Wisconsin has long been known as America’s Dairyland. However, for decades we have also been the epicenter of America’s papermaking industry. For over 50 years, the state has been the nation’s leading producer of paper products. According to the Wisconsin Paper Council, the Wisconsin paper industry directly or indirectly employs over 140,000 workers and produces over 5 million tons of paper annually.
While printing and writing paper is the most visible product produced, paper manufacturers in the state create a wide variety of paper products, often employing sophisticated technologies. These products include towel and tissue products, tape, protective liners, diapers, and wipes – just to name a few.
Over recent years the industry has experienced a challenging environment as technology and the internet have disrupted the role paper plays in our daily lives. The reduced role of paper coincided with the Great Recession and the result has been a difficult period for paper manufacturers.
While the disruption is still evident, there are signs of demand stabilization in certain areas. Take the book industry, for instance. The arrival of e-Readers was thought to bring the death of the paperback book. However, in recent years the printing of books has stabilized. This stabilization has been aided by technological advancements that allow books to be printed digitally, at a lower cost, and in small batches which creates less inventory and more customization.
There are several industries within paper production that enjoy very stable end-markets. For example, demand for towel and tissue products in the U.S. closely aligns with population growth and GDP, and has an inelastic demand – people need toilet paper regardless of the economy. Wet wipes and diapers also benefit from stable demand. Many areas in specialty paper manufacturing produce paper for the food industry, another stable end-market.
In addition to end-market adjustments, trade policy has also been an important driver of change for paper manufacturers. The industry has successfully petitioned the U.S. Department of Commerce on several occasions over the years when foreign competitors dump cheap products on the market. Trade relationships and decisions will unquestionably continue to impact the industry. Trade moved back into the headlines this spring as the U.S. Department of Commerce announced a preliminary determination for countervailing duties on lumber imported from Canada. Paper manufacturers have been faced with volatile prices for this key raw material over the past few months in anticipation of the announcement.
With all the market disruption, paper manufacturers that innovate products and processes will be the most successful at navigating the industry. This year, the majority of U.S. companies will spend up to 10 percent of their budgets on technology upgrades. Here in Wisconsin, smart companies are investing in innovation to simplify daily tasks, expand product offerings and enter new industries.
The speed of disruption in the paper and forest products industry requires companies to put new efficiencies to work faster to stay ahead of competitors. As the economy evolves it will be important for paper manufacturers to focus on expanding and participating in the stable and growing end-markets within the broad paper industry, and to manage their costs and financing on a long-term basis. Having a partner who understands the nuances of the industry can help companies navigate the good and bad on the road to long-term success. That’s the power of having expertise and capital ready to execute the strategies.
Drew Slocum, senior vice president of Global Commercial Banking at Bank of America Merrill Lynch in Wisconsin.
Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and Members of SIPC, and, in other jurisdictions, by locally registered entities. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed.
©2017 Bank of America Corporation