Paper Buyers Catch "e-Wave"

And they're catching this latest e-commerce wave via full-service trading sites on the Internet.

Once again, paper buyers from around the country are reporting price increases for printing grades. According to the National Association for Printing Leadership (NAPL), nearly 75 percent of printers polled in October 1999 reported price increases, whereas slightly more than 20 percent reported a rise last April.

According to Andrew Paparozzi, chief economist for the NAPL, paper markets should continue to tighten and prices rise, with an anticipated strong growth for the U.S. economy this year backed by a recovering Asian economy. It is a trend that may well last throughout the calendar year.

Trends, like rules, are made to be broken—as witnessed by the summer of 1999 price hike that shook paper purchasers from a year-long slumber. While paper prices do not have a history of short-term volatility, at least one fairly recent development has the potential to make more than a few waves, not only in price structure, but in the manner in which paper is transacted: Internet-based paper trade hosting sites.

Leading this pack of companies is PaperExchange.com, founded by Hilton Plein in 1996 and whose major investors include The Kraft Group, led by CEO Robert Kraft, owner of the NFL's New England Patriots. A site that initially focused on the trading of containerboard, PaperExchange has grown to include all grades—stocks for packaging, publications, commercial printing and office use—as well as pulp.

"At first, we thought specific grades would lend themselves toward our model and we thought that we'd have to focus on those grades," notes Colin Carroll, North American director of sales strategy at PaperExchange.com. "What we found, though, is that buyers have come in across every printing and product segment. We've come to understand that all printing and writing grades are a good fit for our site. We are working to fundamentally improve the efficiency of the market. Initially, we thought coated rolls, or just rolls, would be the large sellers because people order them in truckload quantities. And certainly we arrange many truckload, railcar and larger transactions. But we've also had people successfully buy and sell quantities as small as a skid or two.

"On high-end, premium grades, I think that people who consume and manufacture those grades are scattered," he adds. "There really isn't a convenient place to find all of your options, but PaperExchange has become that one place where you can go and find out all your options for high-end premium needs."

PaperExchange.com is a neutral cyberspace marketplace for buyers and sellers of paper to evaluate and find the optimal trading partner. Once terms are agreed upon, PaperExchange streamlines the transaction, lowering costs for both buyer and seller; acts as a credit and clearing service by clearing the transaction and assuming the credit risk; and arranges logistics and negotiates freight. PaperExchange charges a 3-percent commission to the seller on successful transactions.

PaperExchange is not a collection of Silicon Valley wunderkinds. Of the 60 (soon to be 100) employees at the company, 40 possess paper industry experience. There are also veterans from the printing, production and magazine sectors. Carroll believes that expertise has been translated into the architecture of the site.

That expertise has also translated into success. From March through November 1999, PaperExchange set nine consecutive records for first-time-user sessions, in terms of Web activity. One year ago, it boasted 250 members, a total which has swelled to more than 2,700 in 75 countries.

The formula for becoming a trader on PaperExchange is a common one: A buyer or seller logs on to investigate the site and to access its content, then is drawn to the trading floor to see what types of products are available. PaperExchange maintains an extensive user profile and tracks how long it takes, from the user's first visit, to conduct a transaction. One common trait among PaperExchange traders, according to Carroll, is that they're all early adopters of new technologies.

Obviously, not all buyers and sellers of paper are tuned into the latest technologies, and when they do hear about Internet companies such as PaperExchange, a lack of information can prohibit new relationships. It's part of Carroll's job to knock on as many doors as possible.

"One common misperception is that PaperExchange.com is an auction site, which it is not," he says. "An auction carries an obligation for both parties. It is the simple minimization or maximization of one variable, and that's price."

Necessary Ingredients
"In an exchange, the buyer and seller can evaluate all of the tradeoffs common in business-to-business transactions and paper transactions: price, quality, delivery dates, service, warranty," Carroll says. "We feel the exchange is a much better model for replicating the manner in which printers buy paper."

Another misperception of PaperExchange is that it's only a venue for second-tier paper—job lot and off-quality grades. While second-tier paper is available through the site, Carroll stresses that high-quality paper is abundant at

PaperExchange.com. The site has become a melting pot for all grades.

Speaking of high quality, Carroll believes the site itself boasts the "most elegant and robust technology available." Navigation throughout the site is fast and user friendly.

Some printers are in the process of investigating PaperExchange, as well as other Internet options, for procuring paper consumables. Two major North American printers agreed to speak with Printing

Impressions on the condition they not be identified, as to not compromise the integrity of existing agreements with paper distributors.

"I think the principle advantage to using a site like this is anonymity—the potential to see where price points are," one purchaser said. "The paper industry has a characteristic that it sells the same product at the same time to different people for different prices. That's not economically rational. It only exists because of a lack of information. Services of this type could challenge that business model."