When increasing raw material costs finally forced many ink companies to raise their prices in 2000, there was hope within the industry and among suppliers that perhaps better days in terms of profitability were ahead.
The National Association of Printing Ink Manufacturers’ (NAPIM) State of the Industry Report confirmed that, showing that earnings before interest and taxes (EBIT) and return on net assets (RONA) were up slightly in 2000.
However, this same report also highlighted a serious problem: the fourth quarter economic weakness in the U.S. Ink industry leaders also noticed the economic downturn in the U.S., and were deeply worried about the upcoming year.
These concerns have turned out to be justified: the U.S. economy is weak, and there doesn’t appear to be any quick turnaround ahead. Raw material and transportation costs are also increasing as crude oil prices rise. Meanwhile, a new round of increased competition in segments such as heatset is also occurring.
All of this adds up to a potentially difficult year for many ink manufacturers.
The U.S. Economy
The downturn in the U.S. economy is causing concern for ink manufacturers, who are looking at ways to reduce costs.
“The question is how long will the recession last,” said Henri Dyner, president and CEO of Sun Chemical Corporation. “We all know that advertising and newspapers are substantially down. My personal view is that I don’t see any basic pickup before the beginning of next year.
“This puts additional pressure on return of capital employed in the business,” Mr. Dyner continued. “The price increases last year were a step in the right direction in trying to address this unsustainable situation.”
Ink industry leaders expect that this slowdown will continue for a while.
“I’m a pessimist,” said Leonard D. Frescoln, president and COO of Flint Ink Corporation. “I think 2001 will be a difficult year all year. I’ve seen this building up for more than a year, and I hope that March and April were the worst we’ll see it. Our international operations have definitely helped balance off some of our disappointing revenue.”
“The key is maintaining your returns,” Mr. Frescoln said. “You can’t allow your returns to erode because of the economy. We view the ink industry as a value-added service business, not as a commodity. We think our customers need our services.”
“I don’t expect the economy to be much improved until the end of the year in commercial printing,” said Harvey Brice, president of Superior Printing Ink. “Our segment of the industry is a good indicator of the general economy. Am I an optimist? I think we will have fruitful times, although I think this was as close to a recession as it comes.”
“Along with everyone else, our sales activities have been a little slower than anticipated in the first quarter,” said Rick Clendenning, president of INX International. “Our customers’ clients seem to be very selective and cautious with their spending so far this year.
“We planned for a slow first quarter, so we did a number of things at the end of last year to help,” Mr. Clendenning added. “We are optimistic and looking forward to stronger second and third quarters.”
Still, there are areas that are resistant to economic downturns, such as consumer packaging. Even in those segments, ink companies have to watch their expenditures.
“Although all segments are slow, generally speaking, our consumer packaging lines seem to be holding their own,” Mr. Clendenning said. “As they always say, even during hard times, people still eat and drink.”
“Most of our sales are in food and beverage, and the old cliche is that if you can eat it, drink it or smoke it, you’re recession-resistant,” said Ronald T. Barry, chairman and CEO of Color Converting Industries. “Still, I think it’s going to be a harder landing now than I did nine months ago, and we have to look at every dollar spent. It reemphasizes the need for our industry to effectively sell value.”
Mr. Frescoln said that it is important for ink companies to make internal improvements to save on costs.
“We see this as an opportunity to refocus on efficiencies,” Mr. Frescoln said. “Now that we have pretty much integrated our acquisitions, we’ll work on adjusting our operations and our costs.”
Mr. Dyner said that, while Sun Chemical is striving to increase its manufacturing efficiency, the company will not cut back on its intensive R&D efforts or the company’s technical customer service. “You have to be extremely careful not to cut into your future,” Mr. Dyner indicated. “That would be bad all around. That’s why we won’t cut into these areas, since they are part of the added value we bring to printers.”
Micro Inks, a new subsidiary of Hindustan Inks and Resins, Ltd. entered the U.S. market last year, making inroads in the highly competitive heatset and news ink segments. Frank Moravec, president and CEO of Micro Inks, said that the company is doing very well in those markets, and will be entering the sheetfed segment.
“There has never been a challenger with the resources that we possess,” Mr. Moravec said. “Micro Inks is in an excellent position because customers are looking for another major source of supply. We emerged in a powerful way and became tangible rapidly.”
Mr. Moravec said, “We entered the industry to enhance it by raising the bar of ink performance on press. Through our parent company’s supply chain integration, advanced technology and process efficiency, we can provide an exceptional package of values. Our intention is not to be mass marketers and commoditize the industry, but rather to remain sensitive to print market needs that will result in increased overall profitability for our customers.”
With the addition of Micro Inks, a new round of competition over prices is leading to concerns over the future of the industry, and whether ink is in danger of becoming a commodity.
“Some people have come in and are selling ink at a price that may not be justified long-term,” Mr. Dyner said. “It puts us in a position where the customer wants their lower price – but with our value and service.
“Our position is that we do not sell a commodity product,” Mr. Dyner said. “Ink may represent just 5 percent of dollars spent on a print job. But to look at ink that way is, in my opinion, too narrow a view because ink can affect as much as 30 percent of the total value of the job when you think of how ink can help presses run faster, prevent web breaks, speed up make ready time, cut down on waste and lower oven temperatures, just to name some of the areas.
“Therefore, looking at ink strictly in terms of price-per-pound is penny wise and pound foolish,” Mr. Dyner added. “Since we are not a supplier of commodity products, I believe printers should be willing to pay for our added value through the price of our inks. In the final analysis, I don’t think printers go along with the notion that price alone is best for them. What makes a difference on their bottom line is the total cost of print.”
“Ink has never been a commodity,” said H. Howard Flint II, chairman and CEO of Flint Ink Corporation. “We don’t think that commoditizing ink is in the best interest of our customers, our employees, our stakeholders and our suppliers.
If some customers wish to buy on price alone, some ink industry leaders believe printers will have to examine what they really need from ink suppliers.
“We can solve printers’ problems by modifying our ink systems, and we can also help them with other areas in the pressroom to make sure the print job flows through from the press through the bindery,” Mr. Flint said. “If there are customers who want to buy on a commodity basis, they will have to provide those services themselves.”
As we head into the summer months of 2001, the ink industry, like so my other fields, is anxiously waiting to see what will happen through the rest of the year.
With all that is happening within the industry, 2001 may prove to be the most challenging year in some time.