Paper Profits

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Innovation keeping industry ahead of the game, but is it enough?

Story by Bob Warde

The paper industry has taken its lumps over the past decade. With multiple trends hitting demand and unfair trade practices that have made paper from China and Indonesia unfairly less expensive, companies have consolidated, a trend likely to continue, which in turn has led to fewer jobs and some closed mills. 

In 2000, the peak year for employment in the paper industry, 52,000 people had jobs working in the paper business. By 2010, the number was 32,000, a decrease of about 35 percent, according to Jeff Landin, president of the Wisconsin Paper Council.

He cited several factors that created a sort of perfect storm for lower employment in the industry, including:

  • Overcapacity. “Global competition really played a heavy role in that. We saw a lot of products from Southeast Asia coming into the North American market that were tough to compete with and the industry needed to react and they did. They consolidated and tried to squeeze out some excess capacity, and that meant some mills closing,” Landin said.
  • Lower demand. “Just think about office settings and how much less paper is used since so much more is done electronically, so we’ve lost a lot of paper use in the workplace. Also, consider some of the other media including advertising, circulars, magazines and others that have declined. Some magazines are getting thinner and thinner and in your Sunday paper, there is still advertising in it, but it’s not as much as before,” he said.
  • Increased costs. “Our costs have really gone up. Some on labor, but that’s manageable. Just think about energy. The paper industry is very energy dependent and electricity costs have gone up a great deal, as well as material costs including pulp costs,” he said.

The perfect storm

“You kind of put all those factors together – increased competition, lower demand and increased cost, and it all came together in one fell swoop. Not just in Wisconsin, but across North America is where we’ve seen significant mill closures,” Landin said.

He cautions people not to predict the demise of the industry, though.

“We still do have 32,000 paper industry jobs in Wisconsin, which is a big number no matter how you look at it. We are still the No. 1 paper-producing state in the nation and we have been for more than 50 years and I believe we’ll continue to hold that designation for years to come. It’s difficult to look at what has happened, but people need to recognize that we are still a large and vibrant and, hopefully, becoming a more solidly grounded industry. By that, I mean we’re in a position that we can compete in the years ahead and we won’t be going anywhere,” he said.

One of the ways in which the industry is staying competitive is through innovation and creating greater value with its paper products.

For Appleton Inc., formerly known as Appleton Papers, innovation and leveraging of technology have become its modus operandi.

“Adding value is where Appleton is focused. You can go back to 1907 when the company was founded on the idea of Charles Boyd who believed he could add value to paper by putting coatings on it. That idea of adding value to paper has carried through for more than 100 years,” said Bill Van Den Brandt, manager of corporate communications for Appleton.

Leveraging technology

The company made three significant announcements of major partnerships or product innovation in 2010. Two involved what the company called leveraging of core technology into new industries.

First, the company introduced a new version of its NCR Paper that will work in all types of equipment from offset printing presses to digital printers and inkjet printers, making the paper much more versatile. Dubbed Superior, the new paper has been reformulated with enhanced ink and toner adhesion to make it perform in new digital printing machines.

“That was really a market innovation because it’s the first paper that runs on all kinds of equipment,” Van Den Brandt said.

The company also partnered with Troy Corp., a New Jersey-based company that develops ingredients used by other manufacturers to prevent the degradation of paints, sealants and other products to make them either last longer or perform better. Troy will use Appleton’s microencapsulation process, first developed for use in its carbonless papers back in the 1950s. Appleton has continuously worked to develop new uses for the technology.

Its first big partnership came in 2007, when Appleton partnered with Procter & Gamble to encapsulate perfume for P&G’s Downy fabric softener to create a longer-lasting scent. In the case of its work with Troy, the encapsulation process will be used to provide a controlled release of biocides in order to make paint and architectural coatings last longer and provide better protection from the elements and other natural organisms that can make products break down.

Not all innovation is driven by business partnerships, as greater manufacturing efficiency and customer demand also play a role.

The industry’s lifeblood

“Innovation is the lifeblood of any industry, and paper is no different. Companies need to continually conduct research and development and develop new and better products, not only for themselves, but because consumers are demanding it,” Landin said.

Consumer demand was a large part of Appleton’s decision to introduce a BPA-free cash register receipt paper four years ago. Bisphenol A, or BPA, has been shown to be a carcinogen and the public has asked that it be removed from products such as plastic bottles, baby bottles and a variety of others.

Appleton moved quickly when the preponderance of evidence came out in 2006 to remove the chemical from its cash register receipts. The company has been selling BPA-free receipt paper since, but because it looks like other papers that may still contain the chemical; the company received little benefit from the move. In November, the company introduced new paper that has visible red fibers in it so that consumers can tell when a retailer is using it in its cash registers. This relatively small innovation should prove important to consumers and may increase sales as demand grows.

“We’re certainly encouraged by the response we’ve gotten so far and it’s a product the public is looking to embrace because of the concerns with BPA. There was another big study released in December and that brought more attention to our product,” said Van Den Brandt.

For Combined Locks-based Appleton Coated, providing products made with green attributes has been important – using non-fossil fuels and pulp products made from wood grown in certified sustainable forests or high post-consumer recycled fiber content.

“The amount of products that we sell with green attributes has grown dramatically over the last three or four years,” said Ann Whalen, senior vice president of marketing and customer services at Appleton Coated.

Driven by demand

The green efforts are driven by customer demand, including paper products made with renewable energy.

“The electricity comes from renewable sources that we buy from our utility. We allow our customers to choose, so then we purchase so much green power based on how much product is purchased from us that needs to be made from green energy,” and that can ebb and flow from month to month, Whalen said.

She said about 5 percent of the energy Appleton Coated purchased came from fossil fuels in 2008, and in 2010 it was about 15 percent. It will be more next year.

The company is also experiencing increased demand for paper made from 30 percent post-consumer recycled content, according to Whalen.

In addition, the company is developing products with new attributes for the digital age.

“Our biggest product innovation is around coated products for high-speed ink jet presses. They need to have a specially formulated paper for those web presses, the big benefit of which is a fairly high speed, which makes them efficient, but also enables them to be used in personalized, targeted marketing applications,” Whalen said.

The use of ink jet web presses is fairly new, so it will help Appleton Coated grow market share in that particular segment.

“Some of this is protecting market share through product substitution,” she said.

Innovation is prevalent throughout Wisconsin, according to Landin. One company, Wausau Paper, which operates in the central part of the state, generates about 30 percent of its revenue from products they weren’t even making three years ago. 

“The products may be the same, but they’re being produced in a different way – a different value added, a different product that is being demanded from the consumers,” Landin said.

He added that companies are looking to innovate and find a better product that the consumers want for two reasons: 1) Maybe they can control their costs better and produce it more efficiently, and 2) It’s a product the consumers are demanding that they make.

“It’s kind of a win-win. The company is able to produce something more efficiently and the consumers are embracing these products and wanting to purchase them. That helps the companies compete,” he said.

A paradox the paper industry is facing in the light of losing 35 percent of its jobs in about 10 years is a worker shortage.

“A lot of Wisconsin Paper Council members have been talking about it more, but it doesn’t get a lot of play. Most of the publicity the industry has received recently has not been positive. A mill closure here, a mill closure there. We’re going to see a lot of people retiring in the next five years.

“We’re trying to get the word out that the paper industry is alive and well and there is a great deal of opportunity here. It’s not a stodgy old industry, there is a lot of high tech and you need good computer skills. It’s not only rewarding from a work standpoint, but the average wage for a paper worker is around $60,000 a year,” Landin said.

His members are working to educate young people about the industry and how it is changing and is now better able to compete.