Paper companies had reasoned that all the recent cost-cuts would push them out of the doldrums or at least boost earnings enough to please shareholders. That hasn't happened. Is another round of cuts in order? I hope not.
In past years there was plenty of fat for CEOs to slash, leaving most of today's paper companies close to the bone. Employees are overworked and fearful for their jobs, R&D expenditures have approached zero, and I doubt there will be many more mergers unless they originate from outside of the United Sates.
So here we stand today, with over fifty percent of U.S. paper machines built prior to l970 and upwards to seventy percent of vitally needed process control systems nearing obsolescence. How can we compete globally with overseas competitors who are investing in new machinery and equipment that is designed to produce high-quality, low cost products?
The answer is, we can't. Not unless the industry sheds its short-term approach to improving the bottom line. Frank Schmeler of Albany International said it best, "The paper industry.... can't save its way to a profitable future." (PaperAge, Jan/Feb. 2003)
Indications that paper makers have even tapped-out most of their resources, many of the major suppliers have re-evaluated their programs for blanket services and will begin charging paper makers for these services. It seems suppliers too have reached their limit.
The industry should tread carefully through future cost-cutting schemes and take a good hard look at the potential downside today's actions will have on the future.
Will We Get Beat in Our Own Backyard?
Outside of North America, offshore competitors are thinking long-term, limiting their cuts and taking positive action by investing in new equipment. Importantly, they are spending on R&D, which will lead to the development of new products. In China alone, a dozen or more new machines are slated for 2003. The underlying scenario here looks to be a growing amount of imported product headed for the U.S.'s doorstep.
Some industry experts say that China's high cost of shipping will offset its low labor costs and prohibit the export of product. Maybe, but I'm not convinced. And, we face the same scenario from the Europeans, who have also invested in new machinery and equipment, and most likely capacity.
The U.S. paper industry must protect its future by reinvesting in assets and people. It also needs take measures to keep the international playing field level. This is where the American Forest and Paper Association (AF&PA) and in particular its chief, Henson Moore, play a vital role. Make no mistake, without AF&PA's strong influence in Washington, the threat of cheap imports being unloaded into this nation will become a reality.
FYI: Bowater's Arnie Nemirow has been named AF&PA's Chairman for 2003. Please offer him and Henson Moore your thoughts and support. With all of us pulling together as a team we can turn this industry around.
Final Word
Opportunities always look bigger going than coming.
