The paper chase - shortages of paper

Through a combination of planning, juggling, creativity and flexibility, most publishers have found a way to survive the current paper crunch. While they are coping with steep price hikes--a 12 percent to 15 percent price increase is expected for 1985--they are more concerned with availability. They can live with price hikes--ad sales growth eases that burden--but they cannot live without paper.

Now, 18 months into the tight market that caught many by surprise, the panic has passed, but the situation remains delicate. Publishers are getting paper. And although they are sometimes getting it on a wish and a prayer, the presses are still rolling. However, any glitch--a paper machine breakdown, a rail car delay, a union job slowdown--can wreck the balance. Some publishers are teering closer to crisis than others. Generally, those who were caught with depleted supplies and who reacted too slowly have been hurt the most.

But on the whole, publishers have not been forced to make dramatic concessions. they are not turning away business or cutting back growth. Many have gone abroad for paper, but many others have not yet been pushed that far. They are playing it close, having to keep inventories lower than is comfortable. They track their paper's comings and goings to the minute and the mile because ther is little margin for error. Expensive trucking substitutes for slower rail carriage at times. Close calls and horror stories abound--paper is rushed in one door and magazines emerge from the other. Yet publishers are making it. And many feel the breathing will come easier next year.

"Overall we've been very fortunate. We haven't been out of paper for any publication; we haven't missed any dates,c says David Mayer, special projects director at Harcourt Brace Jovanovich. "But it's been very tight. Our inventories are small and have been, but at least we're coming through."

Mayer, who buys mostly 38-pound to 50-pound coated stock and deals primarily through merchants, echoes the experience of several other large publishers who spoke with cautious optimism--afraid to sound as if their success in the paper chase has been unearned or easy. Some said they were better off this time mainly because they learned valuable lessons from the last big crunch that peaked in 1979-1980.

cWe're in a little better condition than we were in the '79 crunch," says Irving Nerschbein, director of manufacturing and distribution for Conde Nast Publications Inc. "We began to see what was happening and took immediate steps. We didn't waste time hoping it wuld go away."

Herschbein's company eats up 96,000 tons of coated groundwood a year, and although he is supplying it through his regular sources, he says there is never a dull moment.

"I've been doing this almost like a vaudeville act. One paper mill said that the year only had 11 months. They simply wiped out one month. Another mill is running six weeks late, which is the same as saying we lost a month and a half--and I doubt if we'll ever see that paper. Two mills have shorted us on a percentage basis ... everybody's got a different way of accounting for the shortfalls," he declares.

The mills--running full speed 24 hours a day, seven days a week--are operating at 100 percent capacity now. Using data supplied by the mills for the first six months of 1984, the American Paper Institute (API) estimates that domestic shipments of coated groundwood and freesheet totaled 6,251,000 tons in all of 1984. That is nearly 200,000 tons more than the mills said they could produce at the start of the year, indicating that they "found more productivity" than originally anticipated, according to API.

But it is not enough to keep up with demand--deliveries are arriving anywhere from three to eight weeks late, buyers say, and foriegn imports ae flowing in to quench the thirst for more coated white paper. With no U.S. mills planning substantial increases in coated-paper-making capacity for next year, relief is not certain anytime soon.

Three situations, three solutions

How publishers secure paper--directly from mills, through merchants, or from printers--mirrors their market power and colors their options for scaring up paper in a tight market. Times Mirror Magazines, publisher of Ski, Popular Science and others, buys the bulk of its 24,000 tons yearly from mills. The crunch caught them of guard.

"Like all publishers, we had tried to reduce our inventory levels during the soft market because that was also a period of very high interest rates," explains Gertrud Borchardt, director of manufacturing. "Overall, the paper we ordered in 1983 was less than we used in '83 because we were using up old inventory. When the tightness started in July, we were cut back to levels of orders for that year, which meant we really had a shortfall."

Morchardt went to the foreign markets, buying about 20 percent of her tonnage, mainly from Italy and Germany, at stiff 25 percent to 30 percent premiums. She said the quality is not always consistent and delivery times are longer, but at least she can get paper.

Los Angeles Magazine has its paper supplied through its printer, R.R. Donnelley & Sons Company, one of the largest magazine printers in the country. When the crunch came, Larry L. Clay, the magazine's production director, decided to switch from printing on a combination of 43-pound and 50-pound coated groundwood to straight 45-pound in order to save money. "To date we have never experienced a problem of availability," he says. "The big problem is in the price increases."

With many mills setting allocations based on 1983 orders from publishers, a new or quickly growing magazine may have to work extra hard to get paper to support its growth because its allocation history is disproportionately low. American Health, which vaulted to an 800,000 circulation in only two years of existence, had to pass up the security of a contract with its merchant because the merchant was willing tu guarantee only 85 percent of the magazine's paper needs, according to Richard Muehleman, the magazine's production director at the time.

Muehleman felt he needed the flexibility to query other sources, and for more than 15 percent of his paper supply, in order to be an attractive risk to suppliers. He refused the contract offer but kept the relationship intact. And by selling the magazine's growth potential, he succeeded in lining up a second merchant as well.

These magazine publishers, varying in size and situation, solved their paper shortages in differing ways--through mills, merchants, and printers. Like the major publishing houses, they leaned on established relationships with their suppliers and left no source unconsidered in attempting to secure paper.

While opinions vary as to who has it easier in this paper dearth--the Time Inc.s and McGraw Hills who can throw their market weight around and demand fulfillment of their contract tonnage, or the small magazines whose needs are unlikely to break a supplier--no one disagrees that the shortage is genuine and severe.

What's a publisher to do?

Paper-buying executives, many of whom have long experience dealing with shortages, say they can resort to a limited set of tactics for finding paper: They look for new suppliers, pressure their old source for more paper, juggle the types of paper used, and save paper any way possible. This shortage presents the same options. The key to successful paper hunting? Speed, they say.

"We acted swiftly to scour the country, find out where paper might be available--merchants, printers, whomever,c explains an executive at a large trade publishing company buying over 40,000 tons a year. "We exercised our buying leverage and went beyond normal sources, and we acted early to secure extra tonnage from our regular sources."

Was it necessary to make compromises? "No foreign, no substitutions, no use of more expensive paper," he states.

"When we began to sense something was up, we moved quickly, opened up other paper mills, took on other suppliers as needed, took on more tonnage from mills that could increase it with us," seconds Conde Nast's Herschbein. "We started early enough before it got too tight. You couldn't do that now."

Although a large company such as Conde Nast obviously has pull with suppliers, such companies also can be hampered by bureaucracy that prevents swift action. This red tape needs to be cut during a crunch crisis, says one paper manager: "You need someone managing the paper operations who has the support of the company, the authority to go do whatever is necessary, quickly."

Going abroad for paper

Because of the backlog at domestic mills, many publishers turned to foreign markets to pick up the slack. By August of this year, 175,000 to 200,000 tons of coated paper had been imported to the United States, with the Bulk being sent by Germany, Italy and Finland, according to John P. Clifford, chairman and chief operating officer of Clayton International, a paper merchant. The API estimates that 316,000 tons of coated groundwood and freesheet will come in from abroad during 1984--nearly double what was imported last year.

In many cases, that foreign paper is carrying a hefty price--for example, about $1,000 a ton, compared to domestic 34-pound coated stock, which costs about $880 a ton, according to the Pulp and Paper PriceBook. But publishers who have direct contacts with foreign mills say they are paying no more than domestic prices for their foreign stock.

"We imported paper back in the mid-seventies, and we kept those contacts alive throughout the intervening years," says James Lesac, corporate director of purchasing at Meredith Publishing Corp., which is buying from 15 percent to 20 percent of its paper abroad. "If you buy on a direct basis from a mill, the because of our strong dollar, it's below domestic prices. However, if you go through brokers--and they've sprung up like wild weeds in this tight market--then by the time you've put on all the markups, people have paid as much as $150 to $200 premiums per ton," he reports.

Borchardt at Times Mirror says she is considering establishing long-term ties with some foreign mills to provide a stable supply source for the next time the U.S. paper market shrinks. Indeed, the foreign suppliers have begun demanding such commitments from their American buyers, according to R.R. Donnelley.

Donnelley supplies paper on slightly more than half the magazines it prints, and Robert Myers, senior vice president, claims that the company has been able to take care of old customers and provide paper for new business without fail, primarily by increases in tonnage allotments from domestic producers and a "significant" amount of paper from overseas.

"We previously bought foreing paper on a piecemeal basis during shortages. Now we're making longer-term commitments, so we're not kissing them in the evening and leaving them in the morning," Myers explains. "Frankly, it's at their insistence. They can drive a harder bargain now because the situation is so tight here." The foreign mills generally are demanding that American buyers sign a three-year contract, according to Myers.

But erratic delivery performance from foreign suppliers has kept some publishers who had considered going abroad at home. "I can't find anyone that can guarantee any kind of delivery. Delivery is whenever it gets here. That makes it difficult to plan, so I've stayed away," declares one paper buyer.

'Feverish trucking' for emergencies

Paper on a rail car when it is due at the printer qualifies as a crisis, publishers agree. Average rail travel time of two to three weeks can be cut to under a week by using trucks, but the high cost makes trucking a solution only for desperate times. "Ther's a lot of major publishers that for the last year have been trucking paper feverishly ... because they let their inventories run down," confides a production executive at a large weekly magazine that has not yet had to engage in the practice.

John Child, manger of manufacturing finance at U.S. News & World Report, agrees: "If there's a production problem at a mill and it slips two weeks, a year ago we'd have said 'Fine, ship whenever.' today I am so tight that it literally will have to be put on a truck and rushed directly to the plant to get it there in time for printing. There's no fat in the inventory."

Substitutions limited

Number 5 coated paper is short throughout the entire range of lightweight coated stocks, paper buyers say, but few have made dramatic shifts to very heavy or lower quality paper for part or whole issues. Some slight shifting is occurring on a spot basis--usually substituting a weight or two higher, it appears.

"If we were printing on 40-pound, we in some issues may have had to go to 60-pound because that's what was available," says HBJ's Mayer, speaking of the last shortage. "Now we're just printing a couple on 45-pound from 40, which is no big change."

Mayer also tried moving some publications down from 40-pound to 38-pound in an effort to increase yield--the number of feet on a roll--because HBJ's allotments from the mills were based on weight, rather than on linear feet. "It becomes somewhat of a moot point because the mills haven't been able to keep up their deliveries, so it hasn't seemed to work too well for us," he acknowledges.

In some cases publishers have gone to more expensive grades of coated paper, called freesheet because it contains no groundwood, but even that availability is starting to tighten, buyers point out.

The publishing industry has waged a vendetta agains paper waste over the past several years. Printers have been pushed to new standards of efficiency in paper usage and percent of waste has been cut from the low twenties to the low teens, according to one production executive. With paper tight, publishers are again scrutinizing waste.

Times Mirror instituted an under-consumption incentive program for its printer as a direct result of the paper crunch. The company set 1983's paper consumption as a benchmark, and any cost savings generated by using less paper is shared equally with the printer--a system in use by many large publishers.

At Lost Angeles Magazine, the drop to a lower basis weight (from 50-pound to 45-pound) that was prompted by higher paper prices has meant that production quality must be more carefully checked.

"We're looking for tighter quality control from our printer--maximum efficiency, less spoilage, better pressmanship--and that has a definite effect on manufacturing," says Clay, the production director.

Careful tracking a must

Many of the production executives contacted by FOLIO said they were devoting more time to monitoring both their paperhs whereabouts and the paper market's signals. With inventories cut to the bone and the threat of running out of paper ever present, there is simply no padding in schedules and little time to be searching for after-the-fact alternative sources, they say. Paper managers must know where their paper is, and where they can get backup in an emergency.

"We have a department doing noting but tracking orders, pleading with the paper mills. We all spend a lot of time with the paper people to make sure nothing happens that we're not aware of," explains Herschbein. After the last shortage, he added more people to the manufacturing staff, thus providing more eyes to watch the paper business.

Joel Reiss, assistant director for material at Newsweek, says that, because their inventories are below what they consider a favorable level, they have to monitor more closely how they allocate paper among the various printing plants. "What helps is our computer system that keeps track of paper from purchase order through waste management," he says.

At Los Angeles Magazine, which buys its paper through its printer, the paper crunch "put a fire" under a decision to computerize their paper tracking procedures, the production director says. He augmented the magazine's IBM System 34 with IBM PCs. Now all paper costs and projections will be done on the computer, instead of by hand, Clay explains, and he hopes that will give him more control over his paper.

"I question how effective my input is now because I'm basing my knowledge on my supplierhs knowledge," he observes. "The end user has the final say so, but in order to manipulate information and gear it to the publisherhs eyes--that's one of the incentives for getting paper onto a computer. It's easily accessible, easily manipulated.

"A well-informed history, a track record on order, usage, efficiencies of your printer, when orders are received, what qualities are received--to have that at one's finger tips is about as close to a crystal ball as you can get," Clay remarks.

When asked what they did to cope with the tight paper situation, production executives, merchants and printers consistently said they went to the people with thom they always dealt and asked for help. They leaned on relationships, buyers said, and asked suppliers to somehow find the paper--knowing that the market will eventually turn around and suppliers will lean on them to buy during slow times.

"There's really nothing more we can do than continually chase our suppliers to make good and give us as much as they possibly can," says Herschbein." I always kid my friends in the paper business. I say, 'Well, now remember, in a couple of years it'll be your turn to buy lunch.'"

Newsweek's Reiss emphasizes that the paper industry is tightly knit, and personal ties count plenty: "The publishers that do shop around in soft markets for bargains are very well known to the paper companies, and they're having problems. Paper companies have long memories."

Leonard Pinto, vice president and general manager of Davis Publications, says his company is not merely "coping," its need are being met by the firm's regular merchants and printers even though Davis had a recent startup, Sylvia Porter's Personal Finance Magazine. That required a paper commitment that grew from 250,000 copies in December 1983 to over 700,000 copies by mid-1984, and the printer came through with the stock, according to Pinto.

"We never helter-skelter about to try to save a few bucks and disrupt the relationships we've had for years," he says. "Because of that, we've found that, in times of stress, that really comes to the fore."

Shopping for bargains during a soft market was unanimously seen as dangerous by the production executives who spoke to FOLIO, but even legitimate shopping--to upgrade quality, for example--must be tempered by consideration of the repercussion during a squeeze, according to Los Angeles Magazine's Clay.

"When the market got soft, we were looking very seriously at trying to improve quality without dramatically increasing cost because that was a viable alternative at the time. It would have been shortsighted if we hadn't looked at other mills and other stocks," her asserts. But they conducted the search through their printer, looking at different mills and vendors, "recognizing that our current relationship with that printer was a valuable relationship in a time such as we're having now," Clay points out.

The art of juggling

Juggling paper to meet press deadlines--among publications for a multititle publisher and among customers for merchants, printers and mills--is sometimes necessary now, publishers and suppliers say. Although mills theoretically treat all customers the same, cutting them all proportionately and delivering equally late to all, they do make exceptions. "It goes without saying that if a customer doesn't have paper to meet a press date, we'll try very hard to meet their press," says Ted Robinson vice president and general manager, printing paper division of St. Regis.

Publishers are even willing to come to each other's rescue in an emergency. John Romeo, director of production at Forbes, tells of receiving an S.O.S. call from the giant Conde Nast on one occasion, and he says he was able to help. Myers at R.R. Donnelley reports that they have at times substituted paper that belongs to one publisher to meet another's press run. "Usually that's worked out between two publishers," he says. "If they have the same paper and the same roll size and one guy is really in trouble, he'll call the other and say 'Hey, we need a thousand tons. Can I have it? I'll pay you back next week.'"

Brokers can be indispensable during a tight market, many paper buyers say. Child of U.S. News buys 25,000 tons of paper directly from six mills, with the exception of one brand that buys through a broker because he considers that contact a valuable source of information about the market.

The merchants have also been crucial because they can juggle around their paper allotments, almost on a weekly basis, to satisfy their customers' press needs. "That's how everybody is coping," says one user of merchants.

Some publishing observers say that a magazine whose printer is supplying the paper is free from the constant haggling and worry of getting paper. But a manufacturing executive at a large publisher buying directly from mills notes that he has the benefit of control over his paper stream. A publisher relying on printers is leaving his "destiny in the printer's hand,'" he says.

Clay at Los Angeles Magazine agrees that, for the publisher whose paper source is his printer, the hassles do not go away.

"When you're not supplying your own stock, the problem is to be certain that your printer, or your broker, is really looking out for your best interest. Can I rely on them to look for alternative stock, different vendors, different merchants to supply our needs?" he asks.

What publishers are not doing, they claim, is turning away advertising or tampering with their editorial content to shorten issues and save paper. They are not shelving special issues or annuals, although many agree it is a poor time to launch a new magazine. Most publishers who had special requirements this year--such as Sports Illustrated's 534-page Olympic issue, or the Forbes 500 issue, which it spun off as a separate publication--said they had planned well ahead to assure paper supply.

"In 1983 we too were part of the trend in cutting back inventories," says Romeo of Forbes. "Back in April and May of '83 I was quite concerned about our new books coming out in '84. But I notified my suppliers that no matter what I cut in early '83, I would take it all plus more by year end." Romeo had to find paper not only for the Forbes 500, but also for the second annual Forbes 400 issue and a 27th regular issue of the magazine. He succeeded, but he had to resort to buying German and Italian paper, he admits.

Cutting trim size is another paper-saving option--but many publishers say they did that even before the paper crunch as a general economizing move, not only to save paper but also to cut freight and postage costs and to keep their publications in line with competitors.

"We generally followed the trade in cutting trim size," explains Lesac of Meredith. "A customer may advertise in a number of different magazines, so the original materials that he provides are probably the same whether they go into magazine or one of our competitors' magazines. When magazines establish size, it's generally comparable throughout the industry."

The use of sueprcalendar--uncoated paper that goes through a final heated press, making it slightly more light-reflecting than straight uncoated--is being avoided by publishers much more during this shortage.

Richard Serafin, corporate production director at Time Inc., says his company used supercalendar in the last shortage in the "current form"--the latest pages printed in its weeklies, and at the time done only in black-and-white and two color.

"Now our book has changed so we're printing in four color in current form. This wouldn't be a good practice on supercalendar, so when the market changed we tried to make sure we didn't have to do that again," Serafin says.

It is not only the production limitations presented by supercalendar that have kept publishers from using it, but also the "cheap" image it gives to magazines. Times Mirror used it to fill in the backs of publications during the last squeeze, Borchardt says, but this time they are steering clear.

"Over the years we tried to change the image of magazines where we had used it in the past--improve quality, eliminate a number of mail-order ads," she explains. "So we really didn't want to bring supercalendar back into the picture." Instead she has gone to higher weight and higher priced paper at times, making the cost impact of this shortage "much worse," she adds.

And too, supercalendar is in short supply in its own right--what is available is mostly foreign, and that is being siphoned off by the catalog and insert market, sources say.

How this shortage differs

Although publishers say they are coping with the crunch, few downplay the severity of this shortage compared to others.

"The 1979 market was a false market. The paper companies were gauging," claims Anthony Fioravanti, paper manage for the New York Times Magazine Group. "If you wanted to pay the price, you got paper. when the market is tight, money does not buy paper." Fioravanti says that there is simply no spare paper, even for a price, in this market.

Most paper buyers agree that the suddenness of this crunch differentiates it from previous ones. As late as early July 1983, experts were forecasting a continuation of the soft market, asserts one manufacturing director, and then a week later the market constricted drastically. The St. Regis executive admits that his company failed to call the crunch.

"We were predicting oversupply of coated paper all the way through 1985, into 1986," he says. "Then in six weeks it turned around to a shortfall and it's been that way ever since. We totally mispredicted it coming."

A paper buyer offers evidence that the shortage is a true one: "In June of 1983, before the tightness developed, paper companies went forth with the option to continue the price discounts," remarks Newsweek's Reiss. "You can bet your bottom dollar they would not have continued the discounts if they expected the market to tighten." As it was, the mills had to wait until the fourth quarter before taking their contractually allowed price hikes.

Yet the rumblings of a potential disaster could be heard if buyers were paying close attention, say some publishers who were listening, and it gave them a crucial head start.

"Part of my knowledge may be because I was buying and researching a large order of paper for our Olympics issue," says Clay, speaking of the 1.5 million pounds of coated paper he needed for Los Angeles Magazine's special guide to the Olympics. "Looking at it as a spot buy made me aware that there wasn't five hundred thousand pounds of this paper lying around anywhere."

Clay says that in January 1983 when he first began the process, avalability was no problem, but by April he saw signs of the crunch. He signed a contract just as the market started to tighten, knowing a decision had to be made.

"It was like a thunder storm in the Mojave Desert. You could see the clouds coming, but only if you were looking up at the sky," he observes.

Large publishers are generally covered, but paper buyers caught without a contract or an allotment through a merchant have been virtually shut out of the market, sources say.

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