Production Inkjet Printing Technology: Key Drivers That Are Fueling Its Widespread Market Adoption
We’re not yet out of COVID-19, and the lingering effects of the pandemic continue to throw up challenges for commercial print shop business owners everywhere we look. We continue to have labor challenges, the rising cost of paper when matched against fixed print budgets is allowing fewer pages to be printed, and on top of it all is the distraction of private equity that’s consolidating our industry in the quest of greater efficiencies and profits.
All of these pressures are creating a requirement that what is printed has to be more relevant, create less waste, and be timelier. This is good news for those with digital production printers, specifically production inkjet presses that offer sufficient capacity to meet those requirements.
Paper Supply Chain Challenges
The origin of rising printing and writing paper costs can be traced back to well before COVID. Since 2008, the demand for printing and writing papers declined an average of about 3% annually, uniquely driven by the decline in demand for offset printing as more timely communication needs shifted to electronic alternatives. While the demand for digital printing — with its ability to handle short runs/versioning/variable data — grew during that period, digital print volumes accounted for less than 5% of all print.
During this period of paper decline, lots of new paper manufacturing capacity came on line in the Far East, leading to severe competition for market share between the domestic and Far East paper mills. Prices for printing and writing papers eroded, leading some domestic paper mills to exit the printing and writing paper business, or to convert their mills to more profitable packaging and tissue papers.
The decrease in paper availability led to paper price increases in 2019 which, in turn, led to further declines in demand as print buyers’ flat print budgets reduced the amount of print they could purchase. The cause and effect resulted in a 14% decline in printing and writing papers in 2019, before the impact of COVID was even felt.
The pandemic further reduced demand for print in 2020 by approximately 22%, as businesses that were shut for the better part of the year stopped buying print. Between the 2008 economic recession and today, demand for printing and writing papers (again mainly offset grades) has declined by nearly 50%.
The decline in domestic paper manufacturing, along with COVID’s lingering effects on the supply chain are now the root cause for the ~20% increase in the price of printing and writing papers since the beginning of COVID. Once the supply chain untangles and paper imports once again become available, pricing for papers should stabilize, most likely towards the first half of 2023. For now, like most industries with limited supply, the paper mills are shifting production towards more profitable, premium grade papers.
But There Is a Silver Lining in All of This
There are two major silver linings for the printing industry to counteract these rising paper prices and limited availability. The first is the ability to shift the discussion with customers that buy print from “the lowest cost per 1,000 pieces” to “what can we do to help manage and maximize the impact of your print budget to get the best return on investment?” Often, the latter includes discussions to moving to even shorter run lengths — runs with higher relevancy of information, more frequency to test what is most impactful in terms of response rates, etc.
The second silver lining is the ability to actually pass along those price increases to customers, as everyone is aware of the supply chain issues and lack of alternatives. This is the first time in the past 30 years that I.T. Strategies can recall seeing price increases in print.
Labor Challenges Still Persist
The “Great Resignation” and intense competition for manual labor is being felt across many industries, with competition from Amazon, McDonald’s, and others for $25/hr. (or more) wages. The rising wages make it difficult for print providers to compete, and even the end of government support for workers hasn’t caused them to come flooding back to the printing industry.
Worse, we are faced with an inescapable demographic cliff heading our way in 2026, when 500,000 fewer first-time workers are entering the work force (thanks to a steep decline in births since the 2008 economic recession).
The only way to handle the long-term challenges of less available labor in the printing industry is to automate. Digital production printing is one piece of that equation. Automating finishing is another, as is workflow automation. The pandemic accelerated the trend towards ever shorter, more frequent run lengths. Even on modern offset printing presses equipped with automatic plate loading, it is still too time-consuming to switch jobs once run lengths consistently drop below 500 pieces. Most critically, the level of skill required to operate an offset press remains higher than the skill level needed to run a digital press.
With an aging printing industry workforce, and attendance at community colleges in the U.S. down more than one million students (they are instead taking these $25/hr. jobs to support their families), the printing industry has to automate and become less dependent upon manual labor.
Collectively, this is pushing the growth of digital production printers — specifically production inkjet printing devices — to the point where there is not enough availability (due to the lack of computer chips/boards needed to manufacture production inkjet presses).
The Impact of Private Equity
RR Donnelley (RRD), the largest print provider in the world, is the poster child for the love private equity is showing these days for the printing industry. Pursued by three private equity bidders, RRD’s share price increased from a low of about $1 per share in April 2020 to an all-cash deal closing at $10.85 per share in February 2022.
Private equity, flush with cash, likes the printing industry for its high level of fragmentation (they interpret it as inefficiencies) and good cashflow. This resurgence in value has many print providers looking at their own long-term strategy, and more critically how to grow their profitability as they potentially eye an exit in the future. The pandemic has given most industries a “hard reset,” meaning if one were to sell one’s business, ideally, you’d use the financial depths of the COVID impact as a starting line and show strong profit growth from that base point forward.
Since demand for document printing (think offset) has been challenged for years, as illustrated by the printing and writing paper trend during the last decade, one of the best ways to show profit growth is to reduce costs. One can’t reduce the cost of paper, nor ink and plates; the most impactful way to reduce cost and increase profit is to automate and reduce labor requirements.
Privately-owned printing business owners tend to look at big investments in automation fairly conservatively, debating about whether they can fill the capacity fast enough, or whether it makes more sense to increase the utilization of legacy equipment by adding more shifts. By contrast, private equity looks at it strictly as a return on investment: by investing $X in automation, they can reduce $X amount in labor, while depreciating the capital investment in equipment, leading towards a higher Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) on the balance sheet by the time they sell the business to someone else.
Fueled by well-capitalized private equity firms, the printing industry will head towards more automation, forcing even privately owned print providers to follow in their footsteps lest they fall behind and become uncompetitive.
Inkjet Growth in Book, Direct Mail, and Commercial Print
The constraints facing the printing industry as described are well-known. What is less obvious to outside observers is the renewed growth in core print applications since the depth of the pandemic.
The book manufacturing industry in the U.S. has greatly benefitted from the pandemic. Printed book sales are up 8% year-over-year (there is only so much video streaming consumers can absorb), and the slow boat of printed books coming from the Far East is making less and less economic sense. Shipping costs have more than tripled since 2019, and shipping times can easily exceed three to five months. These factors have shrunk the economic cost difference between book manufacturing in the U.S. versus importing to the point where on-shoring is more attractive than ever.
Add on top of this the fact that more than 50% of trade books are now sold in the U.S. through Amazon, and one can see the desirability in printing just-in-time, with rapid fulfillment. The big beneficiary of all this is production inkjet printing.
In the direct mail space, COVID has similarly created a one-two punch. In the initial stages of the pandemic, consumer brands shifted advertising to mainly electronic channels. However, the efficacy of electronic communication started to wane as people became overloaded and started tuning those channels out.
On top of that, consumers have become leery of “click baiting,” the ability to click on an electronic message and be re-directed to a potentially fraudulent website that could steal your personal data. Direct mail is a more expensive way (and hence has a higher barrier to fraud) to reach consumers, who can then either respond to a promotion by scanning a QR code as an on-ramp to a website or by manually typing in a web-link.
With a shortage of paper availability, this means that direct marketers need to be more focused than ever in targeting consumers who are likely to respond to their personalized offers. This is leading to the increasing use of “A/B” testing, shorter run lengths, and more frequent offers — all benefitting production inkjet printing.
The same holds true for general commercial printing, where print buyers demand less waste since they can’t afford to buy as much printing as they once did. Breakthroughs in production inkjet output quality (the ability to print on offset papers with photographic inkjet quality) have pushed demand for these inkjet presses to the point where some equipment vendors are already sold out of new equipment for the remainder of 2022.
The Bottom Line
While COVID has disrupted the lives of so many people, it has accelerated the growth of digital production printing in ways that none of us could have foreseen. The lack of skilled labor, paper supply chain instabilities and corresponding rising paper costs, and the drive toward automation fueled by private equity are driving more print than ever toward production inkjet technology.
Print volumes may never return to 2019 levels, but I.T. Strategies projects that when we look back upon the COVID pandemic in 2025, we will identify it as the trigger point that reset revenue and value growth within the commercial printing industry.