31/01/2023

Representatives of the APA Board and Committees met with Opus Group before Christmas to discuss pressures on book printing in Australia.

The message from printers is that costs are likely to remain high into the future – thanks to high production costs and low supply of paper – unless there is a significant fall in demand. There is hope that lead times may improve, however; Opus has recently introduced a new volume allocation system in order to better manage its workload and reduce reprint turnaround times. The printer is also urging publishers to consider moving non-urgent reprints out of the busy July-Oct period.

Black Inc. publishing director and Independent Publishers Committee member Caitlin Yates put some questions to Opus Group Book Printing CEO Michael Frenchto share with APA members, while the APA also sought feedback from IVE CEO, Production & Distribution, Cliff Brigstocke.

Questions to Michael French, CEO Opus Group Book Printing 

Can you give us a quick summary of the key factors affecting printing and paper supply since Covid?
The main factors are as follows:

• High demand and low supply of paper due to a number of mills closing machines. Mills switching to cardboard production is also a concern.
• High cost of shipping and slow shipping times
• High production costs – in particular energy and timber since the war in the Ukraine commenced

How are these factors likely to affect printing prices, capacity and hence turnaround times in 2023 and beyond? 
High production costs and high demand are pushing prices up substantially. Lead times are longer but we are carrying a high amount of stock.

It’s difficult to predict the future. All things being equal some of the cost drivers should ease and prices should fall, but with demand basically in line with supply we will also need to see a fall in demand to see any significant price reductions and that appears unlikely.
  
Which paper mills does Opus currently use for Australian printing? What are the current and future supply issues from these?
Opus uses the local paper mill Norske Skog in Tasmania and two mills in Scandinavia. All mills are at or near capacity but we have a sufficient allocation to meet the local demand. We have increased our stock holdings to combat slower deliveries.
 
The local mill cannot increase supply. Their capacity is limited and they have contracts with the large newspapers that must be filled before they start supplying book paper.
 
If and when freight costs stabilise, will that saving be passed on to publishers? 
If we see prices fall the mill will generally pass these savings on to the customer and this will flow through. Now that the mills have seen these higher prices, time will tell whether they pass any savings on.

There is hope that when mills renegotiate their annual shipping contracts we may see some relief on the cost of shipping. Time will tell.

How can Australian publishers collaborate with Opus to return to pre-Covid service delivery, and potentially reduce costs across both industries? 
Opus has recently introduced a new volume allocation system meaning that we manage the amount of work we commit to take on, thus enabling us to deliver at pre-Covid service levels.
 
Can you give us some more information regarding the seasonal workload for printers? If publishers could adjust their print schedules on some titles to help even out the bottlenecks, could there be some kind of incentive program in place?
The busy period July-Oct is where we struggle with the very high volumes. If some of the non-urgent reprints could be moved outside this period, it would greatly assist us to meet SLAs (Service Level Agreements) in the busy period and get new releases out on time.
 
In 2022 the warehouses were overflowing, which surely indicates we're all overprinting (and then pulping). How can we develop a publisher-printing-distribution solution to print only what we need for 4-6 months with confidence that reprints can be turned around quickly? 
The current volume allocation model provides no incentive to do this. I think once we start to meet the normal SLAs, publishers will be confident enough to print less, knowing that they will get any reprints in a shorter time frame. This should happen in the first half of 2023.

With so much printing moving locally, there is an opportunity to develop a more locally-focused, sustainable printing and publishing supply chain. How can we incentivise and make it possible to keep as much printing in Australia as possible? 
We need to maintain an open dialogue on this. If there is a real commitment from the Australian publishers to move more onshore, we can invest to meet the increased demand. This investment [the cost and time-frame for investing in new printers] would be substantial.

Are there any tips or tricks that would be useful for non-production staff to know that would help reduce cost and turnaround times? 
The reduction in embellishments is an obvious time-saver. Getting files and purchase orders in as early as possible. Getting Forward Loading information as accurate as possible.

Questions to Cliff Brigstocke, IVE CEO, Production & Distribution

What is likely to be the capacity for printing books in Australia over the next few years? There’s a widespread impression that lead times appear to be growing longer, so publishers are keen to understand whether they will need to adjust their project plans or their criteria for deciding when to print off-shore. In particular, we understand they are uncertain whether the apparent increase in lead times is due to Australian printing facilities being already at full capacity and not able fully to accommodate demand, or to problems in the availability of paper stock. Publishers would be especially interested if you were able to give any indication of plans that IVE Group has, or of investments that it is likely to make in the future. 

I can only really comment from IVE’s perspective where we have not seen any significant increase in lead times. At this current point, we are close to capacity and focus on the cornerstone publisher who we successfully tendered with a few years ago. We supplement any major shifts in volumes across other printing equipment, notably digital. Regarding paper, due to our overall purchasing power and long term partnerships with merchants and mills, we have secured adequate supply and do not see any changes in this regard.

In terms of our future plans, our goal for the next 18 months or so is to successfully integrate the significant ex-Ovato assets into our facilities focusing on publications (magazines) and catalogues. Beyond that, we will review market capacity, service requirements, cost of possible further investment and return on investment and engage with key stakeholders at that point. We’re happy to maintain a dialog with the APA noting our focus for the next 18 months.

We understand that the pattern of supply of paper has been affected by an increased demand for packaging materials including cardboard, with unhappy consequences for the price and availability of paper suitable for book production. Is that correct? Many publishers are particularly concerned because of there being only one relevant supplier of paper in Australia. Do you expect the situation to continue or to improve? Are there any other trends that publishers should be aware of when considering the environment for their businesses over the next 5 years? 

There has certainly been a shift away from paper manufacturing to higher margin products such as board. This started with the decline in newsprint and gathered momentum from there. This limited supply and recent world events such as Russia’s reduced supply of gas to a number of European mills, along with a range of other factors including but not limited to freight, has caused the increase in price.  

From an overall perspective, we expect paper price to stabilise over the next six months or so and hopefully will not see ongoing, double digit increases. From a local perspective, the looming challenge will be the cost of electricity and gas. With increases forecast of up to 56%, this will have an impact on local printing and we assume local paper production. From a longer term perspective, we expect on-shore demand to stabilise and don’t foresee any changes to the Tasmanian mill or their capacity.

In terms of other trends, we expect digital printing equipment to further develop and drive efficiencies. All being equal, this should provide faster turnaround times and ideally suit where publishers have lower print runs and or regular reprints.

Maybe from a publisher’s perspective, it would be good to understand what your members are forecasting in terms of number of titles (up or down) and similarly print runs.

The APA will continue to meet regularly with Australian printers during this challenging period and update members on any changes in the market. If APA members have any particular questions for OPUS or IVE or would like to discuss the industry’s response to the current situation, please email Stuart Glover.