EDITOR'S notebook
State of the Industry
I attended two industry events recently where presentations by Ronnie Davis, Ph.D., and Andy Paparozzi—chief economists of the PIA/GATF and NAPL, respectively—reaffirmed my beliefs about the current state of commercial printing and some of the foremost challenges we face going forward.
The commercial printing industry is finally growing again.
Speaking to attendees at the annual Web Offset Association conference, Davis credits the 2.8 percent increase in U.S. printing shipments in 2004 and projected 3 percent increase this year to several factors, including overall economic growth for the U.S. economy, a rebound in advertising spending, the 2004 Presidential election and, till now, stable postage rates.
Paparozzi, who addressed some 300 printers attending Heidelberg's recent President's Night event, concurs that the industry continues to show signs of sustainable growth. He suggests that industry sales grew 4.1 percent last year, and have the potential for another 4.5 to 5.5 percent increase in 2005. Expectations also remain strong, with more than 40 percent of NAPL's Printing Business Panel predicting that business conditions within their companies will improve over the next six months, and just 6.4 percent expecting business to decline. But improved conditions have also resulted in printers encountering steep price hikes for paper and other consumables, often due to higher raw material costs.
End game: Don't lose sight that these recent positive sales gains follow a period of flat and even negative industry growth. So we're just now back to pre-recession levels. Although the market outlook looks sunnier, don't waver from your company's mission to increase efficiency, productivity and sales per employee. When times get better, it's human nature for companies to ease up and avoid making hard, but necessary, decisions. As Paparozzi says: "A rising tide will no longer lift all boats." Also inform clients regularly about our inflationary environment in attempts to pass along added costs.
Our industry is being redefined by both internal and external forces.
In his speech to WOA conference attendees, Davis revealed that the industry continues to restructure as a result of overcapacity. Recent sales growth was achieved despite an industry-wide reduction of 1,538 plants and 18,000 employees nationwide. In the past four years alone, according to the PIA/GATF economist, the U.S. printing industry declined by 4,810 plants (11,000 plants lost since 1974) and approximately 150,000 employees.
Davis also fears looming postal increases. He estimates that nearly 45 percent of the dollar volume of printed material goes through the U.S. Postal Service (USPS). The 5.4 percent rate increase requested by the USPS for 2006 would result in an annual reduction in mail-related printing shipments (currently about $72 billion) of nearly $1.9 billion. Even scarier, that increase would only go toward the civil service retirement system escrow fund for 2006 (read the "Congress Must Deliver" feature on page 36). Unless a reform bill passes Congress and survives a threatened veto by the President, the USPS may seek an even higher increase for 2007. With postage comprising up to 50 percent of the production costs for catalog and magazine publishers, for example, this could devastate our industry.
Industry consolidation and postal reform are issues that concern Paparozzi, as well. But he is even more troubled by how digitization and the Internet have broken down traditional barriers from a competition standpoint. Geographic boundaries increasingly become irrelevant, both domestically and from low-cost print providers in countries like China. He also cites the new competitors printers now face as they diversify into value-added services such as digital printing, database management, mailing and fulfillment.
End game: There is still too much industry capacity, so consolidation hasn't impacted printers' lack of pricing power, especially for traditional ink-on-paper services. Progressive companies are morphing into hybrid operations that offer offset, digital/toner and Internet-based communication options, as well as value-added services, to become one-stop shops. This requires keen strategic planning and execution, effective marketing and developing employee bases with new skill sets. All with little margin for error.
Mark T. Michelson
