The coronavirus (COVID-19) pandemic is causing widespread concern and economic hardship for consumers, businesses and communities across the globe. Manufacturers are facing unique challenges caused by the crisis, and forest, paper and packaging producers are no exception.
Pulled between soaring demands for some products (like toilet paper and other hygienic products) and an uncertain outlook for others (such as building materials), companies in the sector must also navigate the challenge of simultaneously safeguarding employee well-being, managing potentially disrupted supply chains, and evaluating tumultuous economic and capital markets conditions.
Typical contingency plans help confirm operational effectiveness following events like natural disasters, cyber incidents and power outages, among others. They don’t generally take into account the widespread quarantines, extended school closures and travel restrictions that are being instituted in countries around the world to help stem the spread of the virus. With some manufacturers shutting down production or shifting to new products that are essential to fight the pandemic, forest, paper and packaging companies need to remain focused and nimble to navigate this crisis.
The pandemic raises a number of unique challenges. In PwC’s latest COVID-19 CFO Pulse Survey, finance leaders in the United States and Mexico shared their top concerns.
The situation is changing quickly with widespread effects. That’s why we’ve prepared some general guidance on COVID-19: What US business leaders should know, covering the key areas of crisis management and response, workforce, operations and supply chain, finance and liquidity, tax and trade, and strategy and brands.
Here is our take on some additional issues that companies in your industry may face:
Forest, paper and packaging manufacturers will likely face fluctuations in demand as the COVID-19 pandemic intensifies, with potentially disruptive effects on production and revenues. Stockpiling of certain paper products by consumers seeking to allay their concerns about shortages may cannibalize future demand. Meanwhile, a prolonged period of economic uncertainty could reduce customer appetite for other products, such as construction materials.
At the same time as these forces may upend the demand outlook, the COVID-19 outbreak is also affecting production. Confirming employee well-being should be a top priority for companies, and the steps necessary for manufacturers to achieve that could impact production capacity. Supply chain disruptions could have a similar effect.
Lastly, capital-markets and commodity-price turmoil could become a challenge for forest, paper and packaging companies — especially those without strong balance sheets.
Employee well-being should be every company’s top priority right now. Confirming a healthy, productive workforce may require forest, paper and packaging companies — and other manufacturers — to consider changing how their production facilities are run. Many workers in such plants may not be able to do their jobs remotely, so the goal should be to create a strategy that maintains production capacity while safeguarding their health.
Forest, paper and packaging manufacturers should expect continued weakening links in their supply chain, as some vendors and suppliers may face operational or financial struggles of their own, especially in those regions hardest hit by COVID-19, such as some Asia- and Europe-based supply chain partners.
COVID-19 isn’t just disrupting operations. It’s also challenging companies’ ability to manage their finances. For some businesses in the hardest-hit regions, it may even threaten their ability to finalize quarterly financial statements in a timely manner.
Additionally, some companies are becoming increasingly concerned about the possibility that the economic impact of the pandemic may cause triggering events for goodwill and long-lived asset impairments, the recoverability of receivables, restructuring actions and/or liquidity issues.
What may make matters worse, key finance personnel may be directly affected by the virus or forced to shift their focus to mitigating its impact on the business. The finance team’s potential reduced productivity could make the significant uptick in the volume of work even more daunting in the coming weeks.
Companies may need to carefully consider their cash, liquidity and working capital strategies in light of the outbreak’s impact on the world economy and credit markets. The disruption of the supply chain may trap cash that could otherwise be used to fund operations, provide employee relief or better manage third-party financial commitments. Since this trapped cash may be idle in the market for an extended period of time, other strategies may need to be deployed to help mitigate the downward impact.
Companies should expect changes to supply chains and workforce global mobility due to COVID-19. Given mounting economic uncertainty arising from efforts to help stem the spread of the disease, some governments are pursuing fiscal stimulus programs or other incentives. These programs could impact forest, paper and packaging firms and may have tax implications that will need to be carefully managed.
Forest, paper and packaging companies with strong balance sheets may be in a position to pursue mergers and acquisitions, even as economic uncertainty, turmoil in capital markets and operational challenges create hurdles for competitors with less stable financial foundations.
These opportunities could take the form of transformative transactions or bolt-on deals. They could involve supply chain consolidation or entry into new product or market segments.
Rather than suspending investments with an eye toward resuming them when the situation stabilizes, companies should reevaluate their strategies and portfolio investments in the context of different potential scenarios for the future. By remaining nimble, forest, paper and packaging companies may navigate uncertainty today, while also preparing for an eventual recovery.
As the COVID-19 crisis continues to expand, forest, paper and packaging companies could be affected on numerous fronts and by many external factors, including fluctuations in consumer demand and the possible impact of an uncertain economic outlook on commercial and residential construction. In addition, the pandemic may impact supply chains and workforce readiness, both of which could have implications for production volumes.
At the outset of any major commercial disruption, businesses will look for immediate measures to help keep their employees safe and their businesses solvent. Forest, paper and packaging companies should remember to balance these near-term concerns with a well-considered view of the future.
What’s needed most now is focus. We encourage companies to start by determining the differentiating capabilities they need to thrive. Even — or especially — in a crisis, you may want to double-down on what makes your organization unique. Eventually, today’s challenges may even offer opportunities for the industry to transform and excel. What assets, people and capabilities will the industry need when the crisis abates?
Most companies in the sector may need to take concrete steps to navigate in this challenging climate. Some will be austere, but austerity measures should be tempered to help preserve long-term objectives. The optimal approach is likely to make strategic cuts now, while also balancing short- and long-term needs.