For publishers who have enjoyed low prices from printers in Hong Kong and China in the past decade or so, change is coming: price increases of 10%—15%. A host of factors has driven up printers' costs, which they are now prepared to pass on to customers.
A major reason for the higher cost came from Beijing last January: the reinforcement of a new labor contract law that limits working hours and overtime, sets minimum wages and severance pay, and mandates employer contribution to worker insurance and pension. Fully implemented, the new law will increase labor cost by 15%—18% over the next 12 months, delivering a double whammy to print suppliers operating in the Pearl River Delta region, China's print manufacturing hub, who have already seen wages rise 25% in the last two years owing to a nationwide shortfall in skilled labor and rampant poaching. The law also curtails hiring (and firing) of temporary workers, making it difficult to quickly ramp up production to meet seasonal peaks.
Workers, meanwhile, are not entirely happy with the new law, although it favors them. They want more than the mandated monthly overtime of 36 hours. Suppliers, too, want their workers to be on the production floor longer to fulfill orders. This situation has disrupted schedules and forced suppliers to increase head count (ergo, labor expenses).
Beijing's other move—following pressures from Washington and the European Union to rectify its soaring trade surplus and unfair trade practices—was abolishing the 13% tax rebate on 2,800 products (representing almost 40% of China's exports). One of those affected is the export of pulp, paper and board that use imported logs, wood chips and pulp. The impact has reverberated through the supply chain since Chinese mills import most of these materials, and print suppliers either buy from the mills or import directly. Add in reduced capacity due to local mill closures—the fallout from stricter environmental laws—and suppliers saw paper prices jump five times within the last 24 months.
More spending on green management practices and manufacturing safety improvements demanded by both Beijing and clients have also added to expenses, as have escalating energy prices, which have risen by at least 20% since 2006. Making matters worse was the pre—Lunar New Year snowstorms—an inauspicious start, indeed—which led to a power supply crunch in the Pearl River Delta/Guangdong Province. Several suppliers interviewed by PW had to purchase fuel to run their generators, further jacking up costs. This situation may persist until the power grid is fully restored, probably in the third quarter of 2008.
With all that has happened, old pricing is all but impossible, even if publishers shop longer and harder. Printers are anticipating complaints from American print buyers, who now have less purchasing power with the weak dollar. But the reality is, costs are climbing the world over, and no supplier can absorb these increases indefinitely or fully.
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