Future Directions: Outlook For Offshore Production Of U.S. Print Consumption(1)

Future directions: outlook for offshore production of U.S. print consumption

As demonstration above, the U.S. print market is primarily a domestic industry with relatively small components of imports and exports.

What about the future? Will print remain primarily a domestic-based industry? Let’s look at some underlying factors that influence domestic versus offshore production.

One factor is the weight-to-value ratio. Products with relatively high weight compared to the values are somewhat less conducive for shipping over long distances. Printing is typically a manufactured product with a relatively high weight to value ratio, so this factor supports domestic production.

Another factor supporting domestic production is the production cycle and “time to customer.” The nature of most print (but not all) is such that it has a relatively short production and distribution cycle, so this factor again supports domestic production at least for much of print. Excluded in this category would be printed products with a longer shelf life such as books, calendars, and greeting cards. These two key products characteristics are conducive to domestic production, especially in light of the extremely large volume of print-related demand in the U.S. economy.

However, some countries-like China-have much lower labor cost, which translates to lower prices. Relatively lower production costs between different countries can mitigate some of the above two factors. The U.S. printing industry is extremely efficient and productive and gets more so every year. A key indicator of the likelihood of offshore production for manufacturing is the percentage of cost that is composed of direct labor costs. The general “rule of thumb” is that those industries and products with less than 10%-15% of total cost comprised of direct labor are well suited for domestic production.

The least data from the PIA/GAFT Ratios indicate that printing averages about 16% for this figure-a percentage right on the borderline. These percentages vary somewhat by printing process

Sheetfed printing-16.3%

Web heatset printing-15.7%

Coldest web printing-15.8%

Digital printing-16.2%

Thus, in regard to relative direct labor costs, the U.S. printing industry is certainly competitive. Current trends may drive these relative direct labor costs down further as U.S. printers reduce headcounts through productivity increase. Also, the recent surge in energy cost is driving up paper and other consumables cost on a global basis and therefore reducing the relative share for direct labor.

Another factor that should help keep most printing domestic is that much of printing (about 40% by dollar volume) ultimately goes into the U.S. mail team. The integration of print and delivery creates significant barriers to foreign production.

So the bottom-line assessment is that while the percentage of U.S. printing consumption that is provided by imports will go up, it should remain in the single-digit range for the foreseeable future.

However, there are particular print segments (in terms of run length and value-added service mix) and products that are more suitable for offshore production.

To be continued.