Yes, the pandemic causes a lot of supply chain disruptions, including paper. But if automobile factories can be converted to produce ventilators and respirator masks, then switch back to making cars once the emergency needs are met, why can’t paper mills slow production for a while, then ramp it back up again?
For people who don’t understand the cost structure of the paper industry, this is a reasonable question. We can think about this as the “faucet” expectation.
The pandemic hits, demand for paper drops, and the faucet gets turned down to a trickle. The pandemic subsides, economies start opening up again, and the faucet gets turned back on. Just like iPhones, children’s toys, and antibacterial wipes, it might be slow going at first, but after a bit, the supply starts flowing again.
Except the paper industry isn’t like a faucet. It’s more like an unstable cliff. It looks strong and permanent, but there is vulnerability hidden beneath the surface. When the hurricane hits, the weakness becomes apparent. The storm exploits the weakness beneath the surface, and the cliff gives way and falls into the sea. Businesses and houses can be rebuilt, but the coastline is forever changed. That is more what the paper industry is like. It’s just that most customers don’t know it.
|