BCF Declares Ink Industry is Facing a Crisis

By Sean Milmo, Ink World European Editor | 10.10.05

The European ink sector is beginning to revolt against the way printers have shifted a sizeable proportion of their cost reductions to ink producers without adequate compensation.

The European ink sector is beginning to revolt against the way printers have shifted a sizeable proportion of their cost reductions to ink producers without adequate compensation.

Printers have been decreasing their working capital by having ink companies deliver supplies in smaller and smaller amounts at more and more frequent intervals.

They have avoided the extra cost of hiring employees with technical expertise by using the technical staff of ink producers to sort out their problems, even though sometimes these do not directly involve inks.

They have even been shifting the burden of development work to ink makers, who are willing to do the necessary R&D to provide new inks which meet their specific needs.

Yet all these services have become available at a time when the price of inks has been declining.

“The last time we had an increase in prices was so long ago that I can’t remember off the top of my head when it was,” says the chief executive of one ink company.

‘Ink Industry in Crisis’
However, there are signs that at least parts of the European ink industry are starting to take a stand on the issue of low prices. They are conveying the message that unless prices go up, services will be cut back or even withdrawn altogether.

The U.K. ink sector has been one of the first to speak out with a strongly worded statement issue by the ink council of the British Coatings Federation (BCF). The council’s members include senior executives from multinationals like Sun Chemical and Akzo Nobel Inks as well as medium- and small-sized players in conventional and digital inks.

Headlined “Ink Industry in Crisis,” the statement refers to a sector in serious decline and the need to pass on increased costs if it is to remain viable.

“Unless suppliers begin to recoup costs, customer choice and service is going to be very much reduced,” it warned.

“This £350 million ($630 million) industry is suffering reduced demand from its U.K. newspaper advertising, magazine and packaging sectors, at the same time as it is facing increased raw materials and operational costs,” it continued.

“In a volatile world economy and with reduced demand from a contracting U.K. printing industry, ink manufacturers will be forced to pass on increased costs to the printers.”

The BCF points out that while ink prices during the last five years have in all printing sectors been “reduced significantly,” sales have been going down across the board as well. Recently sales of publication and commercial inks have dropped by 7 percent in volume, while those for packaging inks have fallen by a similar proportion.

Meanwhile, ink producers have suffered from big rises in costs of raw materials such as solvents, titanium dioxide and acrylate monomers. “In the same period, labor costs have risen each year, pension and insurance costs have rocketed and transport and energy costs have spiraled,” the federation claimed.

At the same time, ink companies are having to tackle extra costs stemming from health, safety and environmental legislation, a lot of which involves emissions reduction and measures to cut waste.

Taking on More Costs
Yet amid this climate of higher costs and tougher regulatory demands combined with decreased ink prices, printers have been requiring even more services from their ink suppliers.

“The printing industry’s expectation of its ink suppliers is ever escalating,” the BCF said. “In-plant services, quality audits, color management and ink management equipment are expected at no extra costs. Increasingly the ink supplier is being asked to take on many costs previously borne by the printer.”

The federation said printers are passing on their R&D responsibilities to their suppliers by closing down their own research and development operations. Improvements in their productivity and entry into new markets are as a result being achieved with the aid of the ink industry’s innovation and product development.

“However, the spiraling cost of research and development and the huge increase in legislative costs associated in introducing new products to the markets means that unless a reasonable return on capital employed is regained, these activities will be severely reduced,” the BCF warned.

U.K. ink companies believe that printers will have to accept that they will have to take on themselves more of the extra costs of services by being willing to pay more for them.

“An imbalance has occurred which has led to the ink producers having a disproportionate share of the costs of services,” said Tony Halker, managing director of Bousfield Ltd., Bristol, England, a member of the BCF’s ink council.

“It is affecting all sizes of ink companies, from large to small,” he added. “On the other hand, the smaller producers cannot have much impact on the market. It is the big guys who have the influence and they are the ones who must take the lead on this.”

If prices do not go up, printers may no longer be able to place low volume orders as frequently as before. They may also have to wait longer for one-off deliveries, like supplies of spot colors.

They may also find that payment terms will be less generous. Rebates and discounts may be cut back.

“Initially what will happen is that services will not be taken away but will be pared down,” said Mr. Halker. “The technical services people will not help printers so quickly and deliveries will take longer because ink companies will keep less stock on their shelves. That is the way services get damaged because the resources which feed them are continuously having to be reduced.”

Ink dispensing systems could be one area where printers may be able to absorb a greater share of costs, particularly with the less expensive cartridge systems in sheetfed printing.

Already there is evidence that some ink producers are being discouraged from expanding into the supply of ink cartridges because they cannot pass on the extra packaging and delivery costs to printers.

“They are not an economic proposition for us although they are a more efficient system for the printer,” said one ink sales director. “We cannot demand a higher price per kilo because our competitors are not charging extra.”

Some companies, however, are currently making the supply of disposable, low-cost cartridges an important segment of their marketing platform in sectors like sheetfed offset.

“It is a selling proposition to our customers, which gives them major benefits like ease of handling and reduction in waste,” said Stefan Wegener, BASF’s global business manager, printing inks for print media. “Cartridges are not just a way of selling an ink product but are also part of a system which provides a solution. The printer does pay a bit extra for the cartridges but it is only a few cents for each one.”

BASF believes like some other ink companies that printers could do more to lower their own administrative costs by introducing e-commerce systems for on-line ordering of ink supplies.

A growing number of printers are setting up sophisticated print-management programs, which in some cases are linked to the IT networks of their customers. An increasing proportion of print purchasing, design work, proofing and other stages of the pre-printing process is being done over the Internet.

Yet printers in Europe are surprisingly reluctant to buy inks and other supplies on-line, even though it might require little or no investment in additional hardware.

BASF, a pioneer in the chemicals sector in the development of paperless integrated systems stretching from the ordering, delivery and payment of products, estimates that in Europe less than 10 percent of its ink orders are done online. This would include orders done through web browsers as well as integrated customer-supplier structures based on enterprise resource planning (ERP) systems.

“We still need time to convince people in printing about the benefits of e-commerce,” said Mr. Wegener. “Printers in Western Europe still want the personal contact when ordering their inks. Ordering by phone also gives them an opportunity to obtain additional information, like technical advice.”

Being Paid for Value
There is a belief that if the ink sector has to achieve the price levels its products and services deserve, it has to concentrate attention on the intrinsic value of ink in graphics. The emphasis on costs of services detracts from the key issue.

“Instead of doing all it can to persuade people of the value of ink and the crucial part it plays in the printing process, the industry has being doing the opposite,” said Alex Stevenson, head of the ink division of Zeller+ Gmelin, Germany, a member of the BCF’s inks council through his position as managing director of its U.K. subsidiary Intercolor.

“The printing industry is its own worst enemy because it has been selling inks now for years on the cheap and turned it into a buyers’ market,” he said. “What we have seen is that value which should be reflected in higher margins is being passed to printers, who in turn are losing it to advertisers, retailers and the rest.”

Services have to be sold as part of sales packages in which the price of the ink is the vital component. Otherwise the price of the whole package is distorted.

“The best way to get the pricing right is to get the price of the product right first,” said Mr. Stevenson. “You can charge extra for certain services like special deliveries. But generally you cannot separate price of services from the whole package. It does not work.”

“The companies with the market share have the pricing power, so any pricing initiative has to come from them,” he added. “At some stage, the industry has do something to ensure that it is no longer losing money from producing inks and can start making money from the ink business.”