Kelly H. Ferguson
is Editor Pulp & Paper

Time for a test drive?

At the beginning of the year (after crawling out from my Y2K bunker) I gave a short presentation on the industry, comparing it to a former neighbor of mine and his hobby. As the year has gone on, I’ve felt that this similarity has become even stronger, especially in light of several recent events.

This neighbor was an auto fanatic and was particularly fond of tinkering with an early-1970s model Ford Mustang he owned. In the five years I lived next to him he worked on it constantly. He rebuilt the engine several times. He painted and repainted parts of it. He added a booster system that would take the car up to about 180 mph. He took parts out and added new parts, then took those parts out and added more new parts.

And yet in five years, he rarely drove that Mustang anywhere. I seldom saw him even pull it out of the garage except for a few times when weather and road conditions were just right.

TIME IN THE BODY SHOP. How is the current paper industry like my neighbor and his Mustang? For the past five years or so—or maybe even the past decade—companies in the industry (many of them late-model) have been rebuilding themselves with the expectation of better performance.

Companies have removed parts and added new parts, including people, divisions, mills, suppliers, and equipment. P&P receives constant news announcements of new top-level people being brought in. And of course its almost a daily occurrence for some company to buy another, or at least a mill or two. But sometimes the fit seems as well planned as some Volkswagen vans I’ve seen that have been converted into pickup trucks.

Corporations have also painted and re-painted their organizations and business processes to provide for a better presentation on the street—Wall Street, that is. However, some of this appears to be insincere window dressing. Imagine a Mercedes-Benz with a 1978 Chevy Chevette engine.

THE ENGINE OF CHANGE. But there are substantive changes going on as paper firms rebuild and streamline. Take, for example, Georgia-Pacific’s recent announcement to purchase Fort James followed by the sell-off of The Tim-ber Group to Plum Creek Timber. All of this is on the heals of G-P buying Wisconsin Tissue and distribution giant Unisource last year. In ess-ence, G-P is in the process of replacing its en-gine for growth, becoming less of an integrated forest products giant and moving more toward a consumer products-oriented company.

As chairman and CEO A.D. “Pete” Correll put it in a press release about the timber sale, “Since the separation of our timber business as an operating group in 1997, we have proven the merits of independently operating timber assets and demonstrated that manufacturers don’t have to own timberlands to be competitive. We can efficiently procure wood and fiber for our manufacturing base independently, on the open market, from which more than 80% of our raw material needs are already supplied. This transaction will enable us to advance Georgia-Pacific’s strategy toward the value-added segments of the industry supply chain.”

All of these corporate changes around the industry have been in expectation that at some point business conditions would be just right and companies would be poised for better performance in the market. Unfortunately, it’s likely that “just right” is no longer a term that can be used to describe the market for pulp, paper, and wood products.

Like G-P and some others, it will soon be time to stop rebuilding and repainting and putting Bondo on parts and take some companies for a test drive.