right now: What is the new norm? Suppliers are trying to keep their inventories in check. The norm was 60 - 80 days worth of inventory pre-Covid. Inventory levels were up to 120 days during Covid. Now, it’s approximately 30 days. “The reality is that mills have been idled and continue to do so; demand and supply is balanced on the knife’s edge. Mill downtime is absorbing the lack of demand. Now, as demand has fallen off, with absorbing the lack of demand…can mills be profitable? In years past, suppliers would build inventory. This is no longer the case.” 

Printer inventories are correcting to historical levels while merchant inventories are at very low, historic low levels. Greg shares this caution, “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.”  

Prescription for Success in 2024

Greg says the biggest effect on profitability in 2024 comes down to this: Are you taking internal actions, taking control of your supply chain rather than operating at the liberty of external forces? External forces, and “wildcards” as Greg calls them, to be mindful of:

• American Consumer: Do they stop spending or continue to go all in on credit cards?
• Could we go into recession?
• Interest rates: If there are 3 or 4 cuts?
• USPS Postal Promotions in 2024: Absolutely meaningful for those who mail.
• Olympics and Presidential Election: Will affect print.

Expected to lift 1.5 to 3.5% GDP growth, as Greg points out at 51:54, “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.” 

Keeping in mind Greg’s clear indication that the industry is balanced on a knife’s edge, he says that strategic partnerships and open collaboration with supply chain partners are essential to success in 2024. “The lowest cost supply chain must mitigate the bullwhip effect. 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.”

Discover how Millcraft provides a world-class supply chain strategy for customers in the Millcraft State of the Graphic Paper Industry Q1 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