Printers have to ask their customers to compensate for the increased cost. We do not have sufficient margins in our business to absorb the increases. Printers have to improve their production efficiencies - and have lower material wastage in order to compensate for the increases. In the long term interest of our business, if the customer does not appreciate the genuine cost increase, the printer should be prepared to walk out of the business. Sooner or later he will feel the pressure on his margins if he accepts lower prices from the customers.
Also, paper mills have to convey the price increase with cost escalation justification in clear terms to the printers. This message should be passed on by the printers to their end customers. Also, printers through their association should set-up a dialogue with the paper mills and their associations to explain the importance of having a price revision not earlier than a quarter. This will help printers to plan properly. That's one way to cover the paper costs in their regular business.
The printers have to come together to understand the issue of price increase. They should not compete with each other and accept lower prices. Generally the printer is aware who the co-supplier is. The printer should have the courage to talk to each other in order to have a clear understanding about the effect of cost increase. Also the printers should get together through their association to get a comprehensive idea on the various cost elements for a job. This is because many times a printer ignores the cost in their anxiety to continue the business in spite of the rising cost.
Printers should not enter into fixed price long term contracts. This practice should be adopted by printers through a dialogue among themselves and through their association. Any long term contract should have the flexibility to get a price increase for the basic raw material (paper) as and when there are changes.
It does not appear that paper mills will be able to take up the challenge of mitigating the needs of the printing community in the next five to seven years. This is because of the high investment and the long gestation period for the paper manufacturers. The printers will have to depend on imports since the demand will grow at 12 to 15% CAGR for the next 10 years.
Like all paper packaging materials, the raw material component in corrugated boxes is 75%. With such a high raw material content, absorbing rising costs is not viable and hence, the additional costs needs to be passed on. This does not substitute the ongoing movement for cost reduction efforts. Converters need to highlight the rising trends and help the customer understand the need to adjust the box price. One tool could be an independent "index" which would track the cost trends and provide a neutral basis for price adjustments. An effort could be made to buy raw material on "co-operative" basis and benefit from bulk buying. This will mitigate (partially) the rising costs.
It is found that industry groups work better on non commercial issues and find their separate ways on commercial issues. Yet, hardships bring them together. When these industry groups are part of the same supply chain, their ultimate goals converge at a common level, and hence, wider awareness and personal rapport helps them come together. Co-operative efforts either in ‘buying' or ‘selling' would bring them closer.
It is a myth that price increase shall lead to a loss of business. Only unfair price increase leads to loss of business. Therefore, printers should know the costing well, validate their data, satisfy the fairness test and then, ask for a revision with confidence.
Reverse auctions are suicidal way of procuring new business for a tailor-made product which has very high raw material costs and is in the service sector. On the other hand, reverse auctions are a great way to buy products with sizable cost reduction potential. Tenders and annual contracts are good for those who have deep pockets and spare production capacity. A clear business strategy is a pre-requisite for treading on this path.
For all the paper production and consumption in India, the glaring weakness is the source of fibres. Unless wastelands are cultivated on industrial scale, paper mills in India are forever dependent on imported fibers, be it primary or secondary. The reducing import duty structure favours those paper mills abroad who have good fibre source. To become a paper superpower is a tall order!
Srinivas Fine Arts
It is very difficult to predict the increase in cost of paper and paperboard as the same is subject to many factors like pulp prices, freight charges, power tariff, exchange rate, etc. Once the print order is booked it is very difficult to get a revision in price. More so, since paper mills charge the prices prevailing on the date of despatch.
To mitigate the risk the following steps should be followed:
- To add a percentage in cost of paper in anticipation while booking a print order. It may be difficult in today's competitive environment but unavoidable.
- To keep a stock of paper for three to four months of your unit's requirement and load the interest cost to the print buyers. This is also subject to risk of locking of funds, idle inventory and quality deterioration.
- Once the print order is confirmed, collect full payment towards cost of the paper in advance. Try to remit the same to the mills or procure the required paper. In case the print buyer is not making an advance payment, stipulate the condition that our prices are subject to escalation in proportion to the paper price revision. To quote prices linked with prevailing rate of paper and the printing cost will be changed automatically whenever paper price increases.
- The printer can demand better price by rending value added services, quality supplies, timely deliveries, cost effective measures, creativity etc which will enable the printer to retain the customer, who will be happy to absorb the price increase which is beyond the control of the printers. The printers skill set should retain the customers. I feel, pricing issues should be given second priority.
- Due to tough competition among the printers, rock bottom pricing has become the order of the day. Print buyers are squeezing the printers and they become scapegoats in order to bear the loss arising out of price escalation. To control this, there should be an understanding among printers.
- Printing rates and process rates should be circulated among all the printers and adopted uniformly by the printers.
- The All India Federation of Master Printers should represent the print community and coordinate with the mills so that they regulate the paper prices. The increase in the paper prices should be structured and not erratic, and avoid frequent revision.
- A forward contract system should be introduced like cotton, sugar etc.
- The industry should present a unified front.
Our belief is that response to the changes in the market conditions and fluctuations is the responsibility of each individual company - whether it be a paper manufacturer or a printer. We have the fortune of being in India that has evolved over time into a relatively free market economy wherein the choice of doing a business at a certain price is based on the business model, infrastructure, productivity, capability and stability of each company and their individual choices.
The print industry has players of different sizes and different cost-structures and competencies and each company and individual of the print industry needs to decide the price at which they can buy; plus the price at which they can supply for themselves and their partners. On one side, if the paper industry has the ability to increase prices disproportionate to the cost increase then they will do so. On the other side, if the end consumer has the power to make suppliers compete and offer very low prices by e-bidding, then they will. In the end, the enterprise with the ability to continually provide the best value to the end-customer while meeting their internal profit expectations will always come out a winner.
We agree that the changes of the current times have made this a difficult period in our business cycle, but it is for each company and individual to decide what is best for their business and industry in the short-term, medium-term and long-term. Whether the actions are:
(a) soliciting price increase or exit from specific contracts
(b) soliciting price increase or exit from certain markets
(c) changing sources of raw material or any other actions, the speed of alignment to the realities of today by each company and individual is critical and will determine how quickly the market evolves and emerges into a sustainable one.
On the customer-facing side, we have rarely come across any kind of partnership on a sustainable basis that violates the requirement to provide the best value for the customer. However, on the vendor-facing side, it is possible for a group of producers to get better value from their vendors by buying together in a higher volume based on a forecast of committed higher volume than what they buy currently. Our business has the fortune of having the support of multiple partners of the paper manufacturing industry and we would be happy to provide paper to those who do not have access to paper supplies directly from the mill.
Yes, we are also very much concerned about the price increase of duplex board, kraft paper and art paper. Printers are facing a tough time due to the price increase, and non-availability of materials.
We strongly protest this unprecedented price-hike. The main issue pertinent in this matter is the chronic inconsistency in the quality of the paper in both coated and un-coated stock. The consumption of LWC and wood free is limited. The major chunk of consumption is in the coated and uncoated stock. This covers almost 90% of the total consumption. 5-10% consumption is in the speciality segment which is growing.
I feel the import duty and excise on paper stock has to be reduced. The times are such that it is very difficult for the small players to survive. The All India Federation of Master Printers (AIFMP) members will definitely support this cause by producing weekly press releases, print posters which are prominently displayed and conduct public dharnas.
The AIFMP has suggested highlighting this issue through print as well as electronic media.
In addition, they are planning to make a representation that will allow duty-free imports of duplex board and kraft paper - after all the price increase in duplex board and kraft paper is unprecedented.
In addition, the AIFMP plans to make a representation to the Industry Minister.
The AIFMP aims to call for an emergent meeting of the Development Council to look issues related to the printing industry.
My point is: how much more can a printer cope with recent trends? Can a printer start to increase prices of the print jobs, without losing business? This is a matter of serious concern.
North Indian Printers' Association
Every print member supported the call given by our association. Let me point out that the call given by the Offset Printers' Association for a strike on 10 April against the increase in the paper rates was - total and complete.
We have to work at the grass-root level to understand the problems and difficulties of the members. In turn, they will support us for any developmental cause; even if this means a street protest. The manner of protest can be any, we just wanted to convince the government and our buyers about the gravity of the situation. Therefore, the token strike call was given which was successful.
As far as I have understood, the printing industry varies at different places. This means, the system of working and style of functioning differ in every region. In the northern region (Punjab, Haryana, Himachal Pradesh, Jammu and Kashmir and Chandigarh), we may be facing different types of difficulties and crisis. The crisis in this area is not only due to increase in the price but non-availability of the paper also. The printers are small and they don't have sufficient purchasing power. As a result, middlemen (dealers) are making profit. If we talk about Ludhiana and Baddi, the major crisis is due to the increase in the prices of kraft paper and duplex board. In these cities, more than 90% printing presses are packaging printers and they have booked the orders three to six months in advance. Now, with this increase of 30 to 40 percent without any pre-information, a printer cannot sustain these prices.
At the other end, it is very difficult to ask the customer about the increase due to many factors involved. The majority of the packaging printing units in Ludhiana use the paper made in local mills. These local mills do not follow the norms and standardisation prescribed for such an essential commodity. Therefore there is a shortage (artificial or real), due to which the printer has no other option but to buy the material at the terms and rates provided by the dealers.
The major problem is non-standardisation and shortage of paper. Some time due to shortage, the fresh paper is used for printing which shrink and expand during printing. Some time due to non-availability, a substitute paper is used and often the work is rejected by the buyer. To solve this problem we have approached the Government of India. We are happy that the government declared Ludhiana as a printing and packaging cluster. After their study, we are planning to stock the paper at cluster level to make it available to all the printers. At Baddi, they are trying to purchase the paper in bulk. There are similar efforts in other areas. But we know, that it is not a proper solution. The matter is being taken up with the Government of India and an alternative such as a capital subsidy is being considered.
The major consumption in the norther region is: kraft paper and duplex board. Herein: white printing and woodfree paper is used for books at Jalandhar. In this case, almost 70% of the supply come from the customers, as in this area major job is printing of textbooks for the government, school and education boards. Coated chrome for the labels and sticker are next in terms of usage. And then there is art paper as far as consumption of paper is concerned in this region.
Survival of the small print is onerous, not only for a printer but for any other industry in India. The only solution is work in a cluster. As stated earlier, Ludhiana has already been declared as printing and packaging cluster and we are working on the same lines for areas such as Baddi, Jammu, Jalandhar.
Our aim should be to empower the print community.
I think no one person or company has the ability to control the prices anymore. This is a global game. It is better that all of us learn to accept the vagrancy in the raw material prices. We should act in a way that we do not get hurt. In case we have long term contracts, we have to work out a variable cost structure wherein the major raw material costs are factored in.
Is this possible? Why not?
It is up to the printer to work out a win-win situation with the client. All of us are doing business in order to make money and we have to earn our buck. There is no way we can absorb the rise in RMC or quote a crazy price whereby we make money no matter what the RMC is ...
The paper manufacturers are increasing the prices as pulp prices are going haywire. Likewise with aluminum prices. Plate prices will go up. When oil prices on the rise, there will be an increase in inks and other chemicals. We have no control on all these.
We should work out a proper system with our clients. This should be a transparent process whereby both parties will go forward in a win-win situation. If we think that it is not possible, then we are cutting our own throats. We have to keep the loop transparent and never forget our own RMCs and ROIs.
You have to increase prices. There's no escaping that fact.
Alternatively you take a loss if you continue to supply at the old rates. One thing all of us have to understand and appreciate is that the client needs printed products and we need his business. It is not a one way road. It is not that the client is unaware of the global and local phenomenon. We are the clients' partners in progress and they have to understand the current trends. In these troubled times when we increase the prices, some of our printer colleagues take advantage and quote a lower price. This enables them to enter into our client's territory. But such tactics will not help them survive in the long term. In fact, they harm us in the process.
We have innumerable examples of printers having gone out of business because of unethical tactics. But then do all of us have the ability to sit out and wait and watch - till the other guy fails? This is not possible. So it is a Catch 22 situation. But none of us should ever forget our RMCs and our ROIs. Our goal in the printing business (as in any business) is to make money. This should never be forgotten.
Each and every printer knows his business better than anyone else. We know what is the best price we can offer. So in reverse auctions, if this lower target is breached, we must get up from the table. No further thoughts. This is not a gamble. It is business and if our lowest is not acceptable, we should not entertain the job. Same with the tenders. In long term contracts, while there is no variable cost system, we should examine it seriously. We are in times that we get affected indirectly by everything. Be it: the quake in Chile or the bad weather in Europe or the rising and falling dollar. Do we have any say in any of these? No. So we have to work out a solution if we have to do our business in the right way.
I do not think Indian paper industry can be a superpower. Paper is not an industry which is labour intensive. We need pulp, water and power. All these are in shortage in India. There has to be a clear-cut government policy on large tracts of land to the mills so that large-scale afforestation is possible.
Also, we can support a green environment, over and above getting the pulp. In absence of this, it is difficult to become a major paper producing country.