Australian Paper’s recent acquisition of the assets of two envelope over-printers has churned the market, created a flurry of merger and acquisition activity and has resulted in reduced envelope imports, according to industry bible Pulp & Paper Edge.
The Australasian envelope market is down but not out, with four billion envelopes still being produced, says the August 2016 edition of the publication.
In a year when Australia Post stunned the direct mail sector by dramatically increasing delivery rates, many in the paper and printing industry considered Australian Paper’s asset acquisitions to be at least curiously timed. However, on closer examination of the sector and its supply chain, the purchase of assets from Trade Envelopes (Queensland) and Envelope Specialists (Western Australia) makes far more sense.
What is most important in these acquisitions is that Australian Paper purchased no envelope manufacturing equipment or trade. It removed no envelope manufacturing capacity. What it acquired, in both cases, were over-print assets of businesses that bought envelopes and printed on them for their trade customers.
This is all the more significant, because inevitably, the Australian envelope market has declined.
Despite the exact size of the market being difficult to assess, IndustryEdge considers Australia’s total envelope market currently approximates 3,400 million envelopes per annum, with an additional 600 million envelopes per annum in the New Zealand market. Discussions with industry participants lead us to believe that over the last year, the total market has declined approximately 10%, with the major factor impacting the market being Australia Post’s massive price hikes for delivered mail.
IndustryEdge believes that while the decline in the number of envelopes in the market may well continue, the worst "may well be over."
Some estimates are that the 10% per annum decline will continue for a few years yet, but there are others who consider the declines will soften.
Relevantly, major commercial users of direct mail (think of the financial services companies, utilities and the like) continue to use mail and therefore envelopes in large numbers, for marketing purposes, as well as for billing. That situation is unlikely to end quickly, making the total market a little more attractive than it may otherwise look on initial examination.
Acquisition strategy tightens national supply chain
As the major envelope manufacturer in Australia, as well as the sole domestic manufacturer of the relevant base papers (Uncoated Woodfrees), Australian Paper has, by its acquisitions, increased its ability to sell envelopes, as well as the base papers produced at the company’s Maryvale Mill.
Because it acquired over-print assets, no envelope manufacturing capacity has been removed, but imports have been reduced. Both Trade Envelopes and Envelope Specialists are known to have been envelope importers.
By securing assets and markets in Western Australia, NSW and Queensland, Australian Paper has established increased short run over-print capabilities in outlying states. Its Preston facility produces the envelopes. For larger ‘runs’, the Preston facility does the printing in line and ships the finished products direct to customers.
Of relevance, Australian Paper’s major competitor, Candida Stationery, does not have significant over-print capacity in either Queensland or Western Australia.
The supply-chain diagram below provides some indication of the general structure of the envelope manufacturing sector.
The full analysis is available for download from the IndustryEdge website.