Up to the Challenge

It seems every industry is affected by consolidation. In the industrial automation sector, blockbuster deals involving heavy hitters occurred almost weekly for a while with the big companies getting bigger and bigger, with fewer and fewer smaller players. The same thing occurred in the collision repair industry and fire service. Though on a more regional scale, larger collision repair facilities would purchase surrounding businesses and become the local major players. And, it’s the same with the fire service, with smaller local fire companies choosing to regionalize and become one department. And, so it goes with the paperboard market for packaging.

Consolidation in the package-printing arena isn’t new, but for users of paperboard, it is becoming more and more of an issue—on several fronts. Mills are closing down or consolidating, paperboard converters are consolidating, and larger mills are buying carton printers. While these factors are not a death knell by any stretch of the imagination, they do need to be addressed by ­paperboard converters.

Green operations, the quality of paperboard, and increases in paperboard pricing are other elements that impact how you do business.

State of the industry

In packagePRINTING’s annual State of the Industry Report: Folding Cartons, several issues prevailed for converters of paperboard, including sustainability, ­offshoring, the threat from plastics, and consolidation. According to the report, paper packaging is expected to post marginal advances or continue to decline in most competitive markets through 2010 due to inroads from plastic. Chinese paper production combined with mills closing in America means converters must start looking at foreign suppliers to stay competitive. Consolidation, a result of the cost of doing business, is occurring and will continue to occur.

So how do converters survive? According to the report, and Juan Roque, VP of sales and marketing for Vista Color, defining your niche is one key to surviving as a converter of paperboard.

Vista Color—Success in a shrinking pie

Founded in 1968 as a color separation company, Vista Color has evolved into a print communications company specializing in folding cartons with clients including Motorola, Bacardi, Del Monte, General Motors, and American Express. The company’s services include engineering, graphic design, printing, diecutting, folding/gluing, and finishing. “Our success [from] being part of the 10 fastest growing printers for a couple of years kept us sharp,” says Roque. “Now we are able to fine tune here and there to make it better.” He explains that the company’s success is based on feeding presses good, clean, first-line paper, “not recycled papers that are dirty to run, but good SBS, which is recyclable; we do our part to stay green.” Today, the business employs 85 people in one facility, operating two Heidelberg Speedmaster CD presses. Roque asserts that the pie is getting smaller. “We will continue to grow, maybe not at a fast pace, but certainly doing it at a real consistent pace,” he says. He believes the best way to compete is controlling your costs and keeping up with the latest technology.

Much ado about paper

According to Roque, the state of paperboard in packaging is fraught with high demand and high prices. “With so many mills closing, there are fewer to pick from, and this drives prices high,” he says. “This fluctuation is happening so often that you start losing credibility with your customers, and they start shopping around, giving your competitor [an] opportunity.”

Mills are also buying carton printers, he says. “This puts smaller printers at a disadvantage in being able to compete in the existing market.” This results in businesses “picking up the crumbs from larger mills,” according to Roque. “Some mills get a little [arrogant] only wanting the large runs, opening up opportunities for the smaller to medium size carton companies.”

Maintaining consistent quality of paper is also a challenge. “Mills are producing [lower] quality board, and as a result we find ourselves doing more quality control and our internal rejections have increased.” These factors affect Vista Color’s bottom line, and the only way to avoid the problem, says Roque, is to find a mill that can work with you when you have paper issues. “If they solve those problems fast,” says Roque, “they are a keeper.”

Roque states one of the biggest challenges is facing customers with price increases for paper. “The customers start losing confidence when you start passing on the paper increases. With the smaller margins in folding cartons, you cannot eat the costs. Paper is usually anywhere from 30 to 40 percent of the cost of a typical job. That is why it needs to be passed on.”

No secret to its success

According to packagePRINTING’s State of the Industry Report: Folding Cartons, “The key to survival in the folding carton market at this stage is to strategize and define your niche.” Roque concurs. “At the end of the day, stick with what you do best. Specialize and find your niche,” he says. “Our philosophy is to pick our target audience and go after it relentlessly.”

Take care—determining your niche takes time. Once Vista Color determines its target audience, it takes time and effort, “and an average of six months to a year to get the good ones,” says Roque. “The larger ones [take] anywhere between one and three years.”

The company’s success is also due, in part, to its internal operations. Vista Color looks within by having costs savings meetings monthly, which helps the company stay lean and in pursuit of foreign mills to stay alive. The company also diversifies its paper purchases so as not to put all its eggs in one basket. It does this by “constantly thinking of more efficient ways to run jobs; always seeking advice and being informed of the latest trends and latest technology available; and, when appropriate, making investments that make sense gives you a good ROI,” says Roque.

It’s not easy being green...but it helps

John Bernardo, of Sustainable Innovations, suggests looking at sustainability as a business opportunity. Switch to non-wax coatings for substrates to promote recycling of tabs, cuttings, and other substrate wastes, which will save money.

Luckily, with paperboard packaging, some of the ­sustainability is built in. “As long as paperboard is recyclable, [it] will be an important and cost-effective product,” says Roque. “Many hospitals have initiatives that encourage the purchase of products that are in recyclable packaging.” Vista Color also uses environmentally friendly inks, and it just invested in Kodak’s Spotless System, which will bring cost savings to both the company and its customers.

Paper, paperboard, and pulp capacity

In March, the American Forest & Paper Association (AF&PA) released its 47th Annual Survey of Paper, Paperboard, and Pulp Capacity. It indicates that U.S. paper and paperboard capacity continued to edge lower in 2006, declining 1.6 percent to 97.7 million short tons. U.S. paper and paperboard capacity contracted 4.7 percent in the period from 2000 through 2006, or at an average annual rate of 0.7 percent. The survey further indicates that paper and paperboard capacity will decline another 0.7 percent this year, and then re-expand nearly one percent during 2008 and 2009. (Look for packagePRINTING’s Top Folding Carton Converters listing next month.

That said, the Paperboard Packaging Council recently released the results on folding carton shipments for the first half of 2007. Shipments are down from the first half of 2006, but only slightly. Year-to-date shipments have slowly, but steadily, improved over a soft fourth quarter in 2006. Inventories rose in June by 18.2 percent compared to May levels, which indicates that the third quarter will follow the traditional pattern of being the year’s best quarter for volume.

So things aren’t dire in the paperboard packaging market. Paying attention to the trends is key. “The market dictates, and we move accordingly. Otherwise, we die,” says Roque. pP