Episode 26: Pete Larson on the Current Supply Chain Situation

In this episode we are joined by Pete Larson, the President and CEO of Bethany Press (https://www.bethanypress.com/), a printer based in Bloomington, Minnesota. Pete has been in the printing side of the publishing business for over 25 years, and has some interesting thoughts to share with us about the current supply chain issues that we are experiencing as an industry.

Pete looks back at changes that have been happening to book printing since the early 2000’s, and traces some of the issues we are seeing now to overall trends and changes in printing processes and paper stock needs over the intervening years. The current issues we are seeing with paper availability is not only due to the supply chain disruptions from pandemic shutdowns, it is also due to how the industry was changing before the pandemic and where the trends in print book sales were heading.

This episode gives an interesting look behind the book printing curtain, and includes some thoughts about sustainability and recycled paper stock, as well.

Transcript

Joshua Tallent 

This week on the BookSmarts Podcast, I’m excited to have Pete Larsen who is the President and CEO of Bethany Press International, located in Bloomington, Minnesota. Pete and I go way back—we’ve actually known each other for quite a few years, floating around the ECPA world and, and just publishing in general. So, Pete, I’m glad to have you on the show. Thanks for coming!

Pete Larson 

Well, thank you, Joshua. It’s great to be here.

Joshua Tallent 

So obviously, you’re the CEO and President of a press—a printing company. So I guess the the current supply chain situation is something that you have a lot of thoughts about. And there’s some things that maybe people don’t know about that. Some things that maybe it would be helpful for everyone that’s listening to understand about the current situation. So how do you think we got where we are with the supply chain issues that we’re seeing?

Pete Larson 

Well, like most issues, you can’t point to just one factor, or one cause. I have to go back to say, 2008, maybe even sooner, we saw that Christian publishing, was growing by leaps and bounds in the early part of the, you know, the century 2000 and above, with books like the Left Behind series, and Purpose Driven Life, Prayer of Jabez—it was exploding. And a lot of printers were growing along with that. We added equipment, I know other people did as well. And we rode that until about 2008. We call it “K-Day,” that was the day that Kindle came out. And, and then there was “iDay” the iPad day, which actually wasn’t a bad thing at all. But we also run that same time we hit a recession in the country. So overall, we saw a drop off in many areas. But book printing took an even deeper plunge at the time, because of the introduction and the growth of ebooks. You know that ebooks have been around for quite a while, actually, at a very small percent of the market. But then with the Kindle and Nook, they really kind of started taking off. And based on those projections, people thought that printing was going to be dead by 2016 or so. I was at a New York conference, actually, in 2011, and a gentleman was presenting on this—I think it was Digital Book World, maybe—and he said, “Boy, who would have ever thought that we would be where we are now, five years ago who could have predicted this.” And then he proceeded to tell us what the next five years would look like. And that projection was that print would be 20% and ebooks would be 80% by 2016.

Joshua Tallent 

Wow.

Pete Larson 

Well, we know that didn’t happen. But we did see the drop off in print, again, because of the recession and the introduction of the ebook. But by 2010 and ’11, actually, the printed books started to come back a little bit each year. If you look back at the data, there was growth, it was incremental growth and small, but it was growing. In the meantime, we had a slew of printers and paper mills that were poised for a much larger demand based on what the previous eight years had shown them. And market conditions and market forces took over. And over the last 10 years, we have seen paper mills repurpose machines to other more profitable grades: packaging, etc. We’ve seen mills close; we’ve seen mills get shut down. On the print side, we’ve seen the same thing. The number of book printers that are out there, back from, you know, 10 years ago to now has decreased significantly and/or have been merged or bankrupt or whatever. So, the market was in the process of correcting itself. We had an oversupply of print capacity, an oversupply of paper, yet the demand wasn’t there to support it. That’s why we saw these changes happening among the printers and paper mills. And it’s my belief that come 2019/20ish. From what we’d seen in terms of paper pricing, and a relatively quiet acquisition and merger scenario among the printers. It looked like to me that the market was stabilizing. Supply and demand were equaling out from both the mill perspective and the print perspective, which is actually a good thing. That’s a healthy place for everyone to be. But then we had COVID and we had other issues. We saw this big disruption in the supply chain from overseas—I call it the perfect storm, because so many market forces that hit at just the right time. That threw everything upside down. We were getting asked—and we have been getting asked for—to produce things that we don’t actually produce, that are not just fringe of our niche, but outside of our niche and being offered, “We’ll, we’ll pay you extra, we’ll pay you money.” But with the demand, we just couldn’t do it. And that’s what got us where we are today. It was, again, a perfect storm of market conditions that really is making life challenging for everybody. So, the question is, you know, what is this—how long does the storm last? That’s another question. So just to basically summarize where we’re at what we have right now is: Paper pricing and availability is a challenge. Transportation and logistics. Getting your product. Getting your raw materials. Corrugated, the packaging side—even though mills had been moving things over to that production, the demand—everybody ordering from home, and all those packages are getting shipped—have eaten away at the capacity out there. Price increases of all kinds of inputs. We talk about paper a lot, because paper is obviously one of the biggest things that goes into a book. But there’s ink, there’s lamination, there’s glue, there—and then behind the scenes, there’s even pallets, the wood pallets to ship them on. The cartons, as I mentioned before. The chemicals we use in the process of printing to clean the press and change things over. We don’t—the printing plates. We have not seen anything not get touched, because of not only the fact of where they’re sourcing it, but then the chance of getting it here. Well, the labor shortages and the cost of labor is another factor that is not only affecting capacity, but it’s also affecting—affecting the supply chain in general. Because we have people, for example, the truck drivers. They can have the product sitting in a dock or at a port, but unless you get the truck drivers to get it to you, you’re not going to get it. So it puts us in a really kind of limb—state of limbo right now. Because there’s not a lot that is changing. Unfortunately, it’s just a matter of time.

Joshua Tallent 

Yeah. And things are also not necessarily going to get better, or they might get worse before they get better. I was at a neighborhood association meeting for my local neighborhood a couple of weeks ago, and someone from the port here where I live was talking about what the supply chain issues are for them and how what they’re seeing. And this lady was saying, we’re expecting as soon as you know, China opens back up again, from their current COVID situation, we’re expecting to get 500 new chips headed toward the US. And that’s going to change everything all over again. Because it’s just—it’s not a steady stream of things. We’re getting fits and spurts. And we get a big, you know, big problem here that affects everything else over there. And so this isn’t necessarily something that will go away very quickly. What do you see as the next couple of years—how do you see that kind of playing out in the publishing world with the supply chains the way they are right now?

Pete Larson 

Well, again, I think it’s going to be incremental changes happening. I have been very impressed, by the way—with how publishers have adapted to these conditions. They have—most of it pretty robust systems that allow them to forecast and plan. And that’s actually one of the reasons why we are so booked right now. Normally, our turn time is about three to four weeks. You give us your files, you give us your purchase order, books are shipping in three to four weeks. Well, right now we’re giving due dates at the end of October. So, we’re five months out. But that’s not all new work. Because here’s what’s happened: the publishers, they saw the turn times building and building, moving out and moving out, and they all kind of went, Hey, wait a minute, we have a pretty good idea what we’re going to need over the next period. Let’s start ordering it now. So that five months of backlog I told you about, I would say 80% of that is work that was coming anyway, it was all just put in really early. Because I will say the last four weeks in terms of new orders has been fairly quiet. The other thing we’ve seen—again, about the current situation—is that some of those orders have been, as we’ve gotten close to the production date, have been reduced in quantity. We’ve had a couple get cancelled as the publishers, you know, were projecting three months ahead and now they’re three months further down the road, going, “Maybe we can reduce that by 20%.” And they’re watching the inventory as well. So, the fact that they have been so reactive and interactive with us on what’s coming in, what’s in the pipeline, etc., has made it a very manageable situation, honestly. So right, now that the changes that people have made are making a positive effect on this. Like I said, we’ve already seen our—we were over six months out on our turn times, we’re down to five. So those that’s due to the adjustments people have made, that’s not anything that’s changed outside in the supply chain itself. But that’s just us and the publishers working together.

Joshua Tallent 

Yeah. And the adaptability is the key for that, right? And being able to adapt well to whatever is being thrown your way. And you can’t—you can’t plan for everything. But you can definitely have systems and processes in place that let you be prepared when something gets tossed into the mix that you weren’t expecting.

Joshua Tallent 

[crosstalk] Adapting to the current situation.

Pete Larson 

Yeah. So, we’re gonna be in this spot for a little while. I do expect to see within the next four weeks, probably to see an uptick in orders coming in, as they start looking beyond, you know, end of October—because that’s all Christmas, between now and October—they’ll be looking beyond that. And they’re going to be—the orders will be coming in; we’ll start to see those due dates move out a little more and a little more. On the paper supply side, that aren’t any big changes, you know, it costs a lot of money to start up a press [mill]. And it takes a lot of time. And honestly, they can make more money doing packaging and other things in those mills. But there has been a report of at least one mill starting up a machine for book paper, and maybe a few other ones, you know, adjusting their output as their raw materials permit. Because again, we—when we talk about supply chain, we tend to only look at the one previous to us, and we don’t take into consideration the supply chain of the people that are supplying us and the supply chain of the people that are supplying that supply chain. So in order for you to have—for a publisher of a book, I need paper. In order for me to have paper, the mill has to have pulp. In order for the mill to have pulp, there has to be—you know, it goes back, you know, so many generations on these things. And so as some of them are moving along well, there could be a bump or disruption in one of the other components that have—that go into the process. And of course, obviously the cost of gas, and fuel, that floats everything up, because everything has to be transported. And every step along the way, people are adding that extra cost into their pricing. And so even if China opens up and sends 500 ships, which I don’t believe actually they have, because I also understand they’re short on containers, because the containers are still sitting on the ocean not coming back either. That is not going to be an overnight thing. From what I hear from the paper mills, talking to them—or at least our paper brokers—you know, six months ago was well, you know, mid-to-late 2022. Well, here we are six months later and we’re hearing now mid-to-late 2023. So, they were a little bit optimistic, I believe. So I think they’re hedging their bets a little more this time, and saying, Let’s look at maybe 12 months, so thinking this’ll be better. I think it’s somewhat—I hate to use the word “stabilized.” In many ways it has. But the disruption that you don’t foresee is the one that’s going to probably get you the most. And we’ve seen a few of those come up where it’s like, whoever thought that a shortage here would result in a shortage there.

Pete Larson 

Absolutely. And a couple years ago, at the ECPA C-Suite Symposium, I was on a panel about supply chain. And since then I did a class at [ECPA PubU], I did a session on that there. I did a session at PCPA last year on supply chain. So, I’ve been preaching this for a while. I’m just letting people know and trying to educate them that you need to understand your whole supply chain not just, again, not just the one behind you. I told the crowd at that ECPA when I said—you know if I—if I’m talking to one of my paper vendors, and they tell me that I’m the biggest user of any one of their papers, The first thing I say is timeout, wait a minute, where—what’s the paper that’s most similar to this, that is getting the most usage, because that’s where I want to be. Because I know when things get tight, you’re going to cut off this paper and I’m going to be stuck in a spot. And I’d rather change it on my time and my timetable than the mill’s. That resonated with people because I said, If you’re starting up a new product line and you—you’re planning on this paper or that paper, how do you know that paper is going to be there unless you have that conversation? Just because it’s there now doesn’t mean it’s going to be there six months, a year, two years. I had one customer send me a sample book and about 10 little slices of paper with information written on it, and asking me, Hey, could you check on the availability and pricing of all these? Just so we know. And my response was, I can do that, but the moment you asked me for an actual quote on that job, it’s going to be irrelevant information. Because it’s all going to change between now and then.

Joshua Tallent 

So how has print on demand been adjusting to this as well, there’s—obviously digital print runs, or even short run digital runs, that—you know, these kinds of newer technology—quote unquote, newer technology—it has been around for a while. But that seems to be a way to float the gap a little bit, deal with the unavailability of imprint runs. Have you seen that as well? And what do you see print on demand or digital print runs—how do you see that changing over the next couple of years as well?

Pete Larson 

Well, that technology, of course, is continuing to grow. And like I said, we have our traditional offset plant, and we have a digital plant. And yeah, we were normally two weeks, one to two weeks on the digital plant, and they got moved out to about six weeks or so, up until just recently. So we, working with our customers—and I’m sure other guys are doing this as well—is saying, Alright, I know you need X amount by this date, but what if we can give you X amount just in the short term here, or we can break it up into short runs over the next four months, and you end up getting the same quantity. We’ve seen that kind of horse trading going on. Obviously, on the digital side, and on the print on demand, the finishings are limited on the books, the tech stocks are limited. So we’ve actually seen an openness, more than ever before, to, All right, for that run, I’ll do it on this paper. For that run, All right, no foil and emboss. We had one customer had a job in they had three different print runs in on the same title, and each one was on a different paper, just because that’s what they need to do to get them out of there. The ones—the guys who are doing—printers that are doing just the print on demand and the real short run, I know are struggling because those systems are not set up to handle the kind of demand that we’re experiencing right now. I spoke to a print on demand short run printer at the Leadership Summit two weeks ago, and he was saying that it’s been a struggle for them, trying to get more input through because they’re just not setup for that kind of volume. They’re able to increase somewhat like we all have been in our digital shops, but not enough to really overcome the overwhelming demand that is there. And as printers, the question for us is, you know, again, back to the How long is this gonna last? Do I invest in anything right now? How long it’s going to take for that investment in equipment, whatever, to actually become implemented? And then how long is the demand going to be there? These are the big questions that we’re dealing with right now. We’ve got the resources, but I’m not comfortable doing any kind of projections based on the current market. I’ve been meaning to survey customers, and try to get their input on what they would like to see us do. But I don’t know if I could trust that data right now. Because they’re going to answer from the frame of mind where they’re at right now. And I don’t know if I can invest based on that.

Joshua Tallent 

Yeah, that makes sense. So, one more question before I let you go. And that’s—I’m thinking about technologies on the printing side and thinking about, you know, kind of where things have been moving. And there’s, you know—paper is available, we have paper stock, there’s things there’s, you know, it’s not like paper is going away. But do you see in the future changes in what we use to print a book on? You know, there’s like these, you know, you get a notebook that’s made out of, you know, stone dust, and you know, these kinds of things. There’s kind of weird stuff out there. But, you know, maybe not so weird. And I’m wondering if you’re seeing things evolving in maybe how we, how we pulp current books, or how we use recycled content, you know. Is there anything that you’re seeing coming down the road that you’re like, that might be a direction that we’ll see pick up some steam. Not to prognosticate, but really, some of the newer technologies do you think might have impact printing in the future?

Pete Larson 

Well, interesting. So, there’s been a few things out there for a while that were kind of growing in popularity from some of the—I wouldn’t say the mainline people vendors with some of the more—the fringe guys. But what they’re coming up with were not quite environmentally friendly, or as friendly as paper. As a matter of fact, one of them I just saw they have made it announced that they have, they have now eliminated any of their substrates that have any plastic in them, because the sustainability conversation is growing amongst publishers and they’re putting more and more questions to the printers about sustainability efforts. So, the things that we’ve seen out there, like you said, there’s a couple of examples that are kind of more like something you see on Etsy, or a boutique type publisher, but they’re not widely available. Nothing is as widely available and as accessible as tree pulp and as renewable and as sustainable as tree pulp. But what I do think we’re going to see is more and more focus on how we can use that tree pulp better and more environmentally friendly. I was at a Book Manufacturing Institute conference last week, and one gentleman said that they have converted their heat set presses over to cold set to be more sustainable. We already are cold set, just by choice. We’ve always been that way. But that’s a way of actually not—of putting fewer chemicals out, different environmental conditions within the plant, etc. So there’s steps like that that are being taken. But I don’t see anything else other than paper for a finished physical book. That’s going to do the trick.

Joshua Tallent 

What about—Are there any advances happening in the in the renewability or the recyclability of paper products? Are we able to—you know, all these cardboard boxes are being created and shipped to people’s homes and then put into the recycling plants. Is that paper—is that stock able to be pulped and reused in ways? Or does it start—my understanding is it starts breaking down at a certain point, you just can’t use it for other products. Are there any advances happening on that side that you see?

Pete Larson 

Yeah, there is a hierarchy there of what is the best paper down to what is the least paper. You know, and we will recycle. We actually have many different bins in our plant, starting from the subversion paper up the roll that didn’t get used, that’s in one bin. If it’s been printed during the startup and make ready process, that’s another bin. And then we go down to the binder site and what is collected off of the binder, the trimmings etc, is baled, and that’s another source. That’s been going on for a while. But challenge has been there—more lately has been the cost again, because you have to move all that stuff around. And we—every year I’d say, we vend out our recycling to different recyclers in the area, and see what they’re gonna give us per pound for this type of waste, that type of waste. And honestly, it’s been on the decline for the last year and a half. They’re giving less and less for it. Some of it they’re saying, You know what? I can’t pay anything for it. But I’ll take it away for you. Okay, wow. That’s just—it’s just economics for them. If we could find a more efficient way to actually repurpose things, I think that would be the biggest advancement that we could come up with. And that may be more regional recycling centers closer to the, you know, end product. And the mills themselves participating in that, in that process. For example, give you an example of the cost. We have one customer that has required a 30% PCW, post consumer waste paper, for all their books. About three months ago, the mill came back and said, Well, we’re changing the differential for that recycled stock, for that paper. It used to be $3 100-weight more than the virgin stock, now it’s going to be $6 more

Joshua Tallent 

Wow!

Pete Larson 

So that just—that jumped the price up incredibly. So we went to that customer and said, Here’s the situation. What would you like to do? And they do have a 10% and you can go to that. And that will actually save you a little money right now because you’re going from $9 up-charge to a $6. They came back and said yes, let’s do that. And then, about two weeks later, the mill came back to us and said, Actually, we’re not going to produce the 10% there wasn’t enough demand for it.

Joshua Tallent 

Oh my goodness.

Pete Larson 

So now the publisher is in that situation. I haven’t heard yet, are we going to go with 100% virgin, or pay the big upcharge for recycled stock? And that’s where the rubber meets the road for these guys. I mean, how much do I believe in this to affect my bottom line? And is it sustainable as a business. It’s funny, when we talk about sustainability it’s all about the environment, but when I talk about sustainability, I mean it for me as a business.

Joshua Tallent 

Right! It’s true!

Pete Larson 

We need to be sustainable too!

Joshua Tallent 

Exactly! That’s great. Awesome. So, Pete, thanks a lot. I appreciate it. I think, obviously, it’s an important conversation to be having, and I hope that people walk away from this little conversation, hearing some of your thoughts and helping them understand better, kind of, where we came from, how we got here, and maybe a little bit of the path forward. So, thanks for your time. I appreciate it. Anything that people should know about you and where they can find out more about Bethany press?

Pete Larson 

Actually, bethanypress.com is probably the best way to find me, or through ECPA events, etc. I’m always willing to share what bits and pieces I’ve picked up over the last 25 years with anybody to see if I can help their business in any way at all.

Joshua Tallent 

Yeah, that’s great! Well, that’s it for this episode of the BookSmarts Podcast. If you like what you’ve heard, please leave a review or rating in Apple Podcasts, or Spotify, or wherever you listen to the podcast, and also please share this podcast with your colleagues. If you have topic suggestions or feedback about the show, you can email me at joshua@firebrandtech.com. Thanks for joining me and getting smarter about your books!