Is there a way out of the woods?
An interesting juxtaposition of press releases received in my office recently; in the first, the President of the United States of America, George W. Bush, proclaimed October 19 through October 25 as National Forest Products Week. In the future, National Forest Products Week will be celebrated annually the week beginning the third Sunday in October.
It is a nice gesture to those who make their living from the forests, many of whom must be feeling that their jobs are hanging by a thread. The notice contained the usual platitudes about forests being vital to the economy, the importance of sustainable forest management and maintaining rural jobs.
But on the other hand
A little while later, a press release came in from Voith. It announced that two paper industry service centers, both located in rural America, would be closed. The release had a refreshing burst of honesty about it: no words like "We're consolidating our operations to better serve our customers." Instead, the executive vice-president, Voith Paper Holding, R. Ray Hall, said that the decline in the paper industry was the reason for the closures. "The North American paper industry has idled more than 10% of its production capacity over the last five years and while we have retained our overall market position, there is just too much under-utilized capacity in North America for businesses specializing in paper machinery and equipment servicing. Continuing customer budget constraints have also had a negative impact on business volume."
The supplier sector of the industry has despaired of the North American scene for a few years now. For a while, wherever conferences were held, suppliers sang a familiar song; it was always, "They will have to loosen the purse strings some time." Well, maybe "they" won't, that what you see now is what you'll get. "Continuing customer budget restraints" are becoming a permanent fact of life.
If publishers' paper needs (quality, quantity and economic) can be met by offshore suppliers who operate low-cost mills with modern machines, then the US paper industry will continue to face an uphill struggle.
An afterthought
Speaking with the suppliers, their hopes are pinned on developing regions: China and South America for example. And now, although it took longer than most expected, eastern Europe is finally emerging as a place to be. Although they may not have given up on North America, the equipment suppliers are almost treating it as an afterthought. Is it a market that does not want to modernize? Or, is everyone afraid to step up and be the first? Maybe what it needs is a risk taker, a true entrepreneur.
Although the fact that new pulp and paper equipment sales in North America are virtually at rock bottom is not news, even the service end of the business into which many large suppliers are focusing a lot of effort does not escape unharmed, according to Hall: too much capacity, not enough use. This is not a happy sign. However, Voith is not abandoning the North American market; it will retain six other centers scattered across the continent.
It will take a sustained strong recovery of the US economy to perhaps get the ball moving again. The recent decline in value of the US dollar may help exports and spur some modernization. It may also help level the price field with regards to paper imports. However, with most major papermaking equipment manufacturers located outside of the US, particularly in the Euro zone, it means that machinery purchases have become more expensive.
Another round of mergers and acquisitions could help the North American industry as the newer and bigger companies that emerge would, hopefully, rationalize production, that is, close some of the hopelessly outdated, expensive to run facilities.
