Paper360 - September/October 2016 - 62

the bottom line | CARBON COSTS Life Cycle of the US Paper Industry CATHY GREENLEAF While the first US paper mill started operations way back in 1690 (in Pennsylvania), the industry as we know it today is still not as old and mature as many people believe. It is an important consideration, because industries behave differently depending on how mature they are. It's useful to know where a business is in its evolution when thinking about your company's strategy, whether for investing, developing new products, or marketing. There is academic support for looking at industries in terms of their stages of development. Let's take a look at where the US paper industry is today against the four stages of industry growth as outlined in the sidebar. Technology is usually a principle driver of an industry's development- think the steam engine in the 19th century, computer chips in the late 20th century, and digital communications in the 21st century. Seminal new technologies stimulate investment in new production capacity and in more technology development. This, in turn, causes new companies to rise and others to fail. So, one important measure of an industry's development stage is how much and how fast technology is changing. Which phase is the US paper industry in now? As a whole, the US paper industry peaked at the turn of the 21st century; changes since then have been significant. In the past 20 years, almost 18 million tons (16 percent) of paper production have come offline in the US. In 1995, there were 215 companies operating 1,257 machines with total capacity of 114 million tons of paper. Today, there are 125 companies with 689 machines and total capacity of 95.9 million tons. Yet the reduction in capacity has not been distributed evenly across all grades or all areas of the country. A close look will show that not all grades are at the same stage of development. Newsprint and printing and writing (P&W) grades have declined dramatically over the past 20 years (Fig. 1). Newsprint machine design hasn't changed much since the gap former was introduced 50 years ago. Also, while there have been many useful modifications made to P&W manufacturing in the last several decades, the pace of major change has been quite slow. So it is not surprising to find that newsprint and P&W grades behave like industries in the third or fourth stage of development: profit margins are thin, M&A activity has concentrated ownership of production, demand is declining, and bankruptcies have claimed many a shareholder's equity. This is classic fourth-phase behavior. Fig. 1 62 Fig. 2 Packaging, specialties, and tissue and towel grades have grown or remained flat (Fig. 2). Packaging, the largest paper segment in the US, has been essentially flat for the last 20 years, with cycles causing it to grow and contract in the short-term. Major consumers, such as US automotive parts manufacturers, moved offshore in those two decades. However, the economy and population grew and e-commerce grew faster, providing a positive capacity trend. So demand, while not growing much, is stronger than in communication papers. Packaging grade technology, however, as in the case of communication papers, has not had any seminal developments. As a result, the packaging sector behaves like a classic phase three segment: while companies are making money, margin growth has flattened, M&A is consolidating production, and cash flow is a principle driver of decision-making. Now let's look at tissue and towel. Demand growth is flat overall. However, the technology situation is quite different. There have been fundamental changes in the way tissue is produced. TAD, developed and introduced by P&G in the 1970s and 1980s, revolutionized tissue product characteristics and gave P&G a sustainable proprietary advantage. K-C and G-P responded TYPICAL PHASES OF INDUSTRY GROWTH Phase Characteristics 1. Start up Innovative product; entry to market not as difficult 2. Growth Generally, smaller companies are forced out through consolidation; barriers to entry are high 3. Mature Profit margins are lowered; market share and cash flow are the primary goals, with minimal reinvestment - cash to shareholders; fewer, more dominant companies 4. Decline Revenue declines; capacity exceeds demands, weak competitors withdraw, attracts investors as industry is gradually run down and milked for cash; M&A is the norm. Source: Guide to Business Planning, guidetobusinessplanning.com Paper360º SEPTEMBER/OCTOBER 2016 www.tappi.org http://www.guidetobusinessplanning.com http://www.tappi.org

Table of Contents for the Digital Edition of Paper360 - September/October 2016

Setpoint
Over the Wire
Agenda 2020 Launches ‘Roadmaps’ to Efficiency, Sustainability, and New Product Goals
RBI: Transforming to Meet the Industry’s Research Needs
Paper Schools: Forging the Future
PPI Top 100
RISI’s Latin American CEO of the Year
Automation Upgrade Helps Sappi Gratkorn Perform
Innovative Direct Drive in a Turnkey-rebuilt Project
Klingele Papierwerke Saves Money, ‘Foils’ Stickies
TAPPI Journal Summaries
Life Cycle of the US Paper Industry
TAPPI News
ASPI News
Index of Advertisers
Paper360 - September/October 2016 - bellyband1
Paper360 - September/October 2016 - bellyband2
Paper360 - September/October 2016 - cover1
Paper360 - September/October 2016 - cover2
Paper360 - September/October 2016 - 3
Paper360 - September/October 2016 - 4
Paper360 - September/October 2016 - 5
Paper360 - September/October 2016 - Setpoint
Paper360 - September/October 2016 - 7
Paper360 - September/October 2016 - Over the Wire
Paper360 - September/October 2016 - 9
Paper360 - September/October 2016 - 10
Paper360 - September/October 2016 - 11
Paper360 - September/October 2016 - 12
Paper360 - September/October 2016 - 13
Paper360 - September/October 2016 - Agenda 2020 Launches ‘Roadmaps’ to Efficiency, Sustainability, and New Product Goals
Paper360 - September/October 2016 - 15
Paper360 - September/October 2016 - 16
Paper360 - September/October 2016 - 17
Paper360 - September/October 2016 - 18
Paper360 - September/October 2016 - 19
Paper360 - September/October 2016 - RBI: Transforming to Meet the Industry’s Research Needs
Paper360 - September/October 2016 - 21
Paper360 - September/October 2016 - 22
Paper360 - September/October 2016 - 23
Paper360 - September/October 2016 - Paper Schools: Forging the Future
Paper360 - September/October 2016 - 25
Paper360 - September/October 2016 - 26
Paper360 - September/October 2016 - 27
Paper360 - September/October 2016 - 28
Paper360 - September/October 2016 - PPI Top 100
Paper360 - September/October 2016 - 30
Paper360 - September/October 2016 - 31
Paper360 - September/October 2016 - 32
Paper360 - September/October 2016 - 33
Paper360 - September/October 2016 - 34
Paper360 - September/October 2016 - 35
Paper360 - September/October 2016 - 36
Paper360 - September/October 2016 - 37
Paper360 - September/October 2016 - RISI’s Latin American CEO of the Year
Paper360 - September/October 2016 - 39
Paper360 - September/October 2016 - 40
Paper360 - September/October 2016 - 41
Paper360 - September/October 2016 - 42
Paper360 - September/October 2016 - 43
Paper360 - September/October 2016 - 44
Paper360 - September/October 2016 - 45
Paper360 - September/October 2016 - Automation Upgrade Helps Sappi Gratkorn Perform
Paper360 - September/October 2016 - 47
Paper360 - September/October 2016 - 48
Paper360 - September/October 2016 - 49
Paper360 - September/October 2016 - Innovative Direct Drive in a Turnkey-rebuilt Project
Paper360 - September/October 2016 - 51
Paper360 - September/October 2016 - 52
Paper360 - September/October 2016 - 53
Paper360 - September/October 2016 - Klingele Papierwerke Saves Money, ‘Foils’ Stickies
Paper360 - September/October 2016 - 55
Paper360 - September/October 2016 - 56
Paper360 - September/October 2016 - 57
Paper360 - September/October 2016 - TAPPI Journal Summaries
Paper360 - September/October 2016 - 59
Paper360 - September/October 2016 - 60
Paper360 - September/October 2016 - 61
Paper360 - September/October 2016 - Life Cycle of the US Paper Industry
Paper360 - September/October 2016 - 63
Paper360 - September/October 2016 - 64
Paper360 - September/October 2016 - 65
Paper360 - September/October 2016 - TAPPI News
Paper360 - September/October 2016 - 67
Paper360 - September/October 2016 - ASPI News
Paper360 - September/October 2016 - 69
Paper360 - September/October 2016 - Index of Advertisers
Paper360 - September/October 2016 - cover3
Paper360 - September/October 2016 - cover4
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