When the going gets tough, the tough get going. And nothing in recent memory is as tough as the pandemic that continues to roil the world, all industries, and every facet of life. For major players in the Hong Kong and China print manufacturing industry, the glass is always half full. Pragmatic optimism rules the day.
“One positive thing that publishers and printers all around the world learned during the pandemic is that print books are here to stay,” says Howard Musk, president and CEO of print management company Imago. “After a scary and gloomy period at the start of the pandemic when we faced lockdowns in China, reduced production capacity, and a brief pause in new orders and inquiries, we saw the U.S. print market rebound and continue to grow.”
And that is what the statistics show: According to NPD BookScan, unit sales of print books in the U.S. grew 29% in the first quarter of 2021 compared to the same period the year before. More surprisingly, despite the pandemic-induced store lockdowns, supply chain disruptions, and accompanying doom-and-gloom predictions, sales units hit 750.9 million in 2020, up 8.2% over 2019 figures, which constitutes the largest annual increase since 2010. All book categories, except for travel guides, posted sales increases over 2019.
Across the pond, Nielsen BookScan reported that 202 million print books were sold in the U.K. in 2020, up 5.2% from the year before. Major markets in Continental Europe did not see a disastrous year either despite prolonged lockdowns: Germany and France showed a decline of less than 2.5% in unit sales compared to the year before, while Italy was almost at 2019 levels. So, yes (and yay) print is not dead and the pandemic is certainly not a death knell for either publishing or the print manufacturing industry, as many feared.
“But there is no denying that the past 18 months are unusual times for everybody and every industry,” says Matthew Yum, executive chairman of Hung Hing Printing Group, whose company has leveraged its operational scale, management experience, and close client relationships to deploy its resources rapidly and agilely in order to overcome many of the pandemic-related challenges. “These difficult times will pass,” Yum says. “We need to maintain a positive and open mindset, and look for the opportunities within the risks.”
Fulfilling Different Market Needs
Globally, the children’s book market was active throughout 2020 due to the surge in demand during the lockdown, and the trend continues this year, which has been great for publishers and print manufacturers in that segment. Hung Hing, for instance, saw orders for children’s books and board games increase significantly during this period and saw its summer peak season for orders and production happen earlier, in April and May, mostly because publishers were quick to place orders in view of the tight paper supply and shipping capacity.
“People sheltering in place, working from home, and reading more while entertaining their children with activities, games, and books is one main reason behind the growth,” says Henry Woo, general manager of OEM business department at Leo Paper. “We see publishers now busy taking advantage of the growing interest in edutainment items such as games and jigsaw puzzles and coming up with new products and different varieties of proven titles.” Not surprisingly, Leo Paper has launched a series of ideas for inspiring game-based products development. “We offer a range of innovative boardgames, playing cards, and dice, and different materials for playing pieces for publishers to choose from,” Woo says. “We also offer environmental-friendly packing solutions, which are in line with Leo Paper’s green initiative.”
The company’s manufacturing and business resumed much more smoothly than expected despite the pandemic restrictions—all due to its holistic business approach, Woo says. “In order to fulfill the rising market demand, our publishing clients want shorter delivery lead-time for rapid stock replenishment. And this is where our agile and lean manufacturing capabilities are proving to be advantageous: we have been able to quickly respond and adjust to changing market needs and different client requirements.”
For Artron, a name known to major publishers of illustrated and fine books, 2020 was definitely not a bad year, since 80% of its business comes from the domestic market. “The overall Chinese economy expanded despite the pandemic, and while the domestic book business did slow down, especially during the first half of 2020, the drop was not drastic, and this has more than made up the shortfall from some of our overseas markets,” says Allan Lee, Artron’s general manager for sales.
In fact, in the domestic Chinese market, the nouveau riche and rising middle class are propelling the growth of collectible editions, big-format coffee-table books, and premium issues. “These consumers, armed with higher disposable incomes, are willing to pay more for the unique and the expensive, and often regard such items as more than books,” Lee says. “These print products are becoming a part of their home décor. In China as well as overseas, art books—and art book printing—remain a niche market.”
Dealing with Ongoing Logistics Woes
While 2021 is looking up for publishers and print manufacturers, pandemic-induced disruptions continue to put a damper on everything and throw many plans into disarray.
The logistical aspect of the supply chain, for one, has been severely disrupted. Travel restrictions impede the movement of drivers and their trucks carrying goods, causing a manpower shortage that produces a backlog of goods containers at seaports. Additionally, border closures cause freight forwarders and ocean carriers to cancel or postpone sailings. These have basically caused the prices of raw materials and goods to rise. (Check out the online article “More Price Hikes Hitting the Print Industry”.)
The recent outbreak of Covid-19 cases in Yantian, a major port in South China, for instance, exhibits the cascading impact on the supply chain. “The Yantian situation resulted in immediate congestions in neighboring ports Shekou and Nanshan,” says Yum, of Hung Hing. Supplies intended for our factories are stuck in the warehouses due to container shortages while some of our processed materials are not shipped out to our factories.”
The logistics of getting finished books into the hands of clients is now both a cost and an availability issue, says Ken Kong, managing director of print management company Jade Productions. “Congestions at ports are causing delays that are difficult to predict. It affects not just our production and delivery scheduling but also our clients’ publication and marketing strategies. For time-sensitive projects, my advice to publishers is to wrap up the production processes sooner rather than later in order to cushion against possible shipping delays. And even if you are prepared to spend a lot and send your books by air, know that air cargo capacity may not be available when you need it.” In any case, with more companies turning to air cargo for urgent deliveries, air-freight rates are rising while increased congestion at airports has resulted in delays.
Having books printed, packed up, sent to the docks, and then not having them reach their destinations on time is the worst nightmare for any export-oriented print supplier, says deputy general manager Francis Ho at C&C Offset. “We have no answer for it or control over the situation—and this issue, unfortunately, is not going to be resolved anytime soon. However, we are doing our absolute best to help our clients secure shipping capacity through our own sources and long-standing connections.”
The Artron team, meanwhile, is busy dealing with clients rushing to print their titles and ship them out in time for the upcoming peak-selling season. “But the logistics issues—fewer vessels, continued port congestion, and the lack of loading capacity—are hampering the process, and we and our counterparts in the export business are essentially all in the same boat,” says Arton’s overseas sales director Jim Gao. “It is going to take all our resources and connections to make sure our clients receive their goods on time.”
Musk, of Imago, offers a succinct take on the ongoing logistics debacle: “I have never seen anything like this in my career. Every segment of the logistics chain has its problems: the lack of containers, insufficient vessel space, and reduced port capacity. And then, when you get past these issues at the point of origin, backlogs and a lack of chassis to move containers await us at destination ports. It is hard to see this ending before late fall.” So far, Musk has managed to find space where other freight forwarders failed due to his long-standing relationships with shippers, particularly in Southeast Asia. “We also worked with many of our clients to get paper orders way ahead of additional price hikes and make sure production schedules are met,”Musk says.
Rising Paper Prices and Labor Shortage
In China, the issue of insufficient forest resources for its paper industry has always been dealt with by importing wood chips and paper pulp from South America, Europe, and Russia. But with rising shipping costs and inadequate vessel capacity, imported pulp is becoming pricier than ever. On the other hand, the Chinese Ministry of Ecology and Environment has banned the import of waste paper, also used as raw materials in papermaking, since January 2021. These factors created a short supply of pulp, which then caused pulp futures trading to push pulp prices even higher in anticipation of stronger pulp demand. It is a vicious cycle with no end in sight.
“New paper mills in China are mostly planning to start production in 2022 at the earliest—meaning that supply will not increase and price will probably not drop until then—while small mills are simply not sustainable given the industry’s rapid consolidation,” says Yum, of Hung Hing. “China’s robust economic recovery since mid-2020, after the initial lockdown and easing of restrictions, has unleashed pent-up demands for paper-based products and packaging materials. This surge in demand has further tightened the paper supply and raised its prices.”
Meanwhile, the U.S. Toxics in Packaging Clearinghouse (TPCH) recently revised its model legislation to restrict all phthalates total to no more than 100-ppm, which is difficult to achieve for recycled paper, Yum says. “Existing phthalate regulations by REACH for Europe and CPSIA U.S. set the limit on phthalate limit to 1000-ppm. This revised U.S. TPCH will make the paper shortage issue even more acute.”
Cardboard prices have continued rising since the middle of last year, says Kong, of Jade Productions. “Prices of text paper, whether it is glossy art, matte art, or wood-free, started to go up early this year. Given the price increases, paper merchants now seek to keep only minimal stock, speculating that the higher prices will not be sustainable in the longer term and worrying about their purchasing or indenting costs. So now it too, like shipping, becomes not just a price issue but also an availability issue.”
Minimizing the impact of pandemic-related delays and material shortages took a concerted effort, says Yum, of Hung Hing, and sometimes even that did not pan out. “We tried every possible way, including incurring extra cost and labor, to minimize delivery delays and inconveniences caused by the pandemic and supply chain disruptions,” Yum says. “For instance, we once paid twice the price increases after confirming our paper order from a major mill but in the end we still couldn’t get the original volume we needed for one client. In another case, we ordered a particular paper size that optimizes paper usage for a specific project, but Yantian port’s logistics disruptions held up the order. We eventually had to use existing stocks, incurring extra costs for our operations while generating additional paper wastage on the production floors.”
Then there is the problem of getting enough summer workers for the peak season. “Geographic mobility of labor is an issue because most people are not willing to go to affected areas to work,” Yum says. “Sub-district lockdowns in case of Covid-19 cluster breakouts are also beyond our control and some of our full-time staff have been caught in such situations before.”
Talking About the U.S. Tariffs
Since January 2020, the U.S. tariffs on most books manufactured in China have been set at 7.5%, while the 15% duty on children’s picture, drawing, and coloring books was scrapped. There is no clear picture emerging from the current Biden administration on the situation and most Hong Kong and China print manufacturers expect the tariffs to remain for some period of time.
The tariffs issue, alongside pandemic-induced restrictions, supply-chain disruptions, and material cost spikes, “has thrown the door wide open for our global competitors to jump onto the bandwagon. And in certain book segments, the tariffs have rendered China-manufactured products less competitive,” says Gao, of Artron. “With publishers becoming ever more price-sensitive, signing long-term agreements to fix prices and to counter potential hikes in material costs is becoming trendy. For Artron, we are relying on our proven quality printing and reliable service to win the day.”
While the Leo Paper team continues to monitor U.S.-Sino relations and the trade tariffs situation, it is focusing on “supporting our global clients, wherever they are, to take advantage of emerging market opportunities and overcome business challenges together,” Woo says. “Furthermore, when it comes to children’s products, we are seeing growth coming from different parts of the world—in Europe and China itself, for instance—and the level of interest in innovative and unique items has never been higher.”
Musk, of Imago, does not see the tariffs as a key driver in shifting print back to the U.S. “The cost difference between China and the U.S. is significantly higher than the 7.5% tariff,” Musk says. “From conversations with clients, I gather that the increased demand for U.S. printing that is now happening is driven by rising book sales and the need to get orders delivered quickly. That means that there is no time for ocean freight, which has been blighted by logistical issues. However, many U.S. printers are currently facing backlogged orders and rising paper costs. There are no easy solutions, but I will say that Asian printers have the capacity and the quality, and the pendulum will swing back as we get through this logistics nightmare.”
Pandemic Preventive Measures Take Precedence
For much of 2020 and the first quarter of this year, companies across the globe were focused on implementing pandemic preventive measures. And C&C Offset’s approach typifies those occurring at printing facilities across Hong Kong and China.
Safeguarding its operations, which are spread over four locations, and multiple dormitories, where more than 2,000 workers live, is its primary concern, says Ho, of C&C Offset. “The most chaotic period was during the Lunar New Year holiday period when travel restrictions were enforced all across China and some of our workers were not able to return on time,” Ho says. “Our production floor did not operate at full capacity for nearly a month while most of our office staff continued to work from home, supported by an ERP system that we have been developing and refining over the last two decades.”
At Leo Paper, Covid-19 testing for more than 11,000 people was carried out within a single day on June 9. “These included Leonians and their family members, students, and teachers at our school, as well as suppliers and consultants who are currently stationed in our factories,” Woo says. “The test results were all negative.” By mid-June, 86% of Leonians had been vaccinated for the first dose, with the rest set to be completed by the end of July.
Today, Ho, of C&C Offset, frequently asks his customer service staff to work from home. “This is basically a WFH drill—and a part of our bigger disaster recovery plan—to test our workforce’s resilience, process capabilities, and workflow efficiencies,” Ho says. “We may not be in the office, but our clients can be assured that their inquiries are being attended to speedily and that their projects are progressing without any interruption or delay.”
With overseas travels curtailed by border closures, communication and collaboration with clients have to go the virtual route. “The internet and various tech tools have come to the rescue,” Ho says. “Interestingly, we talk to our customers even more nowadays, which is great for fostering closer supplier-client relationships. While the tech-based approach works well in the current circumstances, nothing replaces face-to-face interaction. I can hardly wait for this pandemic to be over with and traveling to visit clients is normal again.”
The Leo Paper team also sees more regular virtual communications with clients now that travel is restricted. “That is a positive impact,” Woo says. “We received more updates on products, market trends, and sales from e-commerce engines. Information about consumer preferences, for instance, is helpful to our product development team in deciding the final design, materials, secondary processes, and packaging solutions. In fact, the more we know about the product’s performance in the market, the more we are able to assist our clients in creating their next bestselling title.”
Making the best of the situation is certainly the key to survival, says Kong, of Jade Productions. “We work around the travel restrictions by relying on long-time print partners when we can’t be on the production floor in-person to check the printed sheets,” Kong says. “We adhered to the work-from-home advisory during the worst of the pandemic in Hong Kong. Now we are back in the office, but we continue to restrict the number of visitors and curb our visits to offices of our business partners at the same time.”
Going Green Is Gaining Major Traction
As part of the 2015 Paris Climate Agreement, China pledged to be carbon neutral by 2060. To achieve this goal, the country has enacted a series of aggressive environmental measures, such as increasing its renewable energy sources to 25% of total energy consumption and reducing its carbon dioxide emissions by more than 65% by 2030. The start of 2021, for instance, saw more than 5,000 companies in the pulp-and-paper and timber-processing sectors forced to limit work or completely suspended operations for excessive volatile organic compound (VOC) emissions. This has pulp-and-paper and print-manufacturing players scrambling to keep up with the latest requirements and regulations.
“There are now stringent controls on greenhouse gases [GHGs] and VOCs, which is leading the print manufacturing industry down the VOC-less production path while cutting back on post-press finishes such as UV coating, polypropylene lamination, and silkscreen varnishes,” says Yum, of Hung Hing. “Simultaneously, there is a move towards sustainable materials by shifting from plastic to paper in packaging as well as toy-based products.” The company has invested in green energy by completing two phases of a rooftop solar-power installation and is now capable of producing 562,000-kWh per annum.
Efforts to streamline operations are continuing in a bid to further reduce the usage of cleaning agents with high VOCs. “Our VOC emissions have dropped 47.4%, going from 96.12 tonnes in 2019 to 50.43 tonnes last year,” Yum says. “We have also joined the local government’s carbon-trading program, and our Shenzhen factory is set to meet the carbon emissions target, if not already exceeding it.”
In the meantime, there is no lack of new and more eco-friendly printing technologies hitting the market: Heidelberg offers the Speedmaster CX 104 sheetfed offset press that is AI-enabled to monitor makeready processes; Koenig & Bauer introduced a six-color Rapida 105 sheetfed press with an inline coating unit; and Kodak is reimagining sheetfed inkjet printing with its Prosper Ultra 520 press. Inks companies are not standing idle either: Siegwerk has announced its UniNature sustainable water-based inks, and Toyo Ink, one of the largest players in the industry, is launching FlashDry LED S5 low energy-curable inks for offset printing.
These new presses are built to improve and enhance production quality, speed, and efficiency in order to consume less energy and create less waste, and the new inks are biodegradable and bio-renewable.
New printing technologies and methodologies have enabled Hong Kong and China print manufacturers to deliver shorter print runs within much shorter production lead times to their publishing clients. In the longer term, their goal is to remain competitive in a changing, and challenging, business landscape shaped by shifting reading preferences, fickle yet demanding publishers, and yes, a pesky mutating virus.