State of the Marketing Industry: Paper/Printing Market, Large Format/ Signs Market, and Swag/Promotional Products Market

What’s happening behind the scenes of the marketing industry

The supply chain chaos caused by fallout from the COVID-19 pandemic is unprecedented and that’s saying something. Backup in production from 2020, lack of labor, shortages of supplies, and logistics increases have all played a major role in the current state of the marketing industry in all its areas: paper/printing, large format/signs, and swag/promotional products.

State of the Marketing Industry: Paper/Printing Market

Paper markets are even tighter than they were last month, as of June 2021. Coated paper producers are over-sold now into September of 2021. Price increases from the mills have continued for all grades of paper due to many factors such as mill costs, wood pulp, fuel and energy costs and national load-to-truck ration. Mills are rejecting paper orders for the balance of this year, that are not within their forecasted amounts. This is especially true for coated paper, as producers have over-committed and are now turning back orders to match their reduced production capacity.

As a stipulation, “LDC” used to mean “Last Date to Change” paper orders with the mills. This included paper changes or quantity increases. Now with the current paper market pushing buyers to confirm paper earlier and providing less flexibility, the LDC has changed industry-wide to now mean the “Last Date to CANCEL or REDUCE” orders with the mills. They are no more increases or paper changes allowed by the mills. This is just one example of prevailing mill practices.

Market Influencers

• Mill costs have skyrocketed, including pulp (up 40%), corn to make starch used in paper making (up 80%), freight (up 45%), and fuel (up 40%).
• Wood Pulp – prices have risen 40% this year.
• Fuel and Energy costs are on the rise. Crude oil prices are 128% higher vs. a year ago.
• National Load-to-Truck Ratio data currently shows the national load-to-truck ratio at 8:1. A typical ratio is between 2 and 3 loads per truck available. Freight costs have increased exponentially.
  Source: DAT Freight & Analytics

State of the Marketing Industry: Large Format/ Signs Market

The overall economy is poised to grow beyond initial projections, leading the sign industry to also see improvement. But commodity prices continue to remain high and somewhat unstable, at least in the first half of the year, according to the Sign Industry Quarterly Economic Report, produced by IHS Markit for the International Sign Association.

Some highlights:

• The four market segments all show improving outlooks for 2021, with 2022 a year of continued recovery, IHS says. The end market architectural signage is expected to begin to decline in 2021.
• IHS Markit has revised its forecast for year-over-year U.S. gross domestic product growth for 2021 and 2022, thanks to rates of vaccination and easing of restrictions. IHS anticipates growth in 2021 of 6.2 percent and 4.3 percent in 2022. Global growth also is expected to increase, to 5.1 percent in 2021 and 4.3 percent in 2022. Outside of the U.S., China is leading the global growth, expected to grow at 7.8 percent in 2021 and 5.7 percent in 2022.
• Commodity prices remain high, though steel is expected to level off in the last half of the year. Paper markets are tightening while packaging supplies are starting to cool. Lumber remains high and will continue to increase in 2021.

Like all other industries the back production from 2020 due to mills closure has caused delays in raw materials as well as higher demands. The requirements from the CDC to re-open with health signage has created a high demand with an already low capacity. The delays have been seen in US factories as well as from overseas.

State of the Marketing Industry: Swag/Promotional Products Market

The consequences for the promotional products industry as well as all industries, hasn’t been good. In promo, the supply chain mess has led to exasperating inventory shortfalls that have made doing business much more challenging.

Higher prices on products, longer times for order production, eroding customer service levels, delays in delivery of finished orders and other headaches are all part of the toxic combo that’s ultimately rooted in COVID. A resurgence of coronavirus cases in China, driven by the delta variant, could complicate matters further, as that nation is where most North American-sold promo products are produced.

Many products made in the US continue to be delayed in production as factories simply have more orders than they can handle. With the rapidly improving economy, demand jumped up a lot in the last 3-4 months which caught many suppliers by surprise. They have found it hard to source materials in a timely manner to be able to produce their goods in increasing volumes. Many of the goods they need are much delayed or on allocation which means that they are limited in how much they can buy. For those that are able to source their products, the most common frustration I hear is that they are not able to find additional workers to be able to produce the additional amounts of goods. This leads to further delays in shipments and longer lead times. Many items that we used to be able to have produced in 30 days are now taking 90 days for us to get in.

Products made overseas are also experiencing long delays. The problem is less about the factories being able to produce the products, and more about the shipping delays. It used to be that when a container was ready, the factory got a booking on an upcoming ship and the goods were often on a ship within a couple of weeks. Right now, it is very difficult to get bookings in the first place due to not enough empty containers and ship space. When the factory does get a booking, it is not unusual for the goods not to actually leave for a couple of months. Demand for space on the ships and empty containers is simply greater than the supply. Right now, we have over 50 containers of products finished at factories that we are trying to get moved, says one of our vendors of blank goods. We have never seen these types of lack of space or delay issues on this scale. As we are just now entering the normal peak shipping season in preparation of holiday gift season, it is not expecting to get any better until at least very late in 2021.

The strong demand in many markets is also causing prices to increase which I am sure you are hearing from most suppliers. It seems that we are getting new price increases from factories almost daily. We are doing all we can to mitigate the price increases or place large orders before they go into effect, but that is not always possible, and even when it is, it only delays the increases until our next round of orders. Most vendors we used to contract with at an annual price based on our expected volume, but today many vendors quote us a new price each time we need to place an order based on the market at the time of the order. Internationally, the costs of containers are shooting up at a rate we have never experienced before. Rates on many freight lanes are now 3-5 times what they were just 6 months ago. Average freight on a container from China for example used to be about $4000. Last week we had container space offered to us at about $20,000 per container. This is a huge increase in the landed cost of products that are now being shipped. If you consider an average container of goods to be worth $50,000 for example, this additional $16,000 in freight costs will increase the landed costs of those products by over 30%. These are very large and scary increases and at this time they seem to get worse each week. Our choice is to either pay the much higher prices, or further delay the shipment in hopes that rates will be better later. Delaying shipments causes big problems in the factories as they then have to store the goods until they can be shipped, and most factories do not have the space to store more than a few containers until they have to stop producing.

Working Through Labor Issues

Amid the economic bounce back from COVID lows, achieving adequate staffing levels to produce orders and provide expected customer service has proven an uphill climb for many suppliers.

Companies across industries are facing similar challenges with hiring and retention: Open positions abound in the U.S. as organizations strive to staff up following the mass layoffs that occurred during COVID-19 in 2020. Hiring has been a challenge in this marketplace for all industries.

We do expect that over time things will normalize and supply chains will return to balance. How long this process will take though is unknown at this time.

In summary and Recommendations

With low supplies and high demand, entering back to school season as well as holidays we recommend that businesses place all their marketing materials orders early ahead of the fourth quarter rush. Contact Top Class Signs and Printing today to discuss your holiday marketing materials and gifting needs, 305-433-5574.