Tag Archive for: pencil market

My last post addressed recent news regarding allegations of illegally
imported Chinese pencils.  In order to
avoid anti-dumping duties these pencils were apparently transshipped via third party countries such as Taiwan, Vietnam and
Indonesia and mislabeled as to country of origin.  Today I am addressing the
overall U.S. market for pencils and future of U.S. production of pencils relative
to how I see this topic coupled with other developing industry trends.

In my view, regardless of the final outcome of this particular
legal case I believe this is a positive development for U.S. pencil
manufacturers and other established pencil industry participants who are
committed to making quality products and playing by the rules when it comes to
all manner of international trade, environmental, labor and product safety
regulations.  For the past 20 years the
trends of globalization, retail channel consolidation and other competitive market
forces have contributed to a dramatic shift in our industry structure just as
in many other industries.  As a free
market thinker I do not believe these are inherently bad trends and they have
led to a number of benefits for society as a whole though those benefits may
not always be evenly dispersed and has not always resulted in comparable
product quality. 

When it comes to pencils, both here in the U.S. and worldwide,
we are seeing more pencils sold and consumed at lower average prices than 20
years ago.  Despite the common misconception that pencils
are a dying business, pencil consumption generally grows globally at or around
the rate of population growth.  Also per
capita pencil consumption tends to increase with income growth as well.  Providing
we continue our positive immigration trends we should see stable and slowly
growing demand for wood-cased pencils over the long term.  Obviously income growth and dispersion is a current
concern in light of recent economic developments, but ultimately I still remain
optimistic about U.S. potential from the macroeconomic stand point.

The rise of computers, tablets, or smart phones over this
period have yet to prove to me that these technologies are going to displace
writing instruments and pencils as a whole. 
Technology certainly can impact how and where we use pencils at the
margins. However, there is a strong emotional and tactile connection people have with
their preferred writing tools and the physical act of depositing graphite, ink, paint or
color pigments onto paper.  What could
impact per capita pencil consumption even more than technology is allowing
another generation of kids to be raised without access to and experiencing the
use of good quality pencils. This could drive consumption patterns to alternate
writing instruments in the long term.  Despite the benefit of ever cheaper wood-cased pencils on household budgets over the past 20 years , one negative byproduct has been exposing children, teachers
and other consumers to a general reduction in the quality of the average pencil sold here
in the U.S.  At Pencils.com one of our
most common consumer questions is: “Where can I find a decent pencil at a
reasonable price in which the lead won’t break, the eraser works without
smearing and that actually writes well?” 
Teachers often report that the simple act of more frequent breakage and sharpening has become a disruption in the classroom.

One complicating factor is the poor state of funding for
education in the U.S., especially when it comes to the provision of basic
school supplies. As a result the burden of supplying pencils and other suppliesis increasingly pushed onto teachers and families who have their own budgetconcerns.  The drive for ever lower
prices has helped, but has also compromised quality and selection.  As a result the assortment of pencils on retailers’
shelves has declined and the mix increased towards imported private label or
low price non-manufacturer brands.  Lower
space allocation is offered to traditional quality manufacturer brands.

So what do a bunch of economic, social and demographic
trends have to do with an illegal transshipment case and whether this helps the
U.S. industry or not.  The question lies
in part whether the retailers as a group, begin to see that price of pencils
cannot be their sole determining factor in the product mix as there are other
costs such as the associated anti-dumping duties and penalties.  Also will consumers take a greater interest in the quality and origins of their
pencil purchases? 
Sure they are still going to want the best price possible.  However, I tend to think that a supplier who
is willing to illegally transship pencils is also a supplier who is more likely
to cut corners in product safety and quality.. These are all problems the retailers and
consumers don’t want to deal with over the long term.  If retailers increasingly find they will be
held responsible for penalties, fines and consumer dissatisfaction as a result
of the potential negative aspects of their product supply chain then they are
going to increase their diligence in vetting and selecting their
suppliers.  Certainly they cannot be
expert in every product range they sell and as they are importing many products
globally, the headache of assuring compliance on products with anti-dumping
duties and other safety or regulatory concerns may result in some level of
return for advice and supply to known domestic vendors for improved
reliability.  This does not necessarily
mean an imported pencil will be replaced by a domestically produced one, but
the opportunity for engagement on that supply decision will certainly improve
for the U.S. producers.

Further there are currently added economic trends that point
towards some return to U.S. manufacturing in general.  My belief is this ultimately will have some positive
benefits for the U.S. pencil industry also. 
Labor costs in China are now increasing dramatically and though still quite
low relative to the U.S. are making it difficult for many general
manufacturing companies to find and retain qualified employees.  Chinese labor regulations as well as other
environmental and bureaucratic regulations are beginning to impact the general
cost of doing business in China.  This
first impacts those producers in China who play by the rules, but in time the effects should
spread further throughout the Chinese economy. Meanwhile, U.S. domestic energy costs
are declining with the increase in domestic gas exploration and development.  Long lead times on overseas supply chains
complicate planning and inventory investment while domestic producers can often
be more flexible with quicker response times. 

Another important concern within the pencil industry is that
Chinese basswood and other Chinese woods have come under pressure for use in
other domestic purposes.  More wood is
coming from Russia which has less stringent regulatory oversight causing more
concern with legal wood supply issues.  A
resurgence in total Chinese GDP growth from their current slowdown will have
further inflationary impact on global wood supply and thus eventually pencil
prices as well.  In my personal
assessment we’ve seen a low point reached in global wholesale pencil prices
that was reached about two or three years ago. 
There will always be some other part of the world, the next low cost
country, to move on to, but adequate quality wood supply and transportation
costs also have an important impact on pencil economics beyond labor costs and
regulatory environments.  Overtime, the
developing world catches up in relative costs so the U.S. should be able to
adapt and innovate to remain competitive. 
That is as long as we do not let our current political stagnation and
increasingly burdensome regulatory environment overwhelm us over the long term. As the U.S.
remains one of the most important global growers of trees this ultimately will
have some positive impact on a host of products manufactured from solid wood.  As a result I do predict that we will
eventually see at least some small improvement in U.S. production of pencils and other wooden products over
time.

In our own business at California Cedar Products Company we
are certainly not prepared to return our slat manufacturing operations to the
U.S.  However, we are increasing our
commitment to U.S. based wood supply with the recent introduction of our
Pacific Albus product range.  Eventually
we expect this will be an increasingly relevant component of our business displacing Chinese and Russian Basswood and supplementing
our premium California Incense-cedar product range

Additionally, we have recently made several small movements towards
U.S. production regarding our Palomino Brands pencil ranges.  Recently we relocated the final eraser
tipping process for our Palomino Blackwing and Blackwing 602 pencils from Japan
to our Stockton, CA using a newly developed tipping process.  This should improve tipping quality and responsiveness as demand for Blackwing pencils grows.  Thought the pencils themselves will continue to be produced in Japan.  Also, we are transitioning our Prospector and
Golden Bear products from Thailand production to the U.S. where we are working
with one of our slat customers Musgrave Pencil Company to produce these items.
The new “made in the USA” versions of both pencils will phase out our prior California Republic
versions and be available exclusively on Pencils.com in the coming weeks.  These pencil items represent only a very minute segment of the U.S. pencil market, but do expand our commitment to
offering a “Made in the U.S.A.” product selection in our Pencils.com store.

Our hometown paper The Stockton Record published a front page article this morning titled Re-Creating a Lead Legend. The article includes an interview with me as well as comments from Doug Martin of the American Pencil Collectors Society and John Gamber of Pencil Revolution blog.

In prior posts I’ve focused on many developments affecting the Pencil industry and how companies have reacted in their business operations and strategies to these external influences. I’ve covered trends such as globalization and growth of imports; consolidation within both manufacturing and distribution channels and the resulting rationalization of brand ranges and manufacturing facilities. I’ve also commented on anti-dumping duties and other trade, environmental and product safety issues. Most of these posts have focused on larger industry players and their adaptation and leadership embracing change to remake their companies (i.e. generally the acquirers and market share leaders) with both positive and negative impacts on quality, customer perceptions, market share, and other typical measures of business and industry success.

This time I provide an alternate view, an example of a family owned and operated business in our industry that stands out for its gritty devotion to a set of traditional values, processes and standards. Historically such family owned and operated companies were the norm in our business. While many companies throughout the world pencil industry remain privately held and controlled by their founding families, quite a few have become actively involved in shaping and driving many of these industry trends. This includes our own business California Cedar Products Company which despite our continued devotion to sourcing US grown Incense-cedar as the raw material for our #1 product line, CalCedar® slats, we relocated slat production to our new Tianjin, China facility in 2001 closing our US based slat and sawmill operations soon thereafter.

General Pencil Company, was originally founded by Edward Weissenborn as the Pencil Exchange in Jersey City, NJ in 1889. The company is devoted to providing sustainably produced products under their General’s® brand range for artists of all ages, skills and abilities; amateur and professional alike. While General has added a range of complementary art supplies to build out the product range through the years its stable of wood cased pencils produced from Genuine Incense-cedar remain as a central foundation of the product quality and performance. The company continues to this day as a fully integrated pencil factory in its original Jersey City location producing its own graphite and other special formulation cores in house.
Proudly made in the USA is a vital principle for General’s® brand pencils. General refuses to import cores and leads or increasing proportions of raw, semi-finished or even finished pencils as opposed to all other US based pencil manufacturers who have long since adopted such practices.

While the CalCedar® slats they use are produced by us in our China operation the wood itself is 100% grown in the USA. General is essentially the only remaining US pencil manufacturer exclusively devoted to a Made in USA and predominant USA component supply strategy. Given the recent relocation of Newell Rubbermaid Lewisburg, TN operations to Mexicali, Mexico, (yet another victim to global manufacturing rationalization) General is now one of 3 remaining US based pencil factories producing for the art and writing pencil market which have vertically integrated processes from wood milling department forward to finish product. The others all import some varying degree of pencils and cores as a relevant part of their supply chain strategy.

Another core value at General Pencil Company is the Weissenborn family’s commitment to consistently producing a high quality product from then best quality sustainable materials. General’s® products are well known by both professional and other devoted artists as being produced to exacting standards to provide reliable performance whatever the application. General’s dedication to traditional internal standards of fine craftsmanship and manufacturing processes assures this result time and again. In addition to its exclusive use of Genuine Incense-cedar slats, General also uses recycled packaging materials in the majority of their products. Additionally General is devoted to producing consumer friendly and safe products which are tested and certified under both the PMA Seal and under the Art & Creative Materials Institute (ACMI) Program.

Certainly many industry participants also produce safe, high quality products with an emphasis on sustainability. Many businesses also have multi-generational family ownership. In my view what is of exceptional note is that General Pencil Company, the Weissenborn family and employees of the company truly live up to these values while continuing to exclusively produce in their original Jersey City factory for over 120 years now. General is a company dedicated to supporting the local workforce (many are also multigenerational employees) in a culture indicative of traditional family values that extend also to the customer service experience. General faces the same competitive pressures all of us face in this industry, but they continue to hold firm and thrive as a result. Speaking from personal experience from a multi-generational family business manager who guided our own company through a challenging manufacturing and market rationalization to off-shore production this commitment and dedication deserves great respect.

As two companies and two families, General Pencil and California Cedar and our respective owners have had a long and positive relationship. I am proud to be associated with this relationship and especially pleased to announce the addition of General’s® products to our Pencils.com Store to further build on this partnership. Indeed with this latest collaboration another generation of both families has worked together on a cooperative industry project. These are represented by Kirstin (5th generation descendant of founder Edward Weissenborn) and my son Philip (a 4th Generation Berolzheimer now helping out at California Cedar Products and 7th generation relative to our family involvement in the pencil industry when consideration of Eagle Pencil Company ). These two focused on setting up the products on the Pencils.com store as well as posting product information pages and developing initial promotional materials for the launch. Thanks for their efforts and here’s a toast to a new generation of promise for the supply of high quality sustainable products from tradition driven family owned pencil industry businesses.

Frankfurt Paperworld 2009 is a few days behind me, though I still have quite a follow-up list from my meetings with customers and suppliers. Thus posting my Paperworld Pencil Report for you enthusiasts out there has taken a back seat. I do see there were a few other “reporters” out there covering new pencil related items they found. Some of these items I’ll comment on in the context of my post which will be more focused on common themes and trends for the show this year as relates to pencils and the pencil industry. Of course pencils are just a very small part of Paperworld which covers so many product categories and some themes I cover are applicable to these products as well.

The first theme seems to be the ever increasing barrage of marketing and promotion of “Green” products and processes to produce not just pencils, but many writing, art and stationery items exhibited this year. The fascinating thing to me about this is how many different types of green positions, often conflicting in message, that are being espoused for various products. Some efforts I simply consider “green washing” while others offer legitimate improvements in environmental impacts related tor raw materials used or production processes employed.

Wooden products have long been positioned as green for the renewable resource characteristic of the raw material. The addition of various and competing forest and Chain-of-custody certification schemes such as FSC and PEFC are more and more frequently used in our industry, primarily for paper products, pencils and more traditional building materials, though less often seen at this point for other home, office and school products produced from wood. While these schemes are much well known and supported by consumers in Europe there is increasing awareness here in the US. More and more often pencil manufacturers are moving towards implementing some form of third party certified wood pencil for a broader portion of their product range. This is especially in the light of new regulatory actions such as the 2008 amendment to the US Lacey Act which seeks to extend protection of endangered plants to include all manner of wooden products imported to the US. Similar legislative actions are under review in Europe and will be an increasing challenge not just to the pencil industry, but the global wood products industry as a whole. I expect to write more on this legislative topic and its projected impact on the industry in a future Timberlines post.

The most notable new certified wooden pencil at Paperworld this year is the new STABILO Green Range (image above). This range from Schwan-STABILO features the 100% FSC certification label and initially covers about 4-5 different pencil products with the intent to add new FSC certified pencil items over time. For more information see the STABILO Green Pencil Library Wiki page at our Pencils.com site. Of course Faber-Castell has long touted their leadership in FSC certification of the majority of their pencils and other European brands such as Caran d’Ache have had FSC certified products for some time, as well as our own California Republic ForestChoice brand which was the first FSC certified pencil offered to the market. As the leading supplier of FSC certified Incense-cedar and FSC Basswood to the pencil industry our company is experiencing increased demand for our FSC certified pencil slats.

Plastics and recycled products are also increasingly positioned as green. Our industry is clearly experiencing a re-emergence of the extruded plastic pencil. It was even interesting to see some standard PVC type plastic products from Asia being positioned as green simply for the fact they are “woodless”. However, most of the traditional plastic pencils are actually a composite of wood flour and plastics so technically they are not woodless. The Remarkeable Pencil has different versions produced from recycled cd cases, plastic cups and a variety of other materials. Bic’s Conte Evolution has been the market leader in plastic extruded pencils ever since Newell discontinued production at the former Empire EPCON facility in Shelbyville, TN some years back. However as BIC long since stopped exhibiting at Paperworld I am not certain what specific environmental claims they make regarding the Evolution these days. Chinese and other developing country companies have increased investment in plastic pencils production as well, though in these cases it’s most often to address economic concerns as wood costs for pencils have been increasing over past several years.

The major announcement on the extruded pencil front is the new Staedtler WOPEX pencil which they gave top billing and emphasis as their new product at Paperworld. This pencil has already been reported on at Lexikaliker blog in German. I was able to meet the Director of R&D at Staedtler who presented this product introduction to me. First, the name is a form of anagram for the words Wood, Pencil & Extrusion. I did find it somewhat interesting that a leading German writing instrument company used an English anagram to name its new product, but I guess this simply reflects the current state of the use of English more globally. The key features of this pencil are that a full 70% of the raw material used is wood flour. So Staedtler is pushing the recycling of wood and minimization of recycled plastic with respect to environmental positioning. Also the pencil is definitely more rigid than other plastic pencils I have seen and they indicate they will produce it in three grades H, HB & B. It did write better than my experience with most other plastic pencils. Finally the rubberized surface has more ergonomic properties similar to their Ergosoft range. As I understand it they do not intend this to be a cheaper substitute for wood pencils, but a value added product preaching it’s performance and green benefits.

That’s it for this Part 1 report as it got way longer than planned, as usual. Tune in for Frankfurt Paperworld 2009: Pencil Report – Part 2 where I’ll focus on the industry impacts and reactions to the current World Economic and Recessionary environment.