Del Norte Paper Company (a)

DEL NORTE PAPER COMPANY (A) *

If I had bought the kraft linerboard for the African box sale from one of our mills, I would have paid $1,080 per ton, $270 per ton higher than the price I actually paid by buying it in the spot market , said Frank Duffy, Managing Director of Del Norte Paper s Italian subsidiary (DNP-Italia). I can t possibly make a profit for Del Norte if I have to pay so much for my principal raw material. Del Norte Paper Company is a large, fully integrated paper manufacturer, headquartered in the United States. The company s product line ranges from raw pulp to a large variety of converted paper products, including corrugated boxes. DNP-Italia purchases kraft linerboard and converts it into corrugated boxes. These boxes are sold primarily within Italy, though occasional sales are made outside Italy. DNP-Italia has six plants, each of which is a separate profit centre. THE AFRICAN BID Recently, an African firm asked a number of paper companies to submit bids on a large quantity of corrugated boxes. In total, 22 companies submitted bids, including DNP-Italia and another Del Norte subsidiary, DNP-Deutschland. The bids were said to have ranged from approximately $1,020 per to ton to over $1,650, with most of them within 5 percent of $1,200 per ton (the amount bid by DNP-Italia). Del Norte Italia won the contract by submitting the lowest bid from a firm viewed as being capable of meeting the customer s required delivery and quality standards. The price quoted by DNP-Italia was substantially below that quoted by DNP-Deutschland, primarily because of the raw material (kraft linerboard) cost calculation embedded in the prices. DNP-Deutschland had based its estimate on a per ton price for kraft linerboard of $1,080 while DNP-Italia had used $810. The $1,080 per ton figure was the price (inclusive of freight) quoted for export by a Del Norte Paper mill located in the eastern United States. The $810 figure was the price for kraft linerboard of comparable...