Just in the past couple weeks there have been community-jarring news of paper mill closures that really hit hard. Throughout my 30+ year career in the paper and packaging industry, two particular mills played an integral part in providing jobs and careers for thousands of workers and their families. For me, they were regular customers for the equipment, raw materials, and services that I was representing over the course of my career. They helped pay for my kids' shoes - if you will.
First, we learned of the closure of the Graphic Packaging mill in Middletown, Ohio. This mill produces recycled coated boxboard on a multi-former machine with a converting department to produce not only roll-stock, but also die cut sheets. Over the decades, this mill changed ownership through several acquisitions and divestitures, yet many outstanding employees remained the same throughout. Although consumer demand for the grades produced at this mill remains strong, the competitive nature of our industry forces companies to continuously pursue lower costs per ton. When new, larger, faster machines are built, smaller, slower machines find it hard to compete on a per ton cost basis. This is the case here. In fact, this mill will be added to the list of a dozen mills shuttered between Dayton and Cincinnati in the last 3 decades.
Within only a few weeks after the first announcement, we then hear about the announced closure of the Pixelle mill in Chillicothe, Ohio. This mill has been in operation since the early 1800's (remember the Mead company?) At one point, they had 12 paper machines in operation, along with several off-machine coaters and a sizable cut sheet plant. This mill was also one of the few remaining integrated operations in the Midwest, boasting a pulp mill and corresponding power recovery. The various news articles regarding the closure indicates the impact will affect anywhere between 700-800 direct employees. Considering all the local companies supporting the mill with tools, millwright staffing, repairs, etc., that number is likely several factors higher. This mill DID continue to invest large amounts of capital over the years to remain competitive. However, unlike the Middletown mill, Chillicothe's market for the products produced there - carbonless forms and specialty writing papers that were pervasive for decades and made the mill an economic powerhouse - has simply imploded as everything (requiring duplicates) went digital. The difficulty in keeping this mill viable in the absence of demand is the venerable re-tooling it would take to produce new grades that are currently in higher demand (packaging and tissue.)
These outcomes are real examples of the "invisible hand" described by Adam Smith in his seminal book Wealth of Nations. Competition for profit re-organizes markets and industries over time. Even products with a high degree of inventive, patented technologies like micro-encapsulation used in Chillicothe are not immune to shifts in demand from alternative technologies. Manufacturers always have to make 'continuous improvement' and R&D a priority to remain viable over long periods of time. Company leadership rarely thinks long-term when it comes to capital allocation - they typically focus on the next quarter or year. Also, what manager would cannibalize their own sales with a new invention (e.g. Kodak killing photo development in favor of digital photography.) It's easy to become complacent when profits and cash flow are high - which is why it is rare to see companies continue to operate over centuries unless they change with the times. FYI, Nokia started out as a paper company but shifted gears to become what it is today - a communications infrastructure company. Also, in one of my previous columns, I shared the fact that ALL the original Dow Jones Industrial index companies no longer exist except for GE, which was removed from the index several years ago.
We've seen this movie many times in Ohio as mills are closed and demolished. Coshocton, Rittman, Chagrin Falls, Franklin, West Carrollton x2, Hamilton x2, Middletown x4, and Circleville are a few of the Ohio towns that lost their largest paper exporter. The loss of a large exporter of products from the town means that money from outside a community is no longer making its way into the pockets and mortgages of town residents. Those residents, along with the mill itself, are no longer paying taxes on income either. Laid-off employees are also less inclined, i.e. lack of disposable income, to frequent the shops, restaurants, professional services, and entertainment venues that support other townsfolk. Forget about a new car. Fewer homes get sold, fewer doctor trips, less groceries, less gas. School districts shrink as families leave the area to find work elsewhere. I've read over the years from different resources that the multiplier effect of lost wages is anywhere from 4 to 7X the value of the wage lost in a community. Some "imported" money to a manufacturing community leaves the area (corporate overhead, profit, loans) but the money paying for labor, external local services, and local taxes remain and get passed around the community several times over providing livelihoods and growth opportunities. Without imported money, a community devolves into - metaphorically - giving each other haircuts. Where's the growth in that? There isn't as federal, state, sales taxes leach the circulating money pool in a community.
The communities impacted by these closures have to quickly come to terms with their situations and find alternative uses for the land that create jobs or find new employers to build operations in the town, employing the displaced workforce. Some examples of this are as follows; Circleville, Ohio is now home to a new production facility for international consumer products company Sofidel. They are in the process of constructing their 3rd tissue production asset at the site. That's even bigger than the mill that shut down two decades ago! The Champion mill in Hamilton, where Champion started all those years ago employing generations of papermakers, is now a recreational athletics facility - not exactly a big exporter of products that bring money to the town, but an employer nonetheless. A few months ago, I enjoyed a beer at a micro-brewery in the very spot of concrete that I installed a quality control scanning "O" frame in the 90's in the Oakley neighborhood of Cincinnati. It was the former RockTenn mill that now hosts Madtree brewery. The large, rusty dryer can gears still laying around the property as decorations.
This story of loss and resiliency is played out over and over all over the country in many small towns that historically prospered via exporting products outside the community to keep the American dream alive locally. I'm sure every reader of this column has a similar story to tell in their region of the country. Did the town eventually die off too, or get mired in meth addiction? Not all do. It's called survival, and we all have the instinct, individually and collectively. It's just very uncomfortable to exercise. It's always a great story that change brings about inventiveness and risk-taking netting a brighter future for individuals and communities. I hope to be reading about those stories soon from the people and towns impacted by the recent announcements. We're all pulling for you.
Steve Sena (stevesena@me.com) is a Cincinnati native. He obtained degrees in Paper Science & Engineering from Miami University in Oxford, OH and an MBA concentrating in Economics from Xavier University. He's worked for a broad array of leading producers, suppliers, and converters of pulp and paper grades.
