The Perfect Storm: Recession, Postal Changes and Now Paper?

As a veteran of the paper industry, I am concerned for the U.S. printing industry regarding the international trade dispute initiated by three paper makers. Since mid-2008, more than 73,000 printing and graphics communications jobs have been lost, according to the Printing Industries of America, and if these few domestic paper producers get their way, it’s only going to get worse.

Because of where our paper is made, we (Asia Pulp & Paper) are caught in the middle of an international trade dispute. These three paper manufacturers are accusing two Asian countries—China and Indonesia—of providing companies that operate there with unfair support.

If this feels like déjà vu, we’ve been here before. A similar complaint was rejected by the U.S. International Trade Commission (ITC) in December 2007, when it rightfully concluded that the domestic paper industry had not been harmed.

Over the past 20 years the printing industry has weathered many challenging situations, but this could lead to a considerable pull back for those who teeter on the edge of existence. So what has changed since the last ruling two years and four months ago?

Quarterly data analysis from the ITC indicates that coated paper import volumes from 2006 to 2009 did not change significantly and reflect recent historical levels. The argument that the U.S. market is being flooded with imported coated paper just does not have merit. Domestic paper shipments are down because overall demand is down in this deep recession—not because of any alleged unfair practices.

Unfortunately, the U.S. Department of Commerce issued a preliminary ruling in the case on March 2, 2010, in favor of countervailing duties, and the duty margins applicable to APP are 12.83% on products from China and 17.48% on products from Indonesia. This action, in addition to the impending postal changes, will be damaging to many quality printers. From increasing postage rates to the impending elimination of Saturday postal delivery service, direct mail opportunities for printers are shrinking.

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  • http://DougRawson Doug Rawson

    We believe the American papermakers actions are intended to stop competitors from offering products to U.S. printers and are simply an attempt to raise paper prices by restricting supply.

    We have read their statements where they comment that they want to raise prices on paper but the presence of these competitors makes it impossible. As a printer we only dream about using the U.S. government to stop competitors from selling printing to our customers, but we do not seem to have the political influence of the paper companies. Let’s not forget that the holding company for NewPage, Cerberus Capital Management, has a former U.S. Treasury secretary and vice-president on their board.

    One seemingly ironic twist to their petition to stop off-shore competition is their failure to include printed materials. Using their logic, if its white paper it can’t come in, but if that same paper has ink on it can come to the U.S. without tariff. This appears to say, since the U.S. papermakers only sell unprinted paper and we have already lost the sale if it is printed in Asia, that paper can come in to the U.S. How is that fair. If it’s unfair competition for unprinted paper to come in the same applies to printed paper. We think this clearly shows the problem with their motives. They really do not care about their customer, U.S. printers, they only care about themselves, and their stockholder (Cerberus).

    It would be shocking (and welcomed) if Cerberus ending up as a long-term player in the paper business because papermaking is a highly capitalized business that requires constant reinvestment of hundreds of millions of dollars – they have very deep pockets. However history has shown that these types of companies tend to buy low and sell high meaning that as soon as they can make a profit they will take the company public, profit handsomely if they can, and leave this industry without having made any substantial capital investment. As NewPage has continued a strategy of buying assets of U.S. competitors it has shown the tendency to reduce supply to prop up prices. Their attempt to stop Asian mills from sending unprinted paper to the U.S. is one more step in reducing supply to prop up sagging demand and pricing.

    In our opinion, this country, the unionized papermakers, and U.S. printers would be better served by NewPage investing in new plant and equipment and out performing their Asian competitors with higher quality and lower pricing. Right now the facts are that these Asian sheets are of higher quality because they are made using brand new paper machines while the U.S. makers have antiquated machines that cannot compete on either price or quality.

    We hope the petition is denied and Cerberus sees the light, becomes a long-term player, puts money into their old mills to update their equipment to 21st Century levels and uses competition, not restriction of supply, to make money. That a win-win instead of a win-lose.

    Doug Rawson
    Superior Lithographics
    Los Angeles, CA

    Printing Industries Association – Southern California
    Commerce, CA

  • http://ErwinHudelist Erwin Hudelist

    We put a tariff on raw material (paper) from oversee suppliers but we do not add a tariff on finished products from Chinese printers (my biggest competitor). Now the Chinese printers have access to less expensive paper and a great market in the US to sell a cheaper product.
    Where is the logic?

  • http://SusanKinney Susan Kinney

    Why isn’t PIA stepping up to the plate to represent the printers?

  • http://RobertJohannes Robert Johannes


    Your points are well made and concerns are quite valid. While we consume a relatively small amount of Chinese and Indonesian free sheet gloss stock, perhaps half a million pounds a year, we have already begun the search for alternative gloss solutions, as have the private label merchants in our area.

    For us, its a simple case of supply stability. Does anyone remember the bad days of allocation? I am sure this is a Christmas wish list item for New Page, since it would give them control once again. We do not, unless specified, buy NewPage products because they were more interested in trying to fix their own internal problems and buying their way to success than being a partner with their true customers, the printer.

    The merchants have already started shifting tonnage to the Korean makers, they were not named in the suit, but not the domestic suppliers. And why should they? From our perspective, the foreign sheet’s performance is superior to the domestics. The body is not the same, and for those printers who need a more stable sheet, I am sure the domestics are considered superior. But overall, on the basis of price and sheet quality, we have to consider both to be about equal and have been for quite a while, certainly proceeding the filing of this and the previous claim.

    Interestingly, no one in governance has ever talked to any printer that I know of about this issue. If they had, they would have thrown this out a long time ago, but the key issue here is the “springboard” effect not just for paper but dozens of suits filed or initial rulings handed down on Asian products. Please note that the co-sponsor for this action are the unions. Gee wonder what they want?

    And there is a more global pressure being applied by the U.S. for China to stop artificially pricing the yuan, giving them an unfair advantage.

    Needless to say the pricing pressure this will create on an already fragile print business will serve to further lower domestic tonnage use. NewPage will have to find someone else to blame for their problems once this happens.

    I was truly hoping, since the President of NewPage either left or was fired recently, that the board of directors would see the wisdom in dropping this case, but they will continue to damage the shareholders value over time, it appears. Hopefully a negligence lawsuit will remove them and someone with some big picture common sense will step in. (Taking very large, deep breath in preparation for holding my breath for several years…)

    Don’t be surprised if the Chinese pack up their tonnage and go home.

  • http://StevenPetrusich Steven Petrusich

    The whole pretext of competing with China is a laugh; compete with a totalitarian government and exploited labor pools, then we call it free trade. The globalization model has failed and any effort to reverse ourselves is a good step.

    As Doug Rawson states the printed stock should also be included in the action. Let’s throw Canada into the pool while we are at it. Their buyers think that our trade agreements are only meant to encourage manufacturing there and not here. As Americans we continue to be the most gullible.

    Pertaining to NewPage monopolizing the market that is a flaw within our government that is a result of our Federal Government being asleep at the wheel while large corporations devour the market place and trample small business.

    Time To Wake Up America!

    Steven Petrusich
    Labor Tech Printing Inc
    Joliet, IL

  • http://BuddyTuchman Buddy Tuchman

    Our paper companies make money with tax credits not to produce paper. Instead of reinvesting there money back into equipment they shut down mills and try to create a shortage. China makes better, cheaper paper than we do and now the government wants to stop them or tax them to be uncompetitive. Just another nail in the printers coffin, we are in a dying media. Will make more money selling hot dogs on the street.

  • http://SteveGrant Steve Grant

    I find it interesting that none of the US Paper producers decided to comment. If I remember, I believe this fight is being lead by NewPage. And saints they are not. They are the owned by Cerebus. Cerebus is a Wall Street firm that has zero regard for the little guy. They have shut down plants and kept them offline for what reason?…control supply and BTW to drive up price. So, why do we think they brought the case against APP. Lastly, I have noticed over the past few years this firm has been piling on debt, why? They have the lions share of the market. Hum bad management. Well, maybe it is the turnover at the top …4 CEO’s in 5 years. This truly is an interesting issue and if we are not careful, only the little guys (the printers) are going to get hurt.