Top Book Manufacturers: Printers Adapt by Following the Market
This new level of competitiveness has not come without a price, however. While the cost of doing business has gone up in Asia, prices for printing services in the United States are stagnant or dropping, a by-product of overcapacity in the industry. "The additional excess capacity created by the recent declines in industry volume has resulted in intensified price competition in some product lines," noted Donnelley's SEC statement. This, coupled with an increase in price paid for paper, has many printers caught in a price squeeze.
"I just told a client in Florida that prices would be lower, so there's no doubt that even as paper prices have been stable and even going up, we are [the ones] making up the difference," Krehbiel reports. "Based on competitive market factors, we are not raising prices and are even offering some programs at lower margins."
"As an industry, we are feeling significant pressure in terms of cost, driven in large part by material price increases," Spall says. "[There have been] multiple paper price increases, [increases for] lamination, board, glue, thread. … On the materials side, they are trying to get their prices back up to what they would have expected had they been able to raise prices in 2009. Paper [manufacturers] have closed mills and are in a position where demand is up."
Adding to this, Spall says, is the elimination of the U.S. government's "black liquor" subsidy in January. The expiration of this provision of a 2007 alternative-fuels bill, which allowed mills to take billions of dollars in tax credits for use of a manufacturing by-product, created further price pressure just as the economy began to improve.
"Certainly there is excess capacity," Spall says, driven in part by the coming online in recent years of many smaller digital printers. He expects many of these to find it difficult to rebound from lost sales, while larger printers with more years in the business can take advantage of their ability to leverage multiple platforms and scale capacity to match demand.