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business newsThe One US Manufacturing Industry Not Scared of China
By
Justin Rohrlich
Nov 15, 2010 4:40 pm
Bet you can't guess what it is... but it makes perfect sense.
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However, there’s one industry that hasn’t been affected:
The envelope business.
While you’ll see and hear stories about companies like National Envelope Corp. going bankrupt (it was acquired by the Gores Group LLC of Los Angeles for $149.9 million), American-made envelopes are still what shoppers will find on the shelves of stores like Walmart (WMT), where everything else is seemingly made overseas.
But, more on that later. First, let’s take a look at the bigger picture.
National Envelope, which says it held a 21% market share in 2008, compared with Cenveo’s (CVO) 19% and MeadWestvaco’s (MWV) 8%, told Reuters that “its business suffered because of the global recession, as well as ‘the displacement of traditional print communications and media by electronic formats.’”
In absorbing a statement like this, it’s all too easy to gloss over the “global recession” bit -- which is what every company is saying these days -- and focus primarily on the part about being displaced by email.
However, it’s exactly the other way around.
In an interview with Minyanville, Maynard H. Benjamin, president and CEO of the Envelope Manufacturers Association explained why the death of letter-writing is not to blame for the consolidation we see today in the envelope world.
“The Internet is not killing envelopes,” Benjamin said. “Classic letter-writing made up only 4% of mail volume -- so eliminate that completely. It’s First Class mail you need to be looking at.”
First Class mail is down 6%. Of that 6%, transactional mail, or credit card bills, bank statements, and so forth, makes up 30% of total First Class volume. With consumer spending down, fewer Visa (V) and Mastercard (MA) bills are being sent out at the end of the month. Fewer new investment accounts are being opened, meaning fewer statements.
“That is the portion of mail that is slowly ebbing over to electronic commerce,” Benjamin said. “With fewer people working, there are fewer people buying.”
Benjamin noted that 200 billion pieces of mail were sent out in 2007-2008, although he doesn’t believe volumes will rebound quite to that level again once the economy improves.
“I’d say it’ll be more like 160 [billion pieces],” he said, before pointing out that there is a coming convergence between electronic communication and traditional methods that will benefit both.
In a recent survey, “Across all age groups, only 14% of all respondents wanted solely paperless transactions,” Benjamin said. “Most wanted a bill on paper and then the option to pay electronically.”
So, why aren’t envelopes, of all things, being made in China, which would seem a natural location for the cheap manufacture of folded pieces of paper that require no inspectors to ensure a sloppy or dishonest manager isn’t slipping a few handfuls of melamine or lead into the finished product?
“Well, envelopes have gum on them,” Benjamin said.
Huh?
“Early on, we saw a lot of Chinese envelopes coming into the country,” he explained. The problem was in the shipping process.
When a load of envelopes makes its way across the ocean in shipping containers, the moisture that invariably seeps in plays havoc with the adhesive edge of an envelope -- not to mention the paper itself.
“It’s not a great product to ship across the water,” Benjamin noted.
And so, while China continues to beat us at just about everything we do -- and are powerless to stop it -- the American envelope industry is alive and well.
God bless mucilage.
No positions in stocks mentioned.
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