Good morning. I'm Anthony Pettinari. I'm the packaging analyst here at Citi, and we're very pleased to welcome Mark Sutton, Chairman and CEO of IP to kick off our Wednesday session. Mark, thank you for joining us.
Thank you, Anthony, and thanks to everyone here in person in the room and also to those on the webcast. I really appreciate on behalf of our team, your interest in International Paper. I do have a short presentation, some prepared remarks I'd like to make before Anthony and I go into Q&A. So I'll go ahead and launch into that.
During this presentation, I will make some forward-looking statements that are subject to risks and uncertainties. And so you'll see the usual legal disclaimers on Slide 2. Also, reconciliations of our GAAP to non-GAAP measures are available on our website. So with that said, let's go ahead and get started on Slide 3. So as we wrap up the year and look forward I'm confident in International Paper's ability to successfully navigate the current macroeconomic environment.
And I also believe we are well positioned to increase shareholder value over the long term. Reflecting on the current market environment, we do see stable to moderately improving demand across our portfolio, both in packaging and in our specialty fibers business. The pace of the demand recovery continues to be driven by consumer spending, which has been focused on essential goods and value offerings in the last 18 months.
While the macro environment and lingering cost inflation has impacted our earnings, we are taking significant IP specific actions across the company to further optimize the performance of our businesses. One example of this is our continued focus on cost reduction as teams across our mills, box plants and supply chains focused on reducing the highest marginal cost and in October, we announced actions to structurally reduce fixed cost in our mill system, again, in both businesses by $230 million annually.
Another example, and we've talked about this on several earnings calls in a row, all of them this year, in fact, is our build to better IP program, which has delivered $195 million in year-over-year earnings benefits through the third quarter of 2023. These benefits are coming from commercial initiatives unique to our company, focused on mix and margin improvement and from process improvement initiatives by leveraging advanced technologies and data analytics to make better decisions in our operations.
The building a better IP mindset is embedded in our culture. We'll continue to pursue additional benefits going forward. So this program was really intended to be a 2-year program as we start off our paper business, very organized initiative-driven improvement program, where we announced a target of $350 million to $400 million. The mindset though of doing it this way, we're going to continue. We won't have a name for it. It will just be the way that we continue to improve the company. And again, the focus is not on market benefits that accrue everyone and focuses on initiatives that are somewhat unique to our company.
But if you get the earnings improvement, we get to keep it through various market conditions. We also see additional opportunities to create value by investing in our box system. So that's our converting operation, downstream from the containerboard mills. These investments will allow us to grow with our customers and increase profitability by improving and strengthening our capabilities, the type of boxes we make, the type of printing we do, type of supply chain services, improving productivity and leveraging automation.
A lot of opportunity and productivity, probably not just for IP for every manufacturing company with a whole change in the workforce over the last few years, getting the skill level back up to match the capability of the machinery is a real opportunity, and we're working really hard on that. We've got a lot of great employees, but a lot of them are new, and they're just learning how to operate in a process manufacturing world.
And as I highlighted on our last earnings call, the organic investments that we've already made in our box business over the last 2 years, added the equivalent of almost 3 brand-new box plants just by investing in our existing box plants. In addition, we recently celebrated the grand opening about a month ago of our world-class box plant in Eastern Pennsylvania, which is a totally new greenfield plant.
So going into what we believe is the beginning of an upturn, we will have significant additional capability and capacity to the [ tune in for ] box plants that we didn't have during the last couple of years in areas where we were really short on being able to meet all the market demand. So that gives me a lot of confidence that we will be ready as demand improves in the geographies in the U.S. where we were really tight on capacity when demand kind of skyrocketed in '20 and '21.
So our teams across International Paper to sum up or taking actions, and I know that they know what we're going to be required to be successful through this business cycle, which is for most of our employees, and I would conclude myself in that with probably more than years than most of our employees, one of the most unique and challenging business cycles that we've navigated through, the depth of the cycle and the duration of the cycle of demand followed by an under 10 by 4-year high inflation. There's a set of challenges and problems. We haven't exactly had to solve before. So the good news is our employees are energetic about it and approaching it with the right mindset.
So I'll turn to Slide 4, and we realize this part of the business cycle won't last forever. We're not living in the moment. We're focused on the future and what we can control. So I'm confident International Paper will be -- is well positioned to win with customers and increase shareholder value over the long term. And I believe this for a number of reasons. We have a focused portfolio, the most focus the company has been. We're 126 years old next year. And this is probably the most focus the company has been other than its original founding in the late 1800s. So we have an opportunity to leverage that focus into concentrating on just a few things that we can do really, really well in corrugated packaging, absorbent pulp.
I think both of those businesses offer long-term attractive growth when you look at the underpinnings of growth in corrugated packaging in the absorbent pulp market and the kinds of products that our products go into. We have strategic relationships with a large number of national and local customers across a broad range of attractive end-use segments.
We have on our customer list just about in both businesses, every customer that's a market leader and we have a position with them. We have regional customers in both businesses. We have small entrepreneur type businesses in both businesses and in the fluff pulp business, that's across the world. We have a talented and engaged group of employees with strong market experience.
And one thing I love about our company is we have the leadership development, the skills development systems in place that as we have natural turnover retirements, those type of things or something like COVID-induced workforce turnover. It doesn't take us too long to bring new talented people in and they're surrounded by people that are ready to help them in systems that are helping them get up to speed. So I feel really good about our ability to leverage our human talent as well as our process and equipment expertise.
We're improving our commercial excellence. That's been a focus of mine for years now as CEO that we need to match our operating capabilities with equally or better -- equal or better commercial activities. And that just doesn't mean sales and marketing that needs how to make money at the box plant level, for example, how to run that business like it's your own business. And so part of that's analytics, part of that's a mindset and we're continuing to get better at being a commercially excellent customer.
And the way we measure that is not we say we're better, we get the feedback from our customers. So if you combine our world-class assets, with our people and our unbelievable customer list. I think we have the diverse portfolio of products and services a broad range of solutions to offer, and I think that really bodes well for the future of IP.
So Anthony that was what I wanted to get out of the prepared remarks, and I'd love to take some questions.
Yes. Mark, thank you for that overview. Maybe I'll just kick one off with -- if you could talk a little bit more about kind of current market conditions for boxes and where box demand sits as we get into the end of the year? And specifically, if you could talk about maybe any end markets that are outperforming or underperforming and where we are with destocking.
So on our third quarter earnings call, we -- our business leader for our box business, Tom Hammick, talked about continuing sequential improvement. And we are seeing that through from the fourth quarter from the third quarter to the fourth quarter. And we're seeing that across a number of segments. But I'd call out 2 that are really starting to really gain traction. No surprise, the e-commerce segment despite all the confusing news out there continues to grow. Just we're a big supplier of packaging in that segment.
And despite the ups and downs of '20 through '23, we're up over 20% from where we were in 2019. And that segment is continuing to gain traction. And then one that's often belabored, but I think it's implied a little bit when you have this type of inflation and a consumer that's under a little bit of stress processed foods and beverages are actually doing pretty good right now. We are very large in the protein markets. So think about meats basically meat and some seafood, but a lot of poultry and beef and not really a demand issue from the standpoint that people are moving away from it, but just the way that they operate those businesses and take down their cold storage.
But obviously, the cost of beef is really high. So that pushes the consumer to another form of protein, well, we also package that. So we typically don't lose business when consumers move between one type of protein and another but the industry itself through the fourth quarter for different reasons, and you can kind of look at earnings calls of some of those large companies and hear what they're saying and we're very exposed to that segment.
So for us, for IP, that's one of the sources of us probably coming in right below where the market is going to be. But in general, we're seeing improvement across most of the segments that we participate with the exception of a few durable goods still dragging, and you can relate that to the housing market. It's really a derivative of that. So until a lot of things happen interest rates, and there's not a great supply of houses because no one's moving because they can't afford even another one. You all know the story. So that durable goods segment is still not anything to write home about.
But we're encouraged with what we're seeing. We were talking at the dinner last night, and with one of the investors asked a question about our outlooks. And I think we've concluded in the company despite our best efforts and looking at analytics and talking to customers and triangulating, we seem to be about 2 quarters off of what we say we think is going to happen and it does happen, but it's 6 months later. So I'm hoping we can tighten that up as we go forward.
And in terms of destocking, as that largely run its course? And then I guess...
It feels like it is from a qualitative standpoint, when we talk to customers, when we look at their order patterns, I think the destocking, we would say, is generally over. Again, we thought that would be done by midyear, it's going to kind of be over now as we get to the end of the year. I would say there is some interesting information. And again, you all see all of this, that with supply chains operating better, maybe in some ways, even better than they did before because people were desperate to get goods.
But the supply chain has improved. I think a lot of our customers are experimenting with a different level of inventory. And one set of retailers and generally started using the term clean inventory. So having less overall inventory, but making sure that they can try to predict what their analytics, the most important items consumers want in inventory versus something they're willing to wait for that's really hard to get right.
And so we'll see how this goes. I've seen it before, and you get really low on inventory and then you don't have the right stuff. And then there's a meeting in a company and they say, you don't ever run out of sales again, so then inventories go back up. But I think we're going to probably see a slow rise to inventories that would be kind of similar to what we had before.
And I also think the credit cycle and the interest rates and the tying up of goods in inventory and the cost of that now is higher, and much higher than it's been for, I don't know, 25 years. So I think that's going to affect what people are willing to do on inventory. So destocking from the buildup, yes, but I don't think the build of inventory is going to go back to exactly where it was. I'm talking end-use products, the stuff inside of our boxes.
And you talked about the box plant investments that you've made and I guess, sort of 3 incremental box plants plus the one in Pennsylvania. Obviously, those are lower cost, but do those allow you to serve a different kind of customer or offer different kind of product or how should we think...
It does both, actually. It's net new capacity or areas where we were really out of capacity. And in a box plant to say you're out of capacity is a big statement because most of them are designed to run 5 days a week. So you have the staffing to run 5 days a week. If you have a surge in demand, you always have the option of asking your employees to work a sixth day, a Saturday. And usually, they do and they'll even do it 2 or 3 Saturdays a month seasonally, they can make extra money. But not -- you really can't ask them to do it forever. None of us would want to do that either.
And so then you look at do I have enough business to add an entire shift and then run the plant 6 days a week. You do have to take some time for maintenance, so that ends up falling on the day you don't run. That's how we survive 2021 and '22, but it's not sustainable. And this workforce today is not yesterday's workforce. And just assuming that people are willing to work for over time is at least right now, not a safe assumption in all parts of the country.
So what that gives us, those investments give us the ability to run our company, get closer to running our company on quote straight time and use your surges for true market demands or interruptions in the supply chain or a customer who got their demand wrong and comes to you and says, "Hey, I got it wrong. I need 25% more than I told you. It gives you the ability to do that. The capabilities what kind of box we can make, the target there. We've got plenty of equipment for some of our large run customers. We were running out of capacity for some of the local and regional businesses. Customers that use smaller boxes customers that use more complicated boxes, maybe more print.
So most of the new investments are giving us additional capability. They can make a simple box, but they can also make the more complex box, which tends to carry higher margins. So we're getting net capacity, and we're getting the ability to better serve all segments of the market. And those statements, Anthony, are geographic statements. We might be just fine in Southern California on all of it, and we might be weak in the Chicago market. And so we're really targeting to where we need the capacity and the capability.
Right. And you talked about the box plant network. I'm wondering if you could talk about your containerboard system and your mill system. I think you took 2 million tons of downtime over the last 4 quarters. You announced the closure at Orange. Can you talk about containerboard's demand balance for IP? And then maybe weaving into that I think on Friday, pulp and paper we published price is down $20 a ton. There's been reports of the competitive price hike. Just to the extent you can, can you just talk about sort of the containerboard market.
I think the dynamics in containerboard for IP, obviously, you're right on the annualized number for slowing our system down equated to almost 2 million tons, that's on a 14 million-ton system. So it's significant. We've never done that before. We've done 1 million tons annualized for 1 year, which is kind of a, I would say, a more typical demand cycle. So obviously, the recent demand cycle, per my opening comments about it being unique depth and duration, it was kind of double our normal approach.
Now we have added some capacity during that period of time. We run better what you want to do, but the reward for running better in a slow period, you have to take more so down time. So our employees really get confused with that sometimes. We solve all our reliability problems in 1 year when demand is really high take '18 and then you get to '23 and those same improvements are still ready to be utilized, and we're telling employees slowdown.
We don't have the orders. And so they understand it, and they know how to do it. Demand is better in balance. We've always had a reasonable export position. I think that's probably changing for us. We've been as high as 15% of our output, 100% dedicated to export markets. The export markets have changed a little bit. Supply has come online in Russia and other places. But -- during the pandemic, the supply chain just made it impossible for people to get the products they needed. So it forced some substitution. They didn't want to do it, but they had to do it. And as usual, in business, some of that stuff worked.
So we think our export position will probably be smaller over time. But our primary focus for our containerboard system is to supply our box business and our strategic open market customers in the U.S. and our strategic export customers. The Orange equation was how much longer do we think it will take before our system is running for us, full is 93%, 94% of nameplate output. We take some time off or maintenance. We take some time for flexibility. So we never plan to run at 100%.
And we just looked at as marginal cost were coming down. We were able to then go from taking some downtime or slowdowns everywhere to concentrating it in 1 facility. And then the difference in the decision criteria, do you temporarily close something? Or do you permanently close something? Well, we know we have future product needs, lighter weights, things like that are coming down the pike. We also made a bunch of system improvements kind of quietly, no one was paying attention, but in 2020, we converted 1/2 of a printing paper Mill Riverdale to high-performance white linerboard.
But that freed up capacity in some of our other parts of our system where we were buying bleached pulp and we were making white liner, not great white liner, but we were making it. When we made it now at Riverdale, we basically got new capacity. So we've made some internal changes that led us to conclude. We've got a period in the market. We've added this other capacity. We've moved things around in our system. It allows us to kind of reset our footprint and we don't think we'll have any regret factor like demand takes off tomorrow, and we wish we wouldn't have closed range.
We've done as much work as we can do to say we've got time to take it out -- and that, plus the stuff we're doing in fluff pulp give us that $230 million of fixed cost removal that I mentioned. And then when we go back into containerboard, if we need it in the future, which we probably will several years down the road, it will be maybe the other half of Riverdale. It will be other products, lighter-weight products, maybe even geographically focus toward our Western U.S. box plants, where we really don't have anything of significance. So the supply chain cost to get from the middle of the country or the east to California, makes you think differently about where your manufacturing assets need to be. And I don't think that supply chain cost structure is kind of go back to where it was. So a lot going on. We feel good about the decisions we've made. We feel good about our footprint.
On the second part of your question, it's really difficult to track right now the pricing index and the qualitative commentary that comes with the analytical published the number. And just to be quite honest with you, the 2 weeks ago, $20, we don't identify with that. We don't see that in the marketplace. So I would say we were surprised. But it's a unique period of time.
These price decreases that have occurred with a 6-month gap between the last one and the one before, are also coming off of historic run-up in prices. So I think the jury is still out on how this is playing out in this particular cycle. So we'll keep an eye on that type of thing. But yes, I don't think anybody in our company was anticipating or expecting that or really identifies with that. That's not what we're seeing with our customers.
If anyone has any questions, feel free to grab the microphone or I can just repeat your question, but please go ahead. So Mark, just sticking on the topic of containerboard supply demand. We had a lot of paper machines starting up this year, kind of smaller producers starting up, I think, in most cases, like recycled machines. I think they're pretty much all up, not speaking about any specific competitor, but has that capacity been sort of absorbed in the market? Is it ramp through '24? And then just from a big picture perspective, are these players integrated? Can they compete against you and your larger customers? Like how should we think about that supply addition from a big picture perspective.
I would put it roughly in 2 groups. The capacity that's been added by companies, including IP, like I mentioned that we did the 2020 Riverdale that the companies that make boxes and add capacity, I think you can kind of look at the track record that, that capacity is largely targeted towards growth in their box business. And so it tends to have kind of minimal, if any, impact on the market because -- you never get the timing exactly right on large investments because you can't predict the economy that well. But normally, we would add capacity. I take you back to when we added some capacity in I don't remember exactly. It was maybe '16 or '17, and it was not a great time to bring it on.
We just slowed back some other capacity, but we needed that product it was some investment we made at the Valliant, Oklahoma Mill. We needed that lighter-weight medium product, and we just brought that up and brought something else down and matched our demand signaling. So I think that integrated player adding capacity is one category. And I would say it's -- I don't -- personally, we don't worry about any of that. Then there's the other category where people are trying to say, I think I've got a business plan where I can be a niche or a regional or marginal supplier of just the containerboard, maybe 1 or 2 grades of packaging paper. And I can find enough independent box makers that would want to add me as one of their suppliers. And that's been very mixed. Most don't make it. Several end up being acquired by a company who does have box plants. So I think it's a hard sell.
The open market is smaller. It's true unaffiliated companies that are not in strategic supply relationships and all that. And I think the value proposition of going to a box maker who has 1,000 customers and lots of different designs and needs to buy 26 types of packaging paper and you make 2. And the 2 that you make, they're already getting from a supplier that sells them the other 21. I think, is a tough sell, and that's proven out a number of times.
So we'll continue to watch that. I think the number of conversion opportunities from a mill that was making one product, and now we're going to make packaging, that's gotten a lot smaller especially the low capital conversions. So I think you'll still see an occasional recycled mill fueled by local grants and other government money and stuff. But it typically ends up just in a region where there's no shipping cost, they can cut their price a little bit because of the lack of having to send it all over. And try to stay cash positive.
And I think that's gotten a lot harder right now with inflation and supply chain cost and what happens with recovered fiber. Those type of mills don't make their own energy. So the energy future in the U.S. is probably higher cost more than lower based on government policy. So I think the calculus changes on -- you really need to have low-cost recovered fiber and you need to have low-cost energy and you need to ship in your backyard for that model to work.
Just going back to an earlier comment, can you remind us what your -- what percentage of your board capacity is forward integrated into like North American box plants that you own? What's your board integration rate? And you talked about exports maybe dialing up or dialing down. Do you have like a target integration rate? Or do you think about it that way? Or just curiously.
We've always thought about our integration rate as our kind of captive customers. So first and biggest is our own box business. And then there's another 1.5 million tons of U.S. business that's not -- we're not out looking for an order every month. These are really good box-making companies that have decided years ago, in one case, one customer decided they're going to close all their mills because they were old and they were not competitive and we were going to be their mill. And we've had that customer for 20 years. And they slowly just shut things down, and we became the -- I consider that integrated.
I mean the only difference really is we are not the owner of box plant. But as far as the demand security being there. It's there. And then in Europe, we have the same thing. Of that 15%, we export, 1/3 of that goes to Europe. Of the third that goes to Europe, almost all of its strategic long-term customers, including our own box business and we provide all of their virgin kraft liner. They have their own recycled supply with Madrid and some local suppliers.
So I think if you add all that up, we're probably in the 85% range. But I haven't actually -- there's been so many changes. I haven't actually looked at the number. It's typically in the 85-ish percent range. If you look just at the North American box business, it's probably a little lower than that. So take out the strategic that we don't own, but we supply all or most of their paper. If you look at the difference between our capacity and containerboard and our capacity in the box business, it would be lower than that.
And we don't -- I know some companies talk about it. We don't solve for integration rate, we solve for a margin and a profitability. And so there have been times in our company where we have had the highest EBITDA margins in the mid-20s when we had in the pure sense of integration rate to our own box business, we had the lowest integration rate. And it's just because of the way markets work in Asia, and markets work in Europe, there was a shortage of supply. So prices were really high. Supply chain costs were very manageable, and it was more profitable for IP to serve all 3 channels, open market in the U.S., our own box business and the open market and the export market in a certain mix that actually maybe hurt our integration rate. But as a general statement, we're almost always better off going through our own box business and turning our containerboard into a box that we make and we sell.
Maybe just turning to Global Cellulose Fibers. We've seen kind of improvement in that business, maybe company-specific improvement within IP and then there's been improvement, I think, in market conditions. Wondering if you could talk a little bit about both of those.
We made a lot of improvement in the business, '21 to '22. It was the single driver of IP's earnings improvement last year. And of course, then that business is not immune from the business cycle we were talking about. And for the first time since we've really acquired the Weyerhaeuser fluff business and combined it with IP, we actually had -- we had economic downtime, and we chose not to supply paper for our pulp in certain markets because the economics just didn't meet our criteria. And so that adds obviously temporarily a lot of costs. So that negated a lot of the improvements we made commercially that really showed through last year, especially in the second and third quarter.
What we really look at and what we've been talking about for 1.5 years on earnings calls is we were working on changing the economics and getting paid for value for the true medical grade fluff pulp and decoupling that from the lower end uses that use fluff pulp and commodity pulp. And the test in that was to look at the differential through a cycle between fluff pulp and market pulp. And if you look at that differential now and you compare it to past cycles, it's 2x to 3x larger.
All of it's depressed on an absolute basis, but we think we've made some significant progress in having customers recognize the value of this product and that it's -- while it's in the family of pulp, which is a huge 50 million-ton market, this is a 6 million-ton special market that can't be correlated to the 50 million-ton market in the way that it has been. And that's not our customer's fault. I never blame our customer. That's the way we go to market, the way we price our product, the way we communicate our value proposition as IP and I can't speak for other companies.
But as an industry, we probably haven't been paid for value in a product that's really complex and goes into a very sensitive specific set of end uses from babies to feminine hygiene and all kinds of things that are super important and regulated. And so again, back to that earlier commercial excellence comment, we just looked at what is this product worth and what should it be worth in the scheme of things when you look at what our customers are doing with it and what should we be paid? And you'd be amazed sometimes when you put that case together in an organized way, and then you just don't -- product is not available, if that's not agreeable, you make progress.
And in terms of -- I mean, there's been price hikes announced in fluff, there's been capacity closures by yourselves and others. In terms of the demand environment in the year-end? And can you remind us where Global Cellulose Fibers goes in terms of U.S. versus overseas?
Sure. A couple of things on that. The prices are starting to move up, and pulp will always be a fast down and a fast up kind of market just -- it's heavily influenced by the market in China and the way they buy and store and hoard inventory and all those things. But the market is turning. Destocking is definitely done in that market. We've seen demand improve. And so pricing will follow. The real question is does anything interrupted into '24 like a recession in the U.S. or somewhere else or I heard something this morning about a new -- not new, but a bunch of kids with viruses in China. You just never know.
But it just kind of say there's no ex essential interruption, I think we're beginning to see the reengagement of the kind of the positive part of the cycle in pulp. And I think it probably can go pretty rapid on demand and price. On our capacity decisions, there's a nuance there. We've always said we wanted to be mostly absorbent pulp, very little market pulp. So the capacity we took out while the Pensacola example, that machine was making fluff pulp and the Regal wood decision was making mostly market pulp, looking at the demand reset in the market, the fluff we have for the market will actually grow our fluff position.
So I wouldn't characterize it as IP took out fluff pulp. We took out pulp capacity. And in some cases, we can make both products on the same production line. And so we will use that production to make fluff pulp. So the net of all that is a higher percentage of our manufacturing capability or capacity will be targeted to absorbent pulps and less exposed to this highly cyclical market where we really are at a major player. So we got $1 million in Canada that's 100% Northern Bleach softwood market pulp. And that's okay. That's a good product and that's what it's designed. That's why it's up there, that's the type of trees that are there.
But every other mill and the rest of the system needs to be really focused on absorbent pulp. And if we make any market pulp, it's just a balancing -- it's just a balancing grade and not a major part of the business. And it's -- we haven't gotten out of the 70s and percentages of production that's market pulp, and that's just not good enough. So we're taking, again, similar to the comments I made about Orange, we're taking advantage of a market reset in demand coming off this crushing inflation that the consumer is seeing.
I mean that drove consumers in certain parts of the world completely out in the ability to afford disposable diapers and feminine hygiene and all those products. They just can't afford it to the demand goes to 0. So we're taking advantage of this kind of reset to reset our manufacturing environment. That will result in higher percentage of market of fluff pulp, less -- much less of any economic downtime, which drops our cost dramatically.
Maybe one last one. Can you talk a little bit about the balance sheet? You're kind of in a much better shape than previous cycles? And then dividend. And then as we think about next year, without giving guidance, it seems like you had some onetime items on cash this year that maybe go from that guys to good guys next year.
Yes, we did. There was a tax -- one kind of tax settlement that was a bad guy on cash. We also have a cash inflow from our sale in the Ilim business, which will be a positive source of cash as we go into next year. So quickly on the capital allocation. Balance sheets in the best shape it's been in a very long time, both on an absolute basis, the amount of debt, the maturity schedule and also the rest of debt, which is pension, our pension is fully funded. We've changed the investment strategy. So we -- it probably can't get on again because the plan is closed.
And so all of that risk that we had in IP 5, 10 years ago is off the table, and that allows us to really concentrate on generating cash, maintaining our investment-grade balance sheet, also giving us opportunities if we need to exercise use of that for strategic opportunities we can, but it allows us to focus our generation of cash into our dividend and into investing in the business. The dividend is really important to us, our Board and to the investors I talked to, especially our long, consistent holders.
If you look at our roster on our website, we list who those are, and they are very appreciative of that dividend. So we have a guidance or a policy or a guideline, at least say, 40% to 50% of our free cash flow is dedicated to our dividend. I get a lot of questions on that if it's 32% 1 year or 100% the next year. It's not an annual statement. It's an overtime statement. There'll be times where it's exactly 40% to 50%. There will be times where it's lower than that. And there will be times where all of our cash flow, all of our free cash flow is funding our dividend.
We're okay with that. We're okay with that because we're committed to the dividend. We plan to generate enough cash to where it should average 40% to 50% over time. And so that's our commitment, and we feel really good about the financial position. A time like we're in is why you do what we did with our balance sheet. I mean there's just a minimal, if any, risk that investors should worry about the financial underpinning of a company like IP through, again, in my almost 40 years, the most challenging, difficult economic cycle.
And what makes it challenging and difficult versus past ones we've always seen supply demand cycles and all the economics that follow that. What we haven't seen is that underpinned by 40-year high inflation, which, by the way, hasn't all gone away. It's made it through the labor cost, and there are very sticky sections of industrial inflation that there's things that are up that we use. Specialty services and things like that, that are up 20%, 30% and 40% from 2019 and have come down 5%.
And so I think that makes the current environment really, really challenging. It stresses everybody's earnings, stresses our customers' earnings, stresses our suppliers' earnings. And our balance sheet underpinning and our focus on maintaining our dividend through good times when it's easy and bad times. I think that's when you figure out what the company is made up. Anybody can maintain this or that when everything is great. How many people ran and slashed their dividend in March of 2020, a lot. We didn't. We thought about it. We looked at it. We evaluated and we powered right through a global pandemic because when we say we're committed, we mean it.
Great. Mark, this is an extremely helpful overview. So thank you.
Thank you again, Anthony, and thanks, everyone here and on the webcast. Have a great day.
