Tight Paper Markets Highlight the Importance of Plan-Ahead Scheduling for a Smooth 2021
If 2020 was anything but business as usual in the world of direct mail, 2021 is most certainly cut from the same cloth. From lockdowns in the beginning of the year to – what appears to be – a sharp economic rebound, the COVID-19 economic roller coaster is ever-present in the acquisitional direct mail markets. At the time of this post, we have seen paper supplies become constricted and schedules move out, all while marketers appear to be clamoring to reach their consumers (flush with cash and new-found freedoms) in reliable and effective ways. Direct mail contractors that understand today’s paper market, forge and maintain strong alliances with their vendors, and understand the importance of a schedule will be far better equipped to fair the tumultuous seas of 2021.
Paper markets have become increasingly tight in 2021. An across-the-board mill increase at the end of March signified that demand justified some attention. A typical heathy mill operating rate may be 94-95%, which ensures that the mill's expenses will be met and will be profitable, but still retain some flexibility for its customers. Poor operating rates tend to be in the high 80s to low 90s, signifying an excessive supply that suppresses paper prices and, in some cases, causes mill closures and “right-sizing”.
For a decade, mills have been shuttering doors one-by-one to try to control the supply-demand equation. Today, however, mill operating rates are well above 95%, have put all its customers on allocation (which prevents hoarding and is typically a function of historic usage), and have little to no flexibility in scheduling. It’s widely expected that mills will have another increase this summer (some are announcing at the release of this memo) and that schedules will stay tight through the end of the year. The takeaway for direct mail manufacturers and brokers is to align with printers and envelope converters that have good mill relationships and involve these partners in the early stages of planning to secure stock for your upcoming projects.
Strong relationships with suppliers have never been more important. A direct mail contractor’s greatest weakness is its worst supplier. Whether a commercial printer, label manufacturer, or envelope converter, one weak link in the chain prevents a job from getting in the mail on time. A relationship that values loyalty and longevity will prove beneficial when schedules are tight, and supplies are low.
Likewise, a direct mail contractor should seek vendors who uphold the same values and relationship with their raw material suppliers. Printers that constantly change their suppliers for price find themselves in precarious circumstances in allocation environments and provide inconsistency from job to job. Loyalty with quality suppliers ensures a more dependable source to satisfy usage requirements, but it ensures that supply chains remain common from run to run, providing a more consistent and reliable product over time.
Scheduling in today’s market can sometimes be more important than price. Involving vendors early in the scheduling process will produce reliable results and lock in more sustainable pricing. Weekly and monthly projects should be calculated and planned, with schedules reserved and materials ordered. It's common practice in “normal times” for quick lead times and rush jobs to be fulfilled with ease. When capacities are tightened, those orders become much more difficult to fill.
Just as important as creating the schedule is keeping the schedule. A direct mail contractor that pushes for approvals on time should expect on-time deliveries from its suppliers. Commanding the schedule from the end user and its vendors is perhaps the most vital key to success for any direct mail contractor. Treating recurring jobs with the respect of schedule for all vendors will assure your customers that their campaign will be produced within the parameters they expect during the tightest markets.
The good news is that 2021 will be a stronger year than anticipated for many direct mail contractors and its suppliers, providing the economic recovery stays its course – a welcome change for most after 2020. Relationships strengthen when the entire supply chain bands together, and it often results in a better product as a byproduct. With a basic knowledge of the paper markets, strong supplier relationships, and plan-ahead collaborative scheduling, direct mail contractors can come through 2021 stronger than ever with valuable relationships.