SIC 2674
UNCOATED PAPER AND MULTIWALL BAGS



This classification includes establishments primarily engaged in manufacturing uncoated paper bags or multiwall bags and sacks, whether or not coated or containing plastics film or metal foil. Establishments primarily engaged in manufacturing bags from plastics, unsupported film, foil, coated paper, or laminated or coated combinations of these materials, are classified in SIC 2673: Plastics, Foil, and Coated Paper Bags. Those establishments manufacturing textile bags are classified in SIC 2393: Textile Bags.

NAICS Code(s)

322224 (Uncoated Paper and Multiwall Bag Manufacturing)

Industry Snapshot

The uncoated paper and multiwall bag industry remained stagnant in the late 1990s. Shipment volumes of $2.8 billion in 2000 were equal to those of the early 1990s. When inflation is factored in, the value of shipments actually declined. While this decline can be attributed in part to "lightweighting" of products (newer bags that are lighter yet as strong as older bags), the industry has steadily lost market share due to sustained and intense competition from rival products made from plastic.

In all uncoated paper and multiwall (three-ply or more) bag applications, the package must contain and protect the product or contents. Paper is used because of its ability to contribute strength and stiffness or rigidity to the container. Plastics may also offer strength, but paper is more resilient than plastics over a wider temperature range. Paper is better for printing than other materials. However, in many applications paper bags must be coated with waxes or plastics (or laminated to plastic films or foil) to develop effective barriers to water, vapor, gases, or odors.

Market Shares. The uncoated paper and multiwall bag industry is split between two categories. Shipping sacks and multiwall bags accounted for 60 percent of the industry's sales in the late 1990s, up from 56 percent in 1992 and 51 percent in 1987. Grocers' bags, sacks, variety, and shopping bags held 38 percent of the market in the late 1990s, down from 43 percent in 1992 and 48 percent in 1987. A small "not specified by kind" category accounted for the remaining 2 percent of shipments. The gap between the two categories will likely grow as the grocers' bag market continues to decline.

In the shipping sack and multiwall bag subcategory, the dominant product is multiwall shipping sacks and bags, holding about 84 percent of production in the subcategory, with single-and double-wall sacks and bags a distant second at 16 percent. In the late 1990s, U.S. manufacturers produced 891,000 tons of multiwall bags and 174,000 tons of single or double-wall bags, compared with 1.04 million tons and 193,000 tons, respectively, in 1992. Of this total, the largest customer category was agriculture and food, followed by building materials, chemicals, and minerals.

In the uncoated paper grocers' bags, sacks, variety, and shopping bags subcategory, the leading product is still uncoated paper grocer's sacks, with 55 percent of shipments in the late 1990s. However, that figure is down sharply from 1992 when grocer's sacks accounted for 68 percent of shipments. In the late 1990s, uncoated shopping bags accounted for 10 percent and uncoated paper merchandise bags 9 percent of this subcategory. All other uncoated paper bags and pouches, including specialty bags, comprised the remaining 26 percent.

Organization and Structure

In the industry's terminology, paper sacks refer to the large bags used to hold customers' supermarket purchases. The 1/6th barrel sack is the standard paper sack used in supermarkets. It is called that because in the early 1900s, when paper bags were gaining in popularity, they were used to hold 1/6th of a barrel of flour. Another popular size is the 1/8th barrel sack.

Paper sacks come in a variety of basis weights. Single-ply bags range in basis weight from 60 pound to 80 pound. Some stores prefer a double-ply bag, made of two 40-pound basis weight bags, since it can hold heavier items. Stores using this double-ply bag can avoid the "double bagging" common at checkouts of supermarkets using single-ply bags.

The bag industry refers to smaller, lighter weight bags as "grocery bags." These bags are used in outlets such as convenience stores and fast food restaurants. They come in a variety of sizes, from 1/2-pound bags to 25-pound bags. These weights are also based on early 1900s terminology, when paper bags were graded by how much sugar they could hold. Retail trade establishments remain this manufacturing industry's primary customer.

The uncoated paper and multiwall bag market was a steadily growing and relatively stable industry into the 1970s. Paper accounted for the vast majority of bags produced for retail outlets, such as supermarkets. However, in the 1970s, plastics manufacturers began to perfect the single-ply polyethylene shopping bag, which could compete effectively with the traditional paper sack. While lacking some of the characteristics of the paper sack, such as stiffness, the plastic sack had one big advantage—lower cost. Today, individual plastic bags cost about one-third as much as the average paper sack. This price advantage increased when kraft paper prices skyrocketed along with other grades of paper in 1994 and 1995. For example, the price of 70-pound grocery sack paper rose from $320 per ton in 1993 to $490 in 1994 and $530 in 1995, before falling back to about $410 per ton in 1996. In 1997 and 1998, the price rose slightly, to $450 per ton. With supermarket net profits averaging about one cent for every dollar of sales, these retailers have been quick to convert to plastic bags. While most supermarket chains still stock paper bags for customers that ask for them, many have stopped asking the question "paper or plastic" at the checkout, leading to increased use of plastic bags.

Prices prevalent in the late 1990s clearly demonstrate the cost differential. For example, the average paper grocery sack cost $34-$36 per 1,000, or 3.4-3.6 cents each, while the typical high density, 1/2 mil polyethylene sack cost $12-$14 per 1,000, or 1.2 cents-1.4 cents each. While plastic bags do not hold as much as comparable paper bags, supermarket chains still see substantial cost savings in using plastic bags. While a few supermarket chains use paper sacks extensively and others still stock paper bags, that has not stopped the steady erosion of paper's market share. Also, other retail outlets, such as mass merchandisers, use plastic bags exclusively. Kmart Corporation converted from paper in the 1980s. This led Union Camp Corporation (purchased by International Paper Company in 1999), formerly a major supplier of paper sacks to Kmart, to invest in plastic bag manufacturing in order to continue supplying Kmart. In the early 1990s, Wal-Mart Stores, Inc., the nation's largest retailer, converted to using plastic bags exclusively. In the mid-1990s, Union Camp scaled back its production of paper bags and sacks and closed its flagship Savannah, Georgia, bag-making unit.

Multiwall Market. Multiwall paper bags, which use three or more plies of paper, are used heavily in industrial applications for the transport and sale of products such as seed and fertilizer. They have fared better than the grocery bag market. Multiwall bags have continued to expand their share of this market at the expense of single-and double-wall bags. Multiwall bags are used for many business-to-business transactions, such as the sale of fertilizer to farmers, and also for consumer transactions, such as pet food. As a result, multiwall bags are sold in a variety of shapes, sizes, and constructions, from the plain brown bags used for cement mix to the high quality, four-color, plastic-lined packages used for pet food or lawn fertilizer.

Multiwall bag producers divide their market into two categories: paper multiwall packaging, designed for products weighing 20 pounds and more; and consumer packaging, designed for products weighing five to ten pounds, such as pet food and charcoal.

The number of packaging layers depends on the application. For example, multiwall bags for products being shipped overseas may have as many as five or six layers to withstand severe handling and extreme temperature conditions. Pet food bags, on the other hand, may have just three layers, with one being a grease-resistant paper. Cement bags usually include a polyethylene liner to keep the product's moisture away from the outer paper layers. However, some bag manufacturers, in order to make their bags more "environmentally friendly" and recyclable, are looking for ways to eliminate the plastic film inner layer by using specially-treated paper instead.

Background and Development

Paper bags have been a major product for the paper industry for more than 100 years. One of the earliest bag makers, Union Paper Bag Machine Co. (now part of International Paper Company), was founded in 1861 in Bethlehem, Pennsylvania, to make and sell machines for manufacturing paper bags. In the late 1800s and early 1900s, the use of paper bags continued to grow along with the economy. The bag market received a major boost from the invention and development of self-serve grocery stores in the early 1900s. As self-serve stores continued to expand in other retail environments, the use of paper bags boomed.

Current Conditions

The big issue for the uncoated paper and multiwall bag industry continued to be the penetration of plastic bags into markets previously dominated by paper. The severity of this problem is illustrated by the long-term decline in production of the kraft paper from which bags and sacks are made. The long-term decline in demand for unbleached kraft packaging papers, particularly for grocery bags and sacks, caused paper producers to reduce production capacity by 40 percent from 1985 to 1995, from about 3.9 million tons in 1985 to 2.5 million tons in 1995. Production capacity continued to decline through the late 1990s, but appeared to stabilize in 1999 at about 2.2 million tons. Capacity for bleached kraft paper, used to make white paper bags, was about 440,000 tons in 1999.

The damage that plastics have done to the paper bag market varied greatly by category. In the paper sack market, plastics had taken over 80 to 85 percent of the market by the turn of the twenty-first century. That was a dramatic reversal from the early 1980s, when paper sacks accounted for the majority of the market. Paper was expected to "bottom out" and hold onto about 15 to 20 percent of the market, since many customers still prefer the paper sack in supermarkets. However, much of those sales depend on supermarkets' willingness to continue stocking two types of sacks. In the late 1990s, grocery bag manufacturers introduced a version of the grocery sack with handles in order to better compete with plastic.

In the grocery bag market, plastics penetration has been far less pervasive. In the late 1990s, paper still accounted for 65 to 70 percent of the market. Much of the strength in this market is accounted for by the growth of the fast food marketplace. Fast food chains such as McDonald's Corporation and Burger King use a very high volume of small bags to package customers' orders. Plastics have almost no penetration in this particular market segment. The main reason is that plastics have no rigidity, a real problem when food, drinks, and other items are placed in one bag. Also, these chains use the high-quality printing surfaces of the bags for promotions and advertising.

The product mix in the fast food bag segment changed radically in the 1990s as demand for recycled products grew. For example, the McDonald's chain converted from a bright white bleached bag made from virgin fiber to a 100 percent recycled, unbleached brown bag. Other chains, such as Burger King, soon followed with other types of bags made from recycled paper. Changes demanded by large customers such as McDonald's are highly significant. For example, in 1985, McDonald's used 285,000 tons of packaging materials (much of that in bags), with 86 percent being paper and 14 percent plastic.

Also, some "high-quality" retailers use paper bags to promote store image, since plastic bags tend to be associated with discount outlets. For example, in the late 1990s Starbucks Coffee was using a highly printed, intricately patterned brown paper bag at its retail outlets.

The "notions and millinery" sector includes the flat bags (without folded bottoms) used to hold customer purchases in variety stores and department stores. Plastic made heavy inroads into paper's market share in this category, accounting for about 75 to 80 percent of the market in the late 1990s. However, paper held on to its 20 to 25 percent of the market.

The multiwall bag market grew at an annual rate of less than 1.5 in the late 1990s. Some of this slow growth was attributed to inroads made by low-density plastic bags and wraps. One of the fastest growing bag applications, for example, was multilayer industrial plastic film bags, which were replacing multiwall paper bags for products such as herbicides, pesticides, and fertilizers. By the late 1990s, plastics had claimed close to 30 percent of the market previously held exclusively by multiwall paper bags. For example, plastic bags were often used for high-moisture products, such as bark chips.

Manufacturers were also producing combination bags, which included several outer layers of paper and inner liners made of plastic. This hybrid bag combines the barrier properties of plastic with the rigidity and strength of paper. Also, manufacturers found that layers of different materials, such as paper and plastic, provide a better odor barrier in some instances than either material alone.

However, some multiwall bag applications have been converted to 100 percent plastic; they may use three or more layers of different plastics to accommodate specialized packaging processes. For example, some products are packaged with a "hot fill" process, where the product is put into the package while still hot. The inner plastic layer can handle the hot product while the outer layers are designed to protect the product in transit.

Industry Leaders

While there are many companies operating in this industry, the major manufacturers of uncoated paper and multiwall bags include Duro Bag Manufacturing Company, Gaylord Container Corporation, International Paper Company, Longview Fibre Company, and Southern Bag Company. Duro Bag and Gaylord were among the largest players in the late 1990s.

Gaylord and Stone Container Corporation, the two largest U.S. retail grocery sack and bag manufacturers, merged their sack and bag operations in 1996, forming S&G Packaging. The joint venture was 35 percent owned by Gaylord and 65 percent by Stone Container. In 1998, Stone Container merged with Jefferson Smurfit Corporation, forming Smurfit-Stone Container. In late 1999, Smurfit-Stone sold its share of S&G Packaging to Gaylord, which now owns 100 percent of the unit. S&G Packaging is the world's leading producer of paper handle sacks and is the largest U.S. producer of retail grocery sacks and bags, with annual sales of $250 million in North America and the Caribbean.

Duro Bag and Gaylord are also leaders in the production of multiwall bags. Gaylord produces multiwall bags through its Mid-America Packaging unit. Other leaders in multiwall bag production include International Paper and Longview Fibre. Duro Bag is "fully integrated," in that it also has extensive Interests in plastic bags.

Workforce

The uncoated paper and multiwall bag industry employed 15,766 people in 2000 with a payroll of $482.7 million. In 1994, the industry had employed 14,249 production workers who put in 30.6 million total hours at an average pay rate of $11.38.

Further Reading

"Kraft Paper: Industry Shipments, Pricing and Mill Operating Rates Are Improving." Pulp & Paper, November 1999.

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

Uncoated Paper and Multiwall Bag Manufacturing, 1997 Economic Census, Manufacturing Industry Series. Washington, D.C.: U.S. Census Bureau, August 1999.

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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