Quality is a prime concern for papermakers in south-eastern Europe.
Fulfilling the needs of distant markets is never easy, and every export situation poses its own distinct challenges. Yet the growth potential identified by Metsä Fibre and its distributor partner Europcell in south-eastern Europe merited a comprehensive examination of the market and the creation of a new model for pulp supply in the region.
It all started from the customer's challenges, explains Sebastian Hetzmann, Europcell's Managing Director. "Many of the companies in this region are in their development stages financially. Investments have been made in paper machines, for example, often with support from the EU, but our customers' financial situation rarely allows them to build an inventory for the demands of several months' production."
These circumstances have made cost and regular availability the chief talking points in the region, and signposted a clear opportunity for actors willing to step in and address the situation.
"This is why these customers enjoy the business we are doing together with Metsä Fibre very much, because we're filling this gap: we maintain inventory for them locally, be that in Serbia, Slovenia, Romania or elsewhere. And this gives them security in the fibre supply."
Evidently this security is a desirable asset, as the Metsä Fibre-Europcell relationship already covers a wide geographical spectrum, with the collaboration currently serving customers in south-eastern Europe.
Providing sought-after quality
Lest it be thought that the emergence of demand for pulp in south-eastern Europe is founded on economy-level products forbearing quality for low price, each party concerned here - supplier, distributor, and customer - point to the importance of high-quality goods in this market.
"In the time we've been active here, customers have learned to consider Botnia Nordic Pine from Metsä Fibre a premium-quality raw material," Hetzmann points out. "To put it bluntly, other companies in the past have shown a tendency to exploit the supply uncertainty here, selling off-grade pulp to papermakers with limited options."
Being open with the customer about the pulp on offer has helped build meaningful relationships across the region, particularly in Romania, where quality is the main concern for example for Petresti papermaker Pehart, which is part of the company MG TEC GROUPS Dej. Operating three paper machines and two converting lines, and with a history stretching back over 150 years, Pehart is the largest player in Romanian tissue paper production in terms of both total volume of paper produced and finished product capacity.
"The quality of our end product is the only way in which we can distinguish ourselves in the market," Daniel Rusan, the company's Chief of Procurement, tells us. "We don't just want to be a big player, but a good player, and a reliable partner for our clients. We have to deliver the same quality consistently. This is one of our main concerns."
“We don't just want to be a big player, but a good player, and a reliable partner for our clients."
-Daniel Rusan, Pehart
The importance of quality, of course, relates to the emergence of a new middle class in the country, demanding products every bit the equal of those available elsewhere in Europe, but it also hinges on the arrival of large European retail chains into the Romanian market.
These chains now dominate up to 60 per cent of the local retail landscape, and they require tissue paper goods that meet the same standards of sustaina-bility (and thereby certification) as those on sale in their other branches elsewhere. This is one reason that Pehart is well on the way to becoming fully FSC-certified across both production and conversion: the company aims to satisfy the remaining requirements by late 2015.
But sustaining the appetite for pulp in markets such as Romania clearly involves more than having the right product: it's also a question of keeping it available. For Metsä Fibre, Europcell and its customers, this has meant developing a logistics solution that both functions well, and continues to do so.
The logistics of success
What makes this working model impossible to replicate is its collaborative nature. Europcell brought a solid knowledge of the region's logistics market to the table, and together with Metsä Fibre, established a concept in which the distributor essentially acts as a hub for the customers in markets formerly locked out by geographical distance or financial circumstances. This took time, but the end result has been a tailored solution for each country the partnership serves.
"Depending on the specific market," Hetzmann explains, "the pulp can arrive by rail, by truck, or by sea. So we found for our various customers different logistic solutions depending on their location. With some customers we used the roads, for others we used river barges, and for the bigger countries like Romania we were looking for more competitive shipping solutions."
This is no mean feat, particularly considering the distance between Finland and these markets. Preserving an attractive proposition for the customers, however, was of the foremost importance.
"Since the quantities going into these markets are relatively small, and the customers themselves relatively few, we had to find a way to be competitive. These markets' main suppliers are from Germany, Austria and Sweden nowadays, so an agile, cost-effective solution had to be sought for each individual case."
The customers also take an active role in the development of these logistics avenues, and Daniel Rusan sees the resultant arrangement as very much a combined achievement.
"In the last few years, together with our suppliers, we have found the best logistical way to bring the pulp into this area," he says. "Europcell manages the day-to-day activities, and with Metsä Fibre we discuss the broader strokes of our cooperation."
He also points to the continuous improvements being made: "We are discussing the trend to develop the cooperation further and further, making it stronger. We are a company that is looking for reliable partners, after all, and ideally a continuous cooperation over many years."
The success of the arrangement can already be measured by its impact on the local logistics environment. In the Port of Constanta, around four hours by road from Pehart's mills, a two-digit increase in the total volume of pulp and paper moved through the port was recently announced. In the customer's eyes, volume increases like this have signposted the possibility of providing good products at a good price for the end consumer.
The home straight
While this three-way cooperation already has some impressive achievements under its belt, not least the logistics pipeline it has forged for itself, in many ways it seems the best is still to come. With the potential of additional capacity and a further stabilised supply, as well as the knock-on effect this could have on pricing, both distributor and customer are optimistic about the future of the south-eastern European partnership.
Sebastian Hetzmann pins down the numbers. "We believe that this market overall has a potential of 350,000 tonnes," he says, addressing the entire region, "and at best we have been supplying around 50,000 tonnes, something like 14 per cent of this. We believe we could certainly increase the market share to 25-30 per cent with the right level of supply available."
This would naturally also have a positive impact on the logistics arrangement, he points out.
"By having regular dedicated supply available we could then look into the logistics, fine tuning the system based on the new volumes to improve upon the way we do it today. Then it just comes down to allocation, and perhaps also the implementation of a permanent hub somewhere in the region."
Pehart is the largest Romanian tissue paper producer in terms of both total volume of paper produced and finished product capacity.
For Perhart's part, the company is now looking beyond their chief requirement of consistent quality to the papermaking process itself, and looks forward to making use of Metsä Fibre's Technical Customer Services to optimise its efficiency. This interest in process expertise speaks volumes as to Metsä Fibre's reputation in the region.
Hetzmann summarises the partnership's current standing: "Overall, Metsä Fibre currently enjoys a very high reputation in terms of both quality and service. The advantage has already been gained when you make a comparison with other suppliers, who have only begun looking at these markets in the past year or so."
Underlining their optimism, each partner appears convinced that strong growth is coming to south-eastern Europe: it may simply be a matter of time.