Thursday, June 10, 2010

National Envelope Company Bankruptcy

The Wall Street Journal reported that the National Envelope Company, the largest envelope manufacturer in the United States filed for bankruptcy today. The bankruptcy filing indicated that the company had between $100 and $500 million in both assets and liabilities.  The company is family owned.

National Envelope Company is unlikely to cease operations under bankruptcy.   The bankruptcy proceeding will allow it to renegotiate existing contracts with employees  and vendors, renegotiate terms of loans, and renegotiate or terminate real estate leases that could not be completed outside of bankruptcy. 

National Envelope Company's bankruptcy follows a nearly two year process during which it has been consolidating operations.   During this period it has closed facilities, ended production, or curtailed production in:

  • Chino, CA,
  • Union, NJ,
  • Long Island City, NY, and
  • Houston, TX
The Houston TX closure represented the last step in the consolidation of three facilities in Texas into a new facility near Dallas.

National Envelope bankruptcy most likely represents an orderly way for it to deal with the need to reduce capacity at a pace faster than just waiting for existing capital and real estate leases to expire would allow.   It also allows some more flexibility in adjusting its workforce, that currently numbers around 3,000 employees.  However, there is no information yet available that would indicate that renegotiating union agreements, which may be permissible under bankruptcy, is anticipated.

The financial challenges that caused National Envelope to close these four facilities and now file for bankruptcy reflect the decline in the demand for mail and therefore the envelopes that National Envelope Company produces.  National Envelope is not alone in requiring significant consolidation of capacity.  The recent merger of Quad Graphics with Quebecor World Color will likely result in consolidation of printing operations of these two companies that will likely include some plant closures.   If the supplier's of the envelopes see the speedy consolidation of existing production facilities as critical to their survival as financially viable enterprises, it would seem that the Postal Service cannot delay its consolidation efforts either.  

What National Envelope Corporation's bankruptcy says to postal stakeholders is that mail volume declines, particularly in single-piece first class mail and flat shaped mail across all classes, may not allow the Postal Service to use painless ways to reduce capacity.   The decline in mail volume, combined with improvements in mail automation, means that the number of employees that the Postal Service needs is declining at a rate faster than the rate of attrition.   Similarly, the number of plants that the Postal Service needs may be declining faster than the rate that real estate leases are expiring.

The Postal Service could even find itself in the position, like National Envelope Company found itself in Texas, that it needed a new facility in a different location to replace a group of existing facilities that are no longer optimally located to provide efficient and timely service.  In this case the capital investment in a new optimally located facility could reduce both operating and transportation costs and creates the possibility of improving service previously served by the facilities that are replaced.

Unfortunately, the Postal Service does not have the ability to go through a pre-packaged bankruptcy process like National Envelope Company is likely about to begin. Nor will it have the financing needed to handle the transition costs to a move quickly to a smaller and more efficient mail-processing network that National Envelope Company will have so that it can streamline its current production network during its bankruptcy proceeding. 

It may be worthwhile now for the Postal Service to lay out the capital and transition costs necessary to reduce operating costs and consolidate its processing and transportation network.   This information could be quite valuable in trying to develop a case for restructuring the retirement expenses that the USPS-OIG has indicated should be adjusted.

The problem of capital and transition costs is illustrated in recent statements from Postal Service officials to mailers regarding the automated flat sortation and how a key constraint to fully taking advantage of the technology is availability of funds.    While flat volumes are down significantly, a streamlined flats sortation network modeled after the NDC network could handle bulk flats efficiently with the ability to automate sortation to the finest level that the technology allows at a lower cost to periodicals, catalogs, and other bulk flat mailers.  Such a network would allow mailers to reduce transportation costs by drop-shipping flats to fewer facilities that specialize in sorting flats using automation and then the finely sorted flats would be transported directly to delivery units, or transported to downstream plants for cross-dock movements onto transportation to delivery units.   A full explanation of the capital and transaction spending needed to put such a network in place should be demanded by flat-shaped mailers.  

The current problem with flats is just the canary in the coal mine.  The next product that will face an equivalent challenge will be single-piece mail and.   Single piece mail is declining now at above 10% year-to-year, a rate faster than what was seen before the recession.  This is different from nearly all other postal products which have seen volumes stabilize at 2009 levels and it does not seem unreasonable to believe that demand could rise from that low level as advertising spending across all modes begins to increase in 2010 and 2011.   

The problem with single-piece mail is two-fold.  First, it is highly profitable and its loss reduces contribution to overhead that must be generated elsewhere.   Second, its decline is far faster than the rate of retirement of employees that process single piece mail.    Therefore, the Postal Service will face continuing excess capacity of employees, and especially employees working on shifts handling originating single-piece mail unless it plans to reduce its workforce to reflect the decline in demand in the mail that has the greatest processing requirements. Similarly excess capacity will exist in facilities and possibly equipment.   Now is the time to plan the network for single-piece volume in 2015 and beyond.  A network planned geared for this change would go far to convince stakeholders and Congress that the Postal Service is serious in its efforts to manage its business which will be needed to get the changes in retirement obligations and postal labor law that the Postal Service wants.


allen said...

In 2007 the post office put 102 mail processing machines on line.These machines were designed to handle any type of mail.Each machine processes a minimum of 16000 pieces and can be cranked up to 2500 pieces of mail per hr.Pitney Bowes is about to introduce these machines to China and is the primary supplier of equipment to the post office.The CEO of Pitney Bowes contradicts the claims of the post office.The number of people needed to operate these machines is minimal.The census data that is produced this year will show that there are too many manages.The machines have revealed that management in the post office is redundant.The new bar code system that will be introduced by Pitney Bowes in 2015 along with the census data that is being accumulated now should allow
the PRC to trully regulate.There are too many managers and too many divisions.The clerks and carriers should be retained as full time employees for the sake of national security.The people who were exploited as the transition was being made to automation,should be
compensated retroactively.The elderly and the disabled should be given a free book of stamps every month(the Forever Stamps).

Anonymous said...

If National envelope had been less stern in its approach to field management they may not have disrupted so many livelihoods.
Sometimes there are circumstances you cant say the economy caused.

Anonymous said...

Maybe they will go back to selling envelopes with good sales people when they were Williamhouse instead of no sales talent of National Envelope "just give it away for the lost cost".

David said...

National Envelope is the kind of comapny looking to take over the Envelope business through price slashing and has been doing so for as long as I've been associated withthe industry. They drive down their suppliers to the point that those that know better , walk away form the "opportunity". This type of business practice should not be protected by the bankrupcy courts. We demand China play on a fair level playing field, should the same be true of our domestic production. Not only do the employees of National Envelope get hurt via "renegotiation" with the unions, but all of their suppliers like International Paper who is caught for $43,000,000 . If a company chooses a strategy of slash and burn pricing for the reasons of driving out the competition, they should suffer the consequence and not be protected by Chapter 11, Liquadate, its better for all the other companies still standing.

David said...

If slash and burn pricing for the purposes of driving out the competition eventually back fires, that company should suffer the consequence and not benefit the protection of the bankrupcy court.
For years National Envelope has beaten the suppliers pricing down to feather ther own nest. While doing so other factories in other areas either went out of business or were forced to operate in a similar manner, beat up the employees wages and beat up the suppliers margin. Those that walked away from the "opportunity" such as myself, have never declared bankrupcy, continue to give wage increase and remain smaller but still profitable. Let National Envelope liquadate for all the right reasons. Other factories and their unions will benefit, and ultimately the overall economy will benefit. Slash and burn pricing is equivalent to China's subsidies, Under bankrupcy, the vendors will be forced to take a "settlement" its unfair, and unjustify. Bankrupcy has become our domestic form of China's subsidy policy.

Anonymous said...

Regarding National Envelope, they bought Williamhouse when it was on the brink of bankruptcy, yet put the same people running Williamhouse into key positions at National Envelope. Why expect a different result?

over 20 years of manufacturing experience said...

The majority of lead management at NEC is Williamhouse, so working through a bankruptcy should be old hat. Maybe their arrogance will be toned down somewhat with their peers and subordinates. One would only hope.

I believe the family (specifically Mr. Moser) lost touch with the day to day operations when they moved into their new corporate location on Long Island several years ago. It was quite evident they wanted no part in the day to day operations. The Family no longer had direct contact with their "NEC familty" and were insulated from the reality occuring in the market place. NY Envelope was a barometer of market conditions, and they through that critial tool away.

At the same time of the move, the familiy over paid for a competitor without clear indication how to manage two distinctly different purchasers of envelopes - merchants and direct buyers. It was the begining of the end of NEC. Sales managment was not listening to its team of experts in the field, and plowed ahead in the market trying to meet everyone's, while playing favorites with the Old Williamhouse Crew. Unfortunately, I believe the family surrounded themselves with poor business leaders, who told them what they wanted to hear. Ego kills so many good businesses...

I do feel sad for Mr. Ungar. This is the last thing I would ever wish on a man who witnessed and lived through so much pain and loss. May God be with him during these trying times.

Anonymous said...

Remember who has been running NEC during these years of decine.A Williamhouse SALESMAN

Anonymous said...

It shouldn't go unnoticed that NEC was a viable strong company when manufacturing people were in positions of authority.It started on the path to where it is today when a WH salesman was put in charge.

Anonymous said...

thanks to Williamhouse running national envelope to the ground, with bad management,and unskilled workers, ill be out of a job soon.

Anonymous said...

I believe that greed more than anything hurt NEC. Mr. Ungar must be so very depressed. It is sad that so many people have been hurt in the process. Many good, hardworking people who can hardly afford to live while the family will go on because they never have to worry about money. What a shame

Anonymous said...

God bless Mr Ungar . Nec kept too many managers and vice presidents on payroll . Some high paying positions were created for some people , with big salary and not doing nothing . They had less capable people as supervisors and IN office , but very smart people working on floor and machines . Ten years ago I told my bosses that place is going down and I can fix whole corporation if they offer me good position . Answer was NO . Even now , I was able to save company in 2008, 2009, and 2010 , even in these economy . I think they want to sell place to some group, not involved in envelope business so they can keep own jobs . That group does;nt know how to run envelope biz .If CVO is buyer , they already have plants in same areas , and they can consolidate business and get rid of competition .At Same time, CVO will use own management . Main plant is closed , no living soul , but new printing company came in same street , so life goes on . I am really happy they closed and moved from area . Thank you god , you saved me from white dust and 110 degrees and "little gods " . God bless great big man , gentleman who created and started NYE . To survive in any business they must use best people in best positions . Period !!!

Anonymous said...

They used to hire friends and family members and if you are sick, hospitalized, had hearth attack , anything , any reason you are absent, you got negative points . I told them 10 years ago what will happen .

Anonymous said...

It is incredible to see what the Williamhouse crooks got away with.Once they knew the good National people were out of the picture they paid themselves ungodly salarys and bonus's.What is equally appalling is they all must have also padded and lived off there travel and entertainment expenses.$9,000,$13,000,$24,000 a month and many of them had the audacity to repeat the exact same amount each month.Hangers on like that blowhard from Texas that should have never caught on with National after his own failings should be investigated for his compensation
I could see a few good men or ladies making a fair compensation but these were not bright deserving people.C.E.O's butt boy was a perfect example.Huge salary big bonus's and ourageous expenses and he didnt even know the dimensions of a standard window.God bless the ass kissers they all ended up working with one another until there greed brought the house down.Beware when they are exposed and cast back out into the real world.Some dumb company may fall victim again