SIC 2677
ENVELOPES



This category includes establishments primarily engaged in manufacturing envelopes of any description from purchased paper and paperboard. Establishments primarily engaged in manufacturing stationery are classified in SIC 2678: Stationery, Tablets, and Related Products.

NAICS Code(s)

322232 (Envelope Manufacturing)

Industry Snapshot

The envelope category is classified as a converting operation, since it transforms a finished product (rolls and sheets of paper and paperboard or synthetic materials) into envelopes. In 2000 U.S. manufacturers shipped $3.77 billion worth of envelopes, compared to $3.58 billion in 1999, according to the U.S. Census Bureau.

In the late 1990s, commercial white or colored mailing envelopes accounted for about 60 percent of industry shipments. Kraft mailing envelopes represented 7 percent of the total, followed by clasp and string/button envelopes, at 2 percent. All other envelopes, including padded shipping envelopes, accounted for the remaining 31 percent.

The envelope industry is obviously a major consumer of paper. In the late 1990s envelope converters consumed $1 billion worth of paper and paperboard in their manufacturing processes, mostly uncoated freesheet and kraft paper, according to the U.S. Economic Census. Mailing and in-house envelopes, which use adhesive seals, metal clasps, or string-and-button closures, are another important segment of the industry, as are heavy-duty padded shipping envelopes and mailers. Converters also used $109 million worth of paperboard containers, boxes, and corrugated paperboard—primarily to ship their products. Additionally, converters used $40 million worth of glues and adhesives and $94 million of plastic film and sheet. The industry also used $359 million worth of other materials.

The envelope industry is not a growing industry; it can be considered static since it is neither growing nor declining rapidly. Envelope shipments ranged between 166 billion units and 178 billion units throughout the 1990s, with small increases or declines each year. The value of shipments is also relatively static.

The chief threat to the envelope industry is alternative means of transmitting information, from mediums such as the Internet, fax machines, voice mail message systems, electronic mail, and other electronic communications systems. However, despite these threats some industry observers point out that new technologies rarely eliminate "old" technologies; they simply move them into new applications. Just as television did not eliminate radio broadcasts, electronic communications are not likely to completely eliminate the use of "old-fashioned" mail.

Organization and Structure

Envelope manufacturing is widely distributed throughout the United States and basically involves folding, gluing, and printing on high-speed converting equipment. There are many companies involved in envelope manufacturing, including numerous small producers. As in other industries though, the envelope industry is consolidating as larger, more efficient producers buy up smaller entities or force them out of business.

The domestic envelope sector continued to suffer from over capacity, low capacity utilization rates, and flat or declining prices in the late 1990s. In simple terms, there was too much envelope-folding machine capacity compared to total envelope demand. Many converters reacted by scrapping older, less-efficient equipment or even closing some plants. Little new plant construction was anticipated in the late 1990s, as converters instead pursued a strategy of rebuilding or refurbishing older machines so that they could compete more effectively with new equipment.

While paper envelopes have traditionally been made from 100 percent virgin fiber, many converters have reacted to public demand for more environmentally friendly products by introducing standard business and specialty envelope products that contain varying amounts of recycled materials. Since the products themselves can be recycled, they hold an advantage over newer plastic and olefin envelopes. In fact, some municipal collection programs collect "junk mail," giving paper-based envelopes an environmental plus.

Most paper envelopes are made from uncoated freesheet, one of the largest grades produced by U.S. paper mills. In 1998, envelope grades accounted for about 10 percent of the 13.7 million tons of uncoated freesheet produced by U.S. mills.

Specialty Envelopes. While standard business and commercial stationery envelopes still account for the majority of envelopes produced in the United States, in the mid-1990s specialty envelopes emerged as the fastest-growing segment of the envelope industry. This growth has been spurred by several factors, including the proliferation of specialty "quick print" shops and home-based envelope printing. Many quick print shops use personal computers and laser printers to create custom-printed business forms, stationery, and envelopes.

Envelopes for the specialty market must be able to accept the output of laser printers, which use dry plastic toner ink that is fused to the paper in a heating process similar to that of copier machines. Specialty envelopes also require special adhesives and cannot use windows, snaps, buttons, or clasps. They must also be made of paper, since nylon, plastics, and olefin cannot accept the dry ink process.

Shipping Envelopes. Another growing market for envelope converters is the parcel delivery industry. Providers of overnight services, such as Express Mail, Federal Express, and United Parcel Service, offer shipping envelopes free to their customers. These envelopes are made from several materials, includingpaper, paperboard, nylon, spunbonded olefin, plastic, and plastic resin. The overnight package delivery industry, begun in the 1970s, was delivering more than 4 million packages daily in the late 1990s.

Catalog services, which proliferated in the 1980s and 1990s, are a major market for shipping envelopes as well. Aided by the vast expansion of credit cards and toll-free telephone numbers, catalogs exist for every imaginable consumer need. Each catalog order must be shipped in envelopes or paperboard boxes. More recently, e-businesses operating on the Internet have expanded the market for home shopping, adding to demand for shipping envelopes.

In addition to catalogs and e-business, telemarketing and television shopping networks are major users of shipping envelopes and mailers. Envelopes and mailers for catalog and direct mail orders must meet strict shipping requirements and thus are heavier and more expensive than other envelopes. They come in a wide range of shapes, sizes, and combinations of base construction materials.

Direct Mail. Third-class, direct mail advertisers are another major market for envelope converters. Consumers responding to direct mail solicitations often trigger an avalanche of paper use, including the paper and envelope for the solicitation, the paper and return envelope containing the order, and the envelope or box in which the product is shipped to the consumer. Direct mail experienced an enormous boom in the 1980s and 1990s, despite perceived negative consumer perceptions about the practice. While costly, direct mail allows manufacturers to target their marketing efforts directly to consumers most likely to purchase their products, avoiding the "waste" of traditional mass media, where many consumers reached by an ad are unlikely to buy the product or service it promotes. The expansion of consumer databases and the ability by marketers to more closely define certain market "niches" has allowed marketers to fine tune their direct mail solicitations, leading to long-term growth in this advertising and marketing vehicle.

One of the major costs of direct mail advertising is postage. Postal rates have been rising far faster than inflation as the U.S. Postal Service (USPS) attempts to come closer to recouping its actual costs for each class of mail. Direct mail advertisers were aware that the major postal rate hike in 1994 and a smaller one in 1997 would likely be followed by others, so they look for ways to reduce the cost of each mailing. One way of reducing costs is by "lightweighting" envelopes, using envelopes made with either lighter paper or with lightweight plastics or composites. Envelopes made from nontraditional materials are more resistant to tearing and puncturing and are more resistant to water. However, traditional paper envelopes still dominate both the standard and specialty envelope sectors because of their low cost and other properties, such as high strength, rigidity, and resistance to curl and fold.

Current Conditions

The USPS remains the dominant carrier of envelopes and plays an integral part in sustaining this industry. Mail volume is expected to begin to decrease in the 2000s. According to the U.S. General Accounting Office (GAO), first-class mail volume will decline at an average annual rate of 0.8 percent in U.S. government fiscal years 1999 to 2008. While first-class mail is projected to grow at an average annual rate of 1.8 percent in fiscal years 1999 to 2002, it is also projected that growth will then decline at an average annual rate of 2.5 percent in fiscal years 2003 to 2008. If realized, this would be the first decline in the history of the USPS and would have a major negative effect on envelope production.

For the early 2000s, the envelope industry is expected to sustain very modest growth. However, the rest of the decade is more uncertain, particularly if projections of a first class mail decline come true. Other factors, such as higher mailing costs, may also negatively impact the industry as the decade continues.

In the late 1990s, the U.S. envelope industry improved operating efficiency and reduced heavy over capacity in converting equipment. This strategy boosted the relatively low operating rate (the percentage of time equipment is operating) that plagued the industry in the early 1990s. As less efficient converters with aging plants become uncompetitive, more plant closures and layoffs are expected in the envelope industry. In fact, employment of production workers in envelope converting slipped from a high of 21,100 in 1989 to 19,887 in 2000.

By the late 1990s, many envelope manufacturers had dramatically increased their purchases of envelope stock containing recycled fiber in order to accommodate increased consumer demand for recycled products. (Paper used to make "recycled" envelopes typically contains a mix of recycled fiber and virgin fiber.) Federal agencies and state government are required by law to choose recycled paper products, including envelopes, if they are available. As a result, converters have developed and aggressively marketed new recycled/recyclable envelopes and mailers.

Industry Leaders

Unlike other paper categories, where paper manufacturers also control most of the converting operations through integrated subsidiaries, almost all of the leading envelope converters are independent of paper producers. Leading companies in this category include American Business Products of Atlanta, Georgia; Mail-Well Envelope of Englewood, Colorado; New York Envelope of Long Island City, New York; and Tension Envelope of Kansas City, Missouri.

Workforce

The envelope segment employed 25,208 people in 2000 with a total payroll of $852 million. Production workers accounted for 19,887 of that total and earned hourly wages averaging $14.26 that year. The number of people employed by envelope converters has been dropping as the industry decreases the total number of plants producing envelopes and invests in more heavily automated operations.

America and the World

International trade in envelopes is relatively small, since envelopes tend to be manufactured close to where they are ultimately used. Nonetheless, U.S. converters have expanded their exports, mostly to nearby trading partners such as Canada and Mexico. The North American Free Trade Agreement (NAFTA) with Mexico and Canada, ratified by the United States in 1993, was expected to help expand the exports of efficient U.S. converters.

Research and Technology

Much of the research and technology in envelope manufacturing has focused on improving converting equipment, which allows envelopes to be produced faster and with better quality. Indeed, slower pre-1970 equipment is slowly going out of production, since capacity utilization on this equipment has dropped from 57 percent in 1994 to 48.9 percent in 1996. Capacity utilization of higher-speed, post-1970 equipment remained high at 84.9 percent in 1994 and 85.1 percent in 1996, according to the Envelope Manufacturers Association.

As the speed of the envelope converting equipment increases, however, new problems emerge. Previously, for example, most paper was produced using an acid process. However, due to the desire to reduce costs and improve the life of paper products, nearly all mills producing fine paper, which is used in many envelopes, have converted to the alkaline process.

Alkaline paper is usually produced with a synthetic "sizing" product, such as alkylketene dimer (AKD), to improve the surface of the paper. AKD is used to produce many fine paper grades, including envelope paper. On newer, high-speed precision converting equipment, AKD paper has been known to "slip," causing runnability problems. Recent research though, has prompted the development of new sizing products that allow envelope manufacturers to use alkaline paper without concerns about runnability. Such innovations have helped improve efficiency and keep the industry competitive.

Envelope converters clearly face competition from electronic personal communications and electronic data interchange. For example, while electronic bill payment was still in its infancy at the beginning of the 2000s, it was expected that this method of bill payment would grow dramatically, reducing demand for envelopes. Still, while envelopes may be a smaller percentage of the total communication market, their use will continue as the entire market grows even faster. In addition, the fact that envelopes are still a very low cost, attractive way to send information means that the envelope market will remain stable, or at least not experience massive declines, for the foreseeable future.

Further Reading

Darnay, Arsen J., ed. Manufacturing USA. 6th. Ed. Farmington Hills, MI: Gale Group, 1998.

Envelope Manufacturers Association Fact Sheet. Alexandria, VA: Envelope Manufacturers Association, 1999.

Outlook for Envelopes, 2000. Alexandria, VA: Envelope Manufacturers Association, 1999.

Paper, Paperboard, Pulp Capacity and Fiber Consumption. Washington, D.C.: American Forest & Paper Association, 1998.

United States Census Bureau. "Statistics for Industries and Industry Groups: 2000." Annual Survey of Manufacturers. February 2002. Available from http://www.census.gov .

U.S. Trade and Industrial Outlook 2000. New York: McGraw-Hill, 1999.



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