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Postal, Paper, Logistics Updates, October 21, 2021

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This week, we look at the state of the USPS heading into the busy season. The monthly Paper Market Update gives a broad overview of the industry. And the Logistics Network continues to face transportation shortages.

Quad is a significant mailing industry partner, printer and transportation services provider — we’re uniquely positioned to provide accurate information on topics related to postal, paper and logistics. Our goal is to provide clarity and share best practices so our clients can more confidently address the latest developments. These are especially challenging times for our industry. Contact your Quad representative if you have any questions or concerns — they’ll ask our in-house experts to investigate and provide answers to all.

Here are key developments since our last update:


Postal Updates

2022 competitive pricing changes

January pricing changes traditionally take effect after the MLK holiday. While increases should be limited to competitive products for 2022, it seems likely to be implemented two weeks earlier, potentially on January 9.

While competitive rates won’t affect most of the mailings Quad handles for our clients, it could impact your overall business. Peak holiday season surcharges end on December 26, and you’ll potentially see further competitive surcharges. We will continue to monitor and make you aware of final USPS decisions on timing and pricing.

Periodicals postage calculation changes

One January change that could directly affect a handful of Quad client mailings is the pending Periodicals postage calculations.

The USPS is proposing a way to simplify how they manage pricing for Periodical pending titles. Currently we run two separate presorts — the first is for periodical postage, the second for the corresponding non-periodical rate. This has been a cumbersome process to manage on the USPS side and double work on the Mail Service Provider’s side.

In their proposal, the Postal Service has a simple percentage increase in place of running the second presort and submitting a second postal statement. The question now is, are those percentage values in line with what pending title would normally pay?

Quad’s Postal Solutions team is working diligently to vet those new proposed costs. We’ll flag any discrepancies that would adversely affect our clients and work with the USPS to resolve those issues.

USPS delivery performance

The USPS has moved mail fairly well through the first few weeks of the fall season. However, we’ve seen more facilities process less mail the first few days after they receive it from us and slightly less by the end of the Service Standard window. Typically we see the most marked slowing in USPS processing beginning in the last week of October — we expect this to occur again as volume increases.

First Class mail has moved well since the Service Standard change on October 1 for Quad clients. But we are hearing reports that other mailers have experienced slower movement. We will continue to monitor the situation.

Supply chain and logistics challenges are affecting our ability to deliver mail to the USPS as scheduled. We continue to do everything commercially reasonable to meet our clients’ targets, but anticipate some will be impacted due to circumstances beyond our control.

Congressional legislation

Congress continues to work on the appropriations bills and funding the government long term. Right now, all mailers can assist with advancing legislation to curb postage increases. The more Congress hears about troubling aspects of the USPS’s plan, the more likely they are to push hard for changes with the Postmaster General and the Board of Governors. Please consider taking a few minutes to fill out a short form on this page, which will automatically message your Members of Congress. Or you can text MAIL to 52886. The process is a simple, extremely effective and efficient way to let Congress know your thoughts and tell your story about how important an affordable USPS is to you.

The time is now to let Congress know that you support requiring the PRC to take another look at the rates and the improved financial position of the Postal Service. Congress can help our industry and the over 7 million jobs we support. The more Congress hears from those in our industry the more likely we will be successful in getting the PRC to review these new higher rates. If you do contact your representatives, please make sure Quad is aware of your support for this legislation.

USPS volume

Mail volume for the week ending October 9, compared to 2020

  • Total Mail Volume: Down 15.3%
  • Packages: Down 4.9%
  • Single Piece: Down 8.9%
  • Presort First Class: Down 7.5%
  • Marketing Mail: Down 16.1%
  • Periodicals: Down 7%

Paper Market Updates

To summarize conditions in the North American paper markets, increased demand and less available capacity have caused an oversold market — forcing mills to place customers on strict allocations. Sourcing paper and having it in time for press-starts has been a difficult challenge in the second half of this year. Mill production operating rates are high, at 100% for coated grades and uncoated freesheet grades.

There are no inventories to be had due to supply constraints in Europe and higher ocean freight rates, with fewer imports of paper into the U.S. this year. Mills have closed and machines have been shuttered or converted to more profitable packaging grades — between 20% and 46% fewer tons are available, depending upon grade.

Compounding this situation is the fact that there are labor shortages, trucking/rail/container shortages and inflationary pressures. The costs of transportation, energy, oil and gas, pulp and other ingredients to make paper have increased exponentially this year.

It adds up to the perfect storm that has caused this disruption in the paper markets in 2021 and paper prices to rise by double digit percentages this year — some as high as 27%.

Recent news

  • Print and Paper buyers are forced to plan their paper requirements months ahead, with reports of mills reneging on previously agreed upon prices and a global shortage of availability of some paper grades. Bloomberg estimated that 100m catalogues in the U.S. will not be printed for retailers’ pre-Christmas sales drive due to a paper shortage. (source: Printweek)
  • UPM has permanently ceased newsprint production at their Shotton mill in the UK. The sale of the mill was announced in May 2021. The closure resulted in a 260,000 tons/yr reduction of newsprint capacity in Europe. (source: PPI Europe)
  • European paper producers have announced further price increases to be implemented over the course of October and November in order to compensate for extreme increases in gas prices. (source: PPI Europe)
  • Packaging Corp of America (PCA) has started producing corrugating medium on its J1 uncoated freesheet (UFS) paper machine at the Jackson, Ala. mill. PCA is the third largest containerboard mill and corrugated box converter company in North America. (source: Fastmarkets RISI)
  • COVID-19 has disrupted supply chains. This has been caused by swelling demand for imported consumer goods and home improvement purchases, and the shortage of workers required to maintain and operate these supply chains. (source: JP Morgan)
  • The FSC® published a revised trademark standard, FSC-STD-50-001 (V2-1). Requirements for use of the FSC trademarks by certificate holders, with changes to the MIX label text and the controlled wood claims are among the updates. The revised standard will become effective on January 1, 2022. (source: Press Release)
  • Laakirchen is making investments in the sustainable development of its Austrian paper mill. As part of this €100-million program, Laakirchen’s paper machine 11 (PM11), which today produces supercalendered paper for magazines, catalogs and advertising, will be converted into a high performance machine for lightweight containerboard made from recycled paper. (source: Press Release)

Market influencers

Wood Pulp prices continue to retreat after rising 40% this year through June.

A global energy crisis was caused by a surge this year in global demand and industrial recovery from COVID-19, while the supply of natural gas and coal has not been able to ramp up to meet demand. As a result, prices for energy have risen to historic highs.

National Load-to-Truck Ratio data still shows the national ratio at 6:1 — normally it’s 3:1. There are not enough drivers to cover the loads, which is pushing rates higher. (Source: DAT.com)

Coated grades prices are about 20% higher now than they were at the beginning of the year. Coated paper producer backlogs are out 14-16 weeks, as mills are oversold for the balance of 2021, and into Q1 2022. This means that paper orders must be placed now (mid-October) with hopes for deliveries at the end of January at the earliest. As stated in previous reports, Pactiv Evergreen is exiting the CGW market at the end of October, removing over 180,000 tons/yr of coated #4 and #5 production capacity. All coated producers are requiring accurate forecasts now for 2022 because their order books are already sold out based upon preliminary forecasts.

Uncoated freesheet grades (UFS) demand has been steady all year. There is limited supply available and UFS producer backlogs are out 12-14 weeks. Mills are operating at 100% of capacity as demand appears to be outpacing supply. Demand in early 2022 could be constrained by fewer producers and continued machine conversions to containerboard. PCA’s PM1 at their Jackson, Ala. mill has now transitioned from UFS to producing mostly corrugated medium, but Domtar plans to restart one UFS machine at their Ashdown, Ark. mill. Prices for UFS grades are also about 20% higher now than they were at the beginning of the year.

The uncoated groundwood grades (UGW including SC) market is segmented, and includes SCA grades, directory, high brightness machine finish grades, and super high bright groundwood UFS alternatives. The SCA grades (SCA, SCA+, SCA++) tend to track with the coated groundwood market, while the super high bright UFS alternative grades track more with the UFS market dynamics. As such, the SCA mills have full order books due to the shortage of CGW supply this year. There are only three remaining SCA producers in North America, and they are claiming very full order books through next year. Prices for SC grades have risen by about 24% this year, while the other UGW grades by about 18%.

Newsprint grades prices have increased by about 27% this year, as mills in North America are operating at 100% of capacity and inventories are very low. Roughly 40% of newsprint production in N.A. has been eliminated since 2019 — yet with continuing secular declines in demand, the newsprint market is relatively stable with only slightly longer lead times. The mills are full because they have increased offshore opportunities now with so many capacity reductions overseas.

Sheet-fed and Digital grades mills continue to make new orders to meet increased demand, but inventories remain depleted. Order lead times are between 12 weeks and 16 weeks depending on the grade. To make matters worse, paper imports have been constrained by ocean freight rates and supply chain issues.


Logistics Network Update

The US logistics network is still experiencing a stressed supply chain, especially in the LTL space where we continue to see delays of three days longer than the published transit times, and a larger number of mis-routed product by these Carriers. They’re encountering the same challenges as the rest of the US economy with reduced labor and inexperienced employees.

The truckload market is currently holding up but struggling to handle capacity with more demand than supply. Rates remain high, especially for product that is to be handled on weekends. Rail is also a continuing challenge, as it has been all year. The areas impacted change weekly, which makes it difficult to determine the best shipping method at any time. Carrier rates rose the last week of August and prior to Labor Day weekend due to capacity issues. Rates have remained high since that challenging holiday weekend.

We remain concerned that it will become more difficult to find capacity, and or rates will continue to climb as fall freight volumes increase. Your Quad representative will always work diligently to find you the lowest rates with the most efficient transportation available.