Sunday, December 28, 2008

Watch out! It's the IMb Express!

If you’re one of those sick people who like to rubberneck at accidents, keep an eye on the U.S. Postal Service’s Intelligent Mail Barcode initiative. It’s a train wreck waiting to happen.

Industry contacts report continuing frustration getting problems resolved and questions answered regarding IMb, one of USPS’s major strategic efforts. Mailers are having trouble getting postal officials even to discuss the challenges that might derail the program and are questioning whether IMb, already delayed twice, will be ready for implementation next year as scheduled.

USPS last month pushed off implementation of IMb once again to a three-phase process -- as Dead Tree Edition predicted -- that is to begin in May. Some chastised me for improperly abbreviating the name, which USPS refers to as IMb. That seems DUMb to me, but so be it.

Representatives of mailers, printers, and mailing-industry vendors in such organizations as Idealliance and the Association for Postal Commerce (PostCom) are nearly unanimous in their frustration with the Postal Service’s lack of communication and planning regarding IMb.

“How can we implement IMb when we customers are uncovering things at the eleventh hour? When the switch is flipped will it work?” reads one of a litany of concerns recorded at a recent Idealliance meeting. “There is a lack of direction,” reads another. “We seem to take one step forward and two back."

Some in the mailing industry who must communicate IMb requirements to their own organizations now find themselves in hot water: Their bosses can’t believe the Postal Service’s decisions, planning, and communication regarding IMb could possibly be so bad.

Since the Idealliance meeting, yet another communication breakdown has emerged: Postal officials have decided that mailers must presort addresses before assigning an IMb. That will force mail vendors to undo much of the work they have already done on IMb because they were planning to assign bar codes before presort. Perhaps the Postal Service's IMb folks have been attending the William Burrus School of Customer Relations. (See “When business is down, kick the customers.”)

Intelligent Mail Barcodes are a printing issue as well as a postal issue because there have been questions regarding how well USPS equipment can read IMbs produced by printers’ current inkjet machines. Despite their complaints about implementation, mailers are generally supportive of the IMb concept, which should enable the Postal Service to track mail as it moves through the system, spot problems, and optimize its processes.

A source reports that when he asked an industry expert to explain what was going on with the program, the expert replied that “IMb is too complex for mere mortals to understand.”

To get a taste for the complexity, check out the slide below from an IMB DPP that had MTAC LOL because the TWTDSTR. Translation: At a recent Mailers Technical Advisory Committee meeting, industry representatives laughed at a postal official's Death by PowerPoint presentation because of this slide in which the type was too darn small to read.

Not that anyone could have understood the slide even if the type had been larger.

Saturday, December 27, 2008

Prices dropping for all grades of paper

Deflation has now officially hit the market for publication papers: Prices for everything from newsprint to coated freesheet have declined this month, several sources indicated in the past week.

December prices were down even in the formerly rock-steady market for high-grade supercalendered paper (SCA) paper, according to both Pulp & Paper Week and Deutsche Bank. Mark Wilde of Deutsche Bank put the December drop at $10 to $20 per ton and said SCA prices could continue declining if demand for lightweight coated (LWC) remains weak. Until recently, analysts were predicting that SCA prices would remain steady or even rise during 2009.

“Newsprint prices are slipping,” Wilde wrote, with declining costs and the Canadian dollar making mills more willing to accept lower prices rather than shutting down. The Deutsche Bank analyst agreed with Pulp & Paper Week that newsprint dropped about $10 to $15 per metric ton in December, breaking a string of consecutive monthly price increases that had pushed newsprint prices up more than $200, or about 35%, since the summer of 2007.

FOEX reported a slight drop in U.S. newsprint prices last week, while Forestweb reported that newsprint prices are flat. But Forestweb’s North American Publishing Papers Index decreased in December because of declining prices for coated papers.

Prices for LWC and other coated-groundwood products dropped $35 to $70 per ton in December and are “coming under increased pressure, wrote Wilde. “With consumption likely to remain weak and the US$ rising (increasing threat from imports), producers will remain at battle stations through 2009,” he added. High customer inventories, decreasing catalog circulation, and a weak advertising market for magazines are all dragging down coated groundwood.

The CEO of Abitibi Bowater (aka AbitibiUnderwater) admitted to the Globe and Mail this week that his biggest fear was a collapse of demand in the first half of next year. Despite the bearish news on pricing, shares of the newsprint giant doubled in price during the week (to 52 cents, down from $20.47 at the beginning of the year). AbitibiBowater stock was boosted by news of an apparent sale of some hydroelectric assets, production cuts by competitors, and the company's statement that the current quarter will be more profitable than the previous quarter. All of that boosted hopes that the company will remain solvent despite having $1 billion in debt payments due during the coming year.

Stocks of such other publicly traded paper companies as Verso, Domtar, and Catalyst were generally flat for the week. Wall Street had already accepted that demand and prices will decline. The big question is whether producers will idle enough capacity to prevent paper markets from collapsing.

Sunday, December 21, 2008

Huffing & Puffington with Cardboard Porn

Now that the left-leaning Huffington Post’s “green” site is talking about our “cardboard porn” item, perhaps those "adult services" operators need to make their come-on more politically correct. How about:
“Hey there, sexy guy, or gal, or guy who wants to be a gal, or vice-versa, how'd you like to go one on one with one of our hot, horny unionized young women, or young men, or women who used to be men, or whatever, for some real solar-powered conversation. We've got something that will get your free-range, cruelty-free meat steaming – or for you vegans, that will get your organic falafel really cooking."
Speaking of corrugated and being environmentally conscious, here’s a green idea: When you’re cleaning up the cardboard from all of those holiday gifts this year, don’t recycle it. Don't think “Corrugated Recycles,”think “Corrugated Reuses” or, at least for a few months, “Corrugated Stores.” Recycling operations all over the country are storing their scrap corrugated or even landfilling it because they can’t sell it.
The recycling crisis has gotten so bad that RecycleBills – run by a North Carolina poet and recycling manager who looks like a member of ZZ Top, only friendlier – is compiling a free listing of outfits that actually buy post-consumer recyclables. So if you know of one, be sure to send the info to RecycleBill@gmail.com.
Meanwhile, I’ll note that the reindeer – er, caribou – are outsmarting us humans with the double entendres. Northern hardwood – wish I’d thought of that one. And speaking of reindeer, did you hear that biologists have declared that Rudolph and his sleigh mates are actually females – or maybe castrated males? That has absolutely nothing to do with the alleged focus of Dead Tree Edition – production and distribution of publications – but it’ll be a great conversation starter at Christmas parties (or, for you HuffPo folks, at winter-solstice bongfests).
Rudolph the Cross-Dressing Reindeer?

Saturday, December 20, 2008

Small Weeklies Not So Weak

In this season of “still printing is the new up,” can there really be a part of the ink-on-paper publishing business that is actually growing? Yes, small weekly newspapers are apparently experiencing healthy circulation growth.

The number of “in-county” Periodicals pieces mailed from October 2007 to September 2008 increased 12.8% over the previous 12-month period, says a Postal Regulatory Commission report released this week, while their weight was up 8.4%. Even the July-September period was strong despite the weakening economy – up 11.8% in pieces and 7.4% in weight.

By contrast, other Periodicals (“Outside County”) were down for the fiscal year, 3.5% in number of pieces and 6.6% by weight. Standard flats, the sub-category dominated by catalogs, probably declined even more, but the statistics do not clearly delineate those flats from other kinds of Standard mail, such as letters.

In-county periodicals receive preferential rates in comparison with their nationally distributed cousins. Postal regulations require that they have at least half their circulation within their county of publication and have total paid or requested circulation of less than 10,000. They are typically non-daily newspapers serving small towns or suburbs.

Some of the increases may be from postal-classification changes rather than from actual growth in such publications. The big rate increases of 2007 may have spurred publishers to shift Standard-class publications to the cheaper Periodicals class or to drop enough out-of-town circulation so that they could claim in-county status. It may also indicate a shift toward greater reliance on the U.S. Postal Service to deliver such papers, especially in response to spiking gasoline prices.

Still, local coverage seems to be the last bastion of ink-on-paper news coverage, especially in small towns. The Web has done little to replace small-town newspapers, and broadcast journalism (pardon the oxymoron) has never been up to the job.

So are we going to see members of the recently formed American Society of Shit-canned Media Elites abandoning Manhattan to run weekly papers in places Bug Tussle, Arkansas and East Marrycousin, West Virginia? Yeah, just as soon as they're done with the big George W. Bush Fan Club dinner.

Thursday, December 18, 2008

Porno cardboard gets me an extension

Huffington Post has joined the call for double-entendre comments about my article, "Hey big boy, can I recycle your cardboard?"


That prompted a clever item about "woody biomass." But otherwise the response has been pretty limp -- two entries at USNews.com and an argument between two reindeer on my site.


While pulling Christmas ornaments out of decade-old boxes it struck me that this cardboard porn will be around for a long time, some of it on boxes with large logos of prominent retailers and catalogs. (I have one example, but would love pix of or info about others; send them to dead.tree.edition@gmail.com.)


I wonder how many kids working on recycling projects for school or Scouts will call the number, which (as of this morning) still has the same message.

Wednesday, December 17, 2008

Who's it gonna be, me or the PRC?

Who is right about next year’s increase in postal rates, the Postal Regulatory Commission or Dead Tree Edition?

The PRC updated a chart yesterday suggesting that next year’s rate increases will be capped at 4.2%, while here at "The Tree" we predicted it would be in the 3.7% to 3.9% range. If you’re budgeting for next year, shouldn’t you go with the official number, rather than one developed by a guy who once predicted that “The Simpsons”, though brilliant and funny, was too weird to catch on with the American public?

Not so fast. Both PRC and “the Tree” are correct.

The PRC chart is not a prediction but a straight calculation. What it shows is that from November 2007 to November 2008, the average monthly increase in the relevant Consumer Price Index (CPI-U) has been 4.2%. But it’s the change from December 2007 to December 2008, rounded to the nearest tenth of a percent, that will determine the rate cap.

The PRC, probably wisely, makes no attempt to project what will happen to CPI in December. Going where bureaucrats fear to tread, Dead Tree Edition’s position is that, because of recent deflation (a 3.5% drop in CPI-U from July to November), the December-to-December number will be lower than 4.2%.

Specifically, consumer prices would have to rise about at least 2.6% in December (an annualized rate of 36%) for the cap to end up at 4.2%. With energy prices continuing to drop and the economy still circling the drain, that ain’t happenin’.

Even if December bucks the recent trend and the CPI-U doesn’t change, the cap would be 3.9%. If prices drop about 1%, the cap would be 3.8%, and a drop of much more than 2% would put it at 3.7%. Here are the relevant CPI-U numbers if you want to check my math:

YEAR 2007 2008
Jan 202.416 211.080
Feb. 203.499 211.693
March 205.352 213.528
April 206.686 214.823
May 207.949 216.632
June 208.352 218.815
July 208.299 219.964
Aug 207.917 219.086
Sept 208.490 218.783
Oct 208.936 216.573
Nov 210.177 212.425
Dec 210.036 ?
Ave. 207.342 215.764


A final note: The Postal Service also has a tiny bit of "unused rate authority" left over from this year's rate change. The cap was 2.9%, but the average Periodicals increase was only 2.724%, so USPS has an extra 0.176% it could use for Periodicals. That means if the cap ends up at 3.9%, the Postal Service could actually increase average Periodicals rates by up to 4.076%. Standard's unused rate authority is only 0.025%, and the number for First Class is 0.014%.


Tuesday, December 16, 2008

Postal Rate Hikes: Less Than 4% in 2009

For a more in-depth discussion of how the CPI will determine next year's postal rates, see "Who's it gonna be, me or the PRC?"

Deflation of consumer prices means that next year's postal rates will almost certainly average less than 4%, rather than the 5% that most commentators were expecting until recently.

The Consumer Price Index decreased 1.9% in November, the Department of Labor announced today, following a 1.0% decrease in October. The average increase in prices for most classes of postage will generally be capped by the change in the average monthly Consumer Price Index for 2008 versus 2007. The new rates are scheduled to be announced in February and implemented in May.

Another 1.9% decrease in December would yield a rate cap of about 3.75%. No change in the December CPI would yield a cap of about 3.9%.

Recent deflation isn't all bad for the Postal Service: Lower energy prices will probably save the USPS at least several hundred million dollars, perhaps a billion dollars, this fiscal year.

The Postal Service reported that every 1% change in diesel and natural gas prices cost it $29 million during the last fiscal year, which ended on Oct. 31. With the average diesel price being down 22% and the average natural gas price being down 27% so far this fiscal year, that suggests energy savings of about $150 million so far this year.

Current prices are even lower -- down 37% for diesel and 39% for natural gas, according to the Department of Energy. The Postal Service's energy costs would have to be down an average of 35% this fiscal year for the savings to reach $1 billion.

By business standards, the Postal Service is a big gambler when it comes to energy costs. Unlike most freight and delivery businesses, the Postal Service cannot use fuel surcharges to pass higher energy costs along to its customers; its prices can be adjusted only once per year in accordance with changes in CPI.

Most major businesses facing that kind of situation would hedge their risk, using futures markets to minimize the uncertainty and fluctuations in their energy costs. But that's not the way government agencies operate, especially when there's a risk some Congressman will try to grab headlines by attacking USPS for playing around with derivatives.

That leaves the Postal Service benefiting greatly when energy costs are low but at risk of needing a Congressional bailout when energy prices spike. Sounds as if the Postal Service learned its risk-management techniques from the investment-banking industry.

Thursday, December 11, 2008

Hey, big boy, can I recycle your cardboard?

Warning: Adult content. Contains suggestive language
and veiled references to unnatural acts with corrugated boxes.

I got word today that those naughty folks in the box industry had come up with a way to perk up interest in recycling: Sex.

Hmm, slip some Viagra into drooping prices for recycled cardboard? Offer "special favors" to those who use waste paper so that it doesn't end up getting landfilled?

Turns out it was a mistake. The official "Corrugated Recycles" logo used to include the number to a toll-free information line, (800) 879-9777. Call that number now and you're greeted with "Hey there, sexy guy" and offered a chance to go "one on one with hot, horny girls ready to talk to you."

The toll-free number was phased out last year and "unfortunately has been purchased by an adult services organization," says an announcement from the spoil-sports at the Fibre Box Association. Some companies are still using it, and the Technical Association of the Pulp and Paper Industry (TAPPI) was still displaying it today it in a list of industry resources.

"To avoid issues with your customers and their supply chain partners and printing plate providers, we would suggest you prioritize removing this referral from all printing dies," says the announcement. "Please also remove this phone number from all documents, websites and any other form of communication in which this number may appear." The organization provides a new logo (with a URL but no phone number) and tips for scraping the phone number off of printing plates.

Still, with recycled fiber starting to pile up because of low prices, maybe we could use the help of that "adult services organization" to arouse interest in buying waste paper. I can hear one of those breathy operators purring to a paper-company executive, "Hey, big spender, how would you like to go one on one with a couple of truckloads of post-consumer office paper? No flocculation, I promise."

Based on what I know of paper executives, that would definitely get their attention -- more so than Candace the Caribou.


Dec. 13 Update: TAPPI removed the phone number from its Web site yesterday. Good thinking, since it was on a page of paper-related resources for students and teachers. But Google the phone number and you'll find plenty of sites that still list it. Also, U.S. News & World Report's Web site is inviting folks to submit double-entendre comments about this article. Let me throw out a few paper-making terms to stimulate your creativity: stiffness, bulk, wet-end chemistry, couch (pronounced "koosh"), and beaters.

Tuesday, December 9, 2008

Recycled paper piling up

The New York Times has discovered the recycling crisis – nearly a month after Dead Tree Edition's "Awash in Paper" reported on it. Yesterday’s article in the Times even uses one of the same examples, the Charleston, WV area.

The article reports various instances of communities suspending or restricting their recycling programs and of recyclers storing materials rather than selling them for next to nothing. All kinds of scrap, not just paper, are affected.

The second sentence actually understates the problem, saying that the economic downturn has “decimated” the market for recyclables. Once upon a time, the Times had copy editors who knew that “decimate” means to destroy only 10% of something and who would have realized that “devastated” was more appropriate in this case.


One irony of the article is that it came out just after a minor recovery in the market for recycled paper as Chinese buyers tentatively returned to the market. For example, Pulp & Paper Week reports that the December price for mixed paper for export from New York to Asia was a whopping $0 to $5 per ton, up from -$10 to -$15 (yes, prices were negative) in November.

Speaking of ironies, here’s another from the same issue of Pulp & Paper Week: Material recovery facilities (MRFs) in Quebec are struggling and looking for relief from city-government contracts because of the crash in export prices to China. Hmm, Quebec, aren’t there a lot of paper mills there? Yes, but the newsletter reports that the MRFs take in material from single-stream recycling operations that “isn’t good enough quality for domestic paper mills.”

I don’t understand why the environmental movement has been largely asleep on single-stream recycling. Some organizations pressure major organizations to buy paper with recycled content but ignore the fact that, increasingly in North America, we are moving to single-stream recycling (glass, cans, paper, etc. in the same containers) that makes the recovered fiber virtually unuseable for high-quality paper. We have relied on shipping it to China, where labor is cheap enough to justify separating the recycled materials by hand.

Monday, December 8, 2008

Another Chapter 11 Filing Dings AbitibiBowater

Today’s Chapter 11 filing by Tribune Company could put a multimillion-dollar hurt on AbitibiBowater, another newsprint manufacturer, and perhaps some fellow newspaper publishers.

Tribune filed papers with a Delaware bankruptcy court indicating it owed nearly $7 million in “trade debt” to Abitibi -- $4.192 million to the Abitibi Consolidated subsidiary and $2.77 million to the Bowater subsidiary.

Also making Tribune’s list of top-30 creditors was “SP Newsprint Company c/o White Birch Paper Company” of Greenwich, CT, with $5.153 million in trade debt. SP is an Atlanta-based partnership owned by three newspaper chains (Cox, McClatchy, and Media General), while White Birch is a separate, privately owned newsprint manufacturer based in Greenwich.

White Birch was presumably a marketing agent or broker of SP paper sold to Tribune, but it's not clear which company is left holding the bag.

AbibitiBowater also has $13.3 million tied up in Quebecor World’s Chapter 11 filing from January. Put together the Quebecor and Tribune debts and you would have enough to buy 81% of AbitibiBowater stock, which closed down 10% today (and 98% from a year ago) at 43 cents per share. The heavily leveraged paper company lists assets of nearly $10 billion but has a market cap of only $25 million.

Quebecor World says it is in the process of exiting Chapter 11, but it’s not clear what kind of compensation its creditors would receive. Tribune’s various newspapers and other media properties are still operating, but the prospects are bleak for major newspaper chains with lots of debt – and for the paper companies that supply them.

Not making the Top 30 list was Catalyst Paper, the dominant newsprint supplier in the West and reportedly a major supplier to Tribune’s Los Angeles Times and other newspapers. That indicates Catalyst's exposure is less than the $1.691 million that the #30 creditor had.

The top of the list is dominated by holders of various debt instruments. The largest trade debt, $23.691 million, is owed to Warner Bros. Television, #13 on the list. Just below that Time Warner subsidiary is Mark Willes, CEO of Times Mirror until Tribune purchased it, with $11.229 million in “retirement and deferred comp”. Three other retired executives also made the list.

Saturday, December 6, 2008

Losing the Name Game

What idiot is in charge of picking the brand names for publication papers?

We noted yesterday the passing of the AbiBow Eco Gloss brand name that was created by the moniker-challenged AbitibiBowater. (Repeat either the brand name or the company name 10 times very quickly.)

SAPPI has supposedly given up on its Belgrade brand name. There is no truth to the rumor that it had considered coming out with a series of other brands named after the world’s bleakest places, such as Mogadishu Matte, Chernobyl Chrome, and Auschwitz Satin.

Catalyst had a pretty good LWC name in Pacifica Gloss, but then the Freudians in the marketing department changed it to Electracote. To become gender neutral, will Catalyst call its new coated #4 product Oedipuscote?

Myllykoski has tried to get hip to the Me Generation by naming everything MY something – MY GOLD, MY PLUS, MY SYMMETRY, MY BRITE, and so on. MY GOD, enough is enough!

Even the environmentalists pestering some paper companies have trouble with names. Remember Candace the Caribou (right), the character ForestEthics created to protest that logging in Canada’s boreal forest was destroying caribou habitat? The effort was targeted at American consumers, who responded, “What’s a caribou?” Answer: the Canadian word for reindeer.

Now if Greenpeace had created Rudolph the Homeless Reindeer and shown him pushing a shopping cart full of stuff, maybe we would have gotten the message.

Friday, December 5, 2008

AbitibiBowater says no way for Nuway

AbitibiBowater is finally giving up on a nine-year effort to turn base stock from newsprint machines into lightweight coated paper.

The company announced yesterday the closure of its Covington, TN converting facility, where it has the capacity to make 70,000 tons per year of lightweight coated paper using base paper from other mills. As a result, the company will no longer try to make LWC lighter than 36#.

The failed venture goes back to the Nuway technology Bowater purchased in 1999 with hopes of getting into the LWC business. It has what is probably the country’s most efficient coated-groundwood machine in Catawba, SC, but the Southern pulp used there is not suited to ultralight grades.

Bowater’s idea was to make base paper from a newsprint machine in Thunder Bay, Ontario (where it had considered putting in a full coating operation) then ship it to coating facilities near major U.S. printing plants, where it could be converted to coated groundwood on an almost just-in-time basis.

The product got a black eye in the business when Bowater rushed it to market, only to learn that it did not run well on heatset web offset presses. Holes that were acceptable for newsprint on coldest presses turned out to be too large and numerous for coated paper on heatset presses. When printers realized Bowater was using them to beta-test an unproven technology, they discouraged or banned their customers from buying the paper.

Bowater went back to the drawing board to fix the sheet and to develop various products with the Nuway technology. At various times, Bowater and the post-merger AbitibiBowater tried making discounted #5, regular #5, #5 with recycled content, and #4, under a variety of names including the ultra-sexy “AbiBow EcoGloss.”

With the Canadian currency having become so weak, it’s hard to see how Covington could compete with the low-cost Canadian machines at Kruger and Catalyst, which can coat and calender LWC in one pass. And the collapsing LWC market is hardly worth fighting over.

The Covington closure was part of a larger package of 1 million tons of annual capacity, mostly newsprint, that AbitibiBowater announced yesterday it is closing or idling. The stock market reacted negatively, with the stock closing at at 45 cents per share yesterday (low enough that the Quebecor money referenced in Monday’s post would have been enough to buy control of AbitibiBowater), then bouncing back to close at 48 cents today.

The closures and idlings are actually a sign of strength. With a current ratio (current assets to current liabilities) of only 1.07 at last report and big debt payments coming due in a few months, there was a danger that the company would have to keep all cash-positive newsprint machines running even if that caused prices to plummet. By idling so much newsprint capacity yesterday, North America’s dominant newsprint maker demonstrated that it still has the financial strength (or lenders’ patience) to exercise market discipline.

Wednesday, December 3, 2008

Death of the SCF, Part 3: Flats Sequencing

The U.S. Postal Service may have tipped its hand regarding significant consolidations of its dropship network that in some cases will move work 100 miles from the current location.

Information that USPS has released regarding the Flats Sequencing System indicates that, within two years, the handling of flats (catalogs, magazines, and newspapers) may no longer be performed in such major cities as Boston, Hartford, San Bernardino, and Fort Lauderdale. USPS officials have indicated that roll-out of FSS would result in some consolidation of dropship locations but have revealed few specifics.

To understand what is likely to happen, consider the case of the Norfolk-Virginia Beach area in southeastern Virginia. In 2010, the processing of flats for 28 ZIP codes in that area is scheduled to be shifted from the Norfolk Processing and Distribution Center to the new Richmond, VA FSS facility. Currently, Periodicals mailers can get ADC discounts by dropping Norfolk-Virginia Beach mail in Richmond and SCF discounts by dropping it in Norfolk.

(Here is a full listing of Phase I ZIP codes, but be forewarned that the Postal Service seems likely to amend this list and shift some machines to additional locations because of declining flats volumes.)

Part of the Postal Service’s FSS plan is to “induct mail where it is processed” – in this case Richmond. It seems unlikely that USPS would want mailers to drop FSS copies in Richmond while dropping non-FSS copies from the same three-digit ZIP codes in Norfolk. The most likely scenario is that USPS is planning to move the SCF location for all Norfolk-Virginia Beach area flats from Norfolk to Richmond.

That may lead to some Norfolk (pronounced NOR-fuk) postal workers amending the infamous Chant of the Norfolk Virgins to “We don’t smoke, we don’t drink, nor sort, nor sort! (The original chant is, “We don’t smoke, we don’t drink, Norfolk, Norfolk!” which is doubly ironic considering that prostitution used to be a major industry in that Navy town and that the first test-tube baby in the U.S. was conceived there. But I digress.)

Such subtle consolidation of the flats-dropship network is consistent with other moves the Postal Service is making, which Dead Tree Edition is calling “The Death of the SCF” as we know it. (See Parts 1 and 2 of our series.) Such “network realignment” is generally good news for mailers, who have to ship to fewer locations to obtain dropship discounts, but of course not so good for some postal employees whose work is being relocated.

The Postal Service has said for years that it could gain efficiencies by consolidating dropship locations but has been stymied by members of Congress trying to protect jobs in their districts. The huge FSS machines, which are supposed to reduce the Postal Service’s costs of delivering flats (supposedly by at least 5 cents per piece, based on what little USPS has revealed), also seem more suited to a consolidated network rather than the current arrangement of more than 250 processing and distribution centers.

Listed below are other P&DCs indicated for consolidation in the Phase I listings, along with the locations to which the work would apparently go:

  • Boston to NW Boston (Waltham, MA)
  • Hartford, CT and Southern Connecticut (Wallingford) to a facility in Massachusetts, apparently Springield
  • Central Mass. (Shrewsbury) to Middlesex-Essex (North Reading, MA)
  • Fort Lauderdale to Miami
  • D.V. Daniels (Kearny, NJ) and West Jersey (Whippany, NJ) to Jersey City
  • Kansas City, KS to Kansas City, MO
  • Monmouth and Kilmer (Edison), NJ to Trenton, NJ
  • Brockton, MA to Providence, RI
  • Pasadena, CA to Van Nuys (Santa Clarita), CA
  • San Bernardino (Redlands), CA to Moreno Valley, CA
  • Santa Ana, CA to Aliso Viejo, CA
  • Flagstaff and Globe, AZ to Phoenix
  • Culpeper and Winchester, VA to Dulles, VA
  • Athens, OH to Columbus, OH
  • Columbus, IN to Indianapolis

Footnote: Based on the response to my post "Postal Service eyes mega-millions from FSS", there is huge interest in and many questions about FSS. That item has had more than 100 comments, most of them at such sites as Postalnews.com, Postalmag.com, and Postalreporter.com. That prompted me to create "The Unofficial Guide to Flats Sequencing", which has a video of the equipment, links to more information, and answers various questions about the system.

For the record, Dead Tree Edition is neither accepting nor refuting what the Postal Service says about FSS, just trying to interpret what little has come out of "Elephant Plaza" on this important subject.

Monday, December 1, 2008

Maybe we should call it AbitibiUnderwater

Early this year, paper giant AbitibiBowater was stiffed for $13.3 million when Quebecor World filed for Chapter 11. That seemed like a minor wound at the time for a company reporting more than $10 billion in assets, but today it would have been almost enough to buy control of AbitibiBowater.

Just 13 months ago, North America’s two largest newsprint producers joined forces to create AbitibiBowater. Stock of the new company closed at $36.77 per share that day amidst investor optimism that the combination would lead to market discipline – that is, coping with reduced demand by shutting machines rather than cutting prices. In January, Citigroup chose it as a top stock pick for 2008.

AbitibiBowater stock closed today at 53 cents, giving the company a market capitalization of only $30.5 million. That’s less than 10 months after it sold a single mill (Snowflake, AZ) for $161 million.

The shares went as low as 43 cents a couple of weeks ago until a market analyst reported that demand for pulp was picking up in Asia. (Nope. Pulp prices are still collapsing in Asia and the rest of the world.)

It turns out that becoming the dominant newsprint producer in North America is as worthwhile a pursuit as striving to be the world’s best catcher of live hand grenades. Meanwhile, the crown jewel of the Bowater half – the coated-paper mill in Catawba, SC – has lost its luster now that the markets for coated have tanked, currency shifts have taken away the mill's position as a low-cost producer, and quality problems reportedly caused it to stop making rotogravure papers.

The publication-paper market in the least danger of crashing is the one for high-end supercalendered grades (SCA, SCA+) that compete with higher-priced coated groundwood. But one of the first things AbitibiBowater did after the merger is close its only mill that played in the true SCA market.

How can a company with $10 billion in assets have a market value of barely $30 million? Highly leveraged paper companies will struggle more than ever in this recession, and AbitibiBowater is among those with "the most pressing liquidity problems,” Fitch Ratings said last week.

It looks as if Wall Street is betting that another major Canadian/American company will join Quebecor World in Chapter 11.

Dec. 3 Update: S&P downgraded AbitibiBowater's credit rating two notches today, to CCC, and RISI reported that the company had rescinded the December increase in newsprint prices. RISI also said this week that newsprint prices continued rising in November and predicted that the price decline next year will be gradual despite falling demand.

Saturday, November 29, 2008

Postal Service eyes mega-millions from FSS

The first phase of the Flats Sequencing System (FSS) will save the U.S. Postal Service hundreds of millions of dollars annually and result in thousands of job eliminations, a recent Postal Service presentation indicates.

Based on the presentation, Dead Tree Edition estimates the Postal Service is targeting delivery savings of more than 5 cents for every catalog, magazine, newspaper, and other flat handled by FSS. Most of the savings would come from eliminating roughly 6,000 letter-carrier and other employee positions as all 100 Phase I FSS machines go into operation during the next two years. By automating the sequencing of flats rather than having letter carriers do it by hand, FSS is supposed to enable a letter carrier to handle more deliveries.

Still under wraps is how the machines will affect costs and employment levels at processing and distribution centers, where flats are sorted for the delivery units. But postal officials have said that FSS will result in consolidation of some P&DCs.

In just the two ZIP codes served by the Reston Annex in Virginia, the move to FSS resulted in nine employee positions being eliminated, seven delivery vehicles being reallocated to other locations, and 960 square feet of space becoming available. Those results are typical of what to expect from FSS, Jordan Small, USPS's Vice President, Delivery Operations, told the Mailers Technical Advisory Commitee (MTAC) recently. (A summary of the FSS-related changes at the Reston Annex is on the last slide of Small's "FY 2009 Cost Containment Strategies" presentation.)

Reston Annex, serving ZIP codes 20191 and 20194, is one of seven "sort schemes" being handled by USPS's first fully operational FSS machine in Dulles, Virginia. If the Reston Annex results are indeed typical, its results would be replicated about 700 times (7 sort schemes multiplied by 100 machines) in Phase I of FSS.

With letter carriers typically making about $50,000 in annual salary, not to mention benefits, Dead Tree Edition conservatively estimates USPS's Reston Annex savings as $600,000 annually. Replicated 700 times, that would be $420 million. Each FSS machine is to operate six days per week with a capacity of 280,500 flats per day, suggesting that Phase I will eventually sequence about 8 billion flats annually.

The Postal Service may never reveal exactly how many positions it eliminates as a result of FSS because it is undertaking other strategies to reduce the number of letter carriers as well. The number of city delivery carriers declined by more than 10,000 (almost 5%) in the fiscal year that ended on Sept. 30, and the Postal Service is targeting another 9,200 positions in the current fiscal year.

FSS is best suited to areas with high densities of residential and commercial deliveries where the Postal Service has buildings large enough to house the enormous FSS machines. It's not clear how many additional phases FSS will have, especially in light of declining volumes of flat mail. Just a few days ago, in fact, the Postal Service revealed that it is reconsidering the idea of sequencing letters and flat mail together, an approach that was abandoned as too costly a few years ago.

Say Farewell to Miramichi

Any hopes that the weak Canadian dollar and low energy costs would revive the Miramichi, NB coated-paper mill have been dashed. The owner, Finnish paper giant UPM, has reportedly disabled the two machines so that they can never be used again to make paper.

A UPM spokesperson has confirmed that the machines were disabled in September in prepartion for selling the mill property, the Miramichi Leader reported yesterday. A union official claims that the disabling process involved drilling three-inch holes into rolls on the machines, which were relatively large and modern by North American standards.

UPM purchased the mill in 2000 but claims it never made a profit at the mill, which had the capacity to produce 450,000 tons per year of coated groundwood. It idled the mill in the summer of 2007 and closed it permanently a few months later.

The former owner, Repap, relied almost exclusively on brokers to sell its paper, but UPM had a reputation of being anti-broker. In the months between the sale to UPM being announced and actually closing, the mill reportedly lost half its business as brokers shifted their clients to other mills.

The mill was also plagued by labor strife, high freight costs, an inability to make acceptable rotogravure paper, an inefficient pulp operation, and an unfavorable currency market (most of its paper was priced in U.S. dollars)

Sunday, November 23, 2008

Is Quebecor back from the dead?

Is Quebecor World ready for a "return to greatness," as Printing Impressions suggests in the glowing cover story of its latest issue?

At first blush, it's hard to see an exciting future for a company that has already lost $1 billion this year after going Chapter 11. After all, the giant printing company acknowledged in a financial filing recently that it faced "challenging market conditions, resulting in price erosion and decreased volume in most of the Company's markets."

But dig a little deeper and you will find some signs of strength. Most of the $1 billion loss was a writedown of the albatross that almost brought QW to ruin, the European division that it sold in June. QW World has not used much of its debtor-in-possession financing since filing for Chapter 11 in January and experienced positive cash flow, though barely, in the third quarter.

An apparent blessing of the Chapter 11 filing, at least so far, is that counterparties canceled all currency-hedging contracts with QW, which has Canadian plants that produce items for the U.S. market. The U.S. dollar has gained more than 20% on the Canadian dollar since then.

Another blessing came from the U.S. Postal Service last year when it overhauled rates for Periodicals and Standard flats mail in ways that enhanced the incentives for co-mailing. Only R.R. Donnelley and Quad/Graphics are in the same league as Quebecor when it comes to large co-mail and dropship pools for mailed flats, and in this case size does matter.

Of the three, Quebecor's efforts have been more focused on the small mailers (with circulation of, say, less than 100,000) that have flocked to co-mailing in the past year or so and that gain such huge postal savings when participating in QW's large co-mail pools.

I was at an industry function recently where several executives talked of there being only three printers -- QW, RRD, and Quad. Certainly there are others, some of them sizeable companies with stronger credit histories than QW. But without rotogravure presses (rumored to be more profitable than offset), huge co-mail pools, and extensive dropship networks, it's hard to see how they can compete with the Big Three for most medium- and large-circulation publications.

Printing Impressions quotes company executives as saying the new QW is more streamlined and has fewer silos, doing innovative things like using available magazine press capacity (which no doubt there is a lot of these days) "to meet peak four-color educational textbook demand." And QW has definitely been more aggressive in recent months about reaching out to customers and potential customers -- for example, sponsoring and participating in webinars held by Folio: and Multichannel Merchant.

The big question is whether QW is now strong enough to ride out the turbulence of a severe recession and lean enough to thrive as many customers permanently reduce or even eliminate their demand for printing.

Thursday, November 20, 2008

A Second Look at Postal Hikes

After further study of the issue, I will amend yesterday's prediction regarding next year's postal rates -- and point out a quirk in postal regulations.

I still think next year's rate increase will be below the 5% recently predicted by the chairman of the Postal Regulatory Commission, but I was wrong on one count: If prices remain flat in November and December, the increase would be about 4.3%, not the 3.1% increase I stated yesterday. But I still think the increase will be less than 4% because consumer prices are decreasing.

The amount of the increase in most postal rates will be determined by the change in the average monthly Consumer Price Index for 2008 versus 2007. (I mistakenly understood the increase to be based on the change in CPI from December 2007 to December 2008.)

The CPI has decreased in each of the last three months, including a record 1.0% percent decrease in October. But you ain't seen nothin' yet. With most other prices basically being flat, virtually all of the October decrease was related to energy -- especially the 15% drop in gasoline prices. Gasoline prices have dropped even more precipitously in November -- down 35% from Oct 13 to Nov. 17, according to the Department of Energy -- and are apparently heading even lower. November seems likely to break October's record for a CPI decrease, and the December CPI may be lower still.

A 2.0% drop in November followed by a 1.5% decline in November would yield a rate cap of 3.8% for next year's increases in prices for such classes of mail as Periodicals, Standard, and First Class. It would also make any 2010 increases unlikely: Even if those big drops were followed in 2009 by annualized monthly increases of 5% in the CPI, the average monthly CPI in 2009 would be lower than in 2008 because of the energy-related spikes in CPI this past spring and summer. (Remember a few months ago when the big economic concern was inflation?)

That brings me to the quirk: Although the Postal Service can raise rates each year in accordance with changes to the CPI, there doesn't seem to be anything in the regulations requiring it to decrease prices when the change in CPI is negative. The PRC regulations refer to an "inflation-based" limitation on price adjustments but not to any required deflation-related adjustment to prices.

Wednesday, November 19, 2008

Smaller Postal Hikes?

Please see the Nov. 20 follow-up that corrected an inaccuracy in this post and provided further insight.

Now that the rate of inflation has turned negative, postal rates seem likely to increase only 3%, and perhaps less, next year.

The Consumer Price Index decreased 1.0% in October, continuing a recent pattern of price deflation, the Department of Labor announced today. Even if prices remain flat in November and December, the index would be up only 3.1% for the year.

The U.S. Postal Service is scheduled to announce new prices in February for most classes of mail, such as Periodicals, Standard, and First Class. By law, each class's average price increase, which will take effect in May, is largely limited to the change in CPI from December 2007 to December 2008. As Dead Tree Edition has previously reported, Periodicals may get an additional increase if it is determined that the Postal Service is losing money on the class.

Just three weeks ago, the chairman of the Postal Regulatory Commission was quoted as predicting the increases would be about 5%.

Monday, November 17, 2008

Postal problems? It's not the economy, stupid

The U.S. Postal Service should not blame the economy for its recent red ink, Dr. Joe Webb of WhatTheyThink? says in a brief but excellent podcast released today.

"As long as you set prices by a committee and not by a marketplace, you're bound to be out of touch," says the long-time printing consultant and commentator. He includes a chart showing that postal volumes, which used to track GDP, started trending downward in the second quarter of 2007 even though GDP was rising.

I especially like the theme music "Dr. Joe" has chosen for his weekly "audio charts" -- Bach's Bourree in E Minor. No, 70's rock fans, Bach did not rip off Jethro Tull on this one; Jethro Tull, like, ripped off Bach.

Saturday, November 15, 2008

Another IMB Delay?

Postal officials are hinting of another delay in implementing the Intelligent Mail Barcode, just three months after insisting the key initiative was on schedule.

Information-technology issues are causing the latest delay to the ill-fated IMB program, resulting in a three-phase implementation, a source told Dead Tree Edition. A full-service option with rate incentives was supposed to be introduced in May 2009, with IMB becoming mandatory in May 2010.

The U.S. Postal Service decided early this year to delay implementation because of unresolved customer concerns. The IMB will provide a unique identification to each piece and container of mail, enabling the Postal Service (and mailers) to track the flow of mail and to optimize mail handling.

Mailers and their vendors, especially printers, have been complaining for years that their input has been ignored by postal officials who were developing the IMB program. For example, there have been battles over whether the specifications for the barcode itself could be met by the printers' inkjet equipment. MTAC meetings relating to IMB have reportedly become increasingly contentious in recent months, and many issues needed for implementation have yet to be resolved.

Mailers who have tried to prepare for IMB by requesting a mailer identification, as suggested by USPS, have been told they must first have a meeting with a postal employee. Questioning whether USPS could hold meetings with the thousands of affected mailers in time, the mailing community had wondered whether the May 2009 date was realistic. But USPS announced in August that the program was still on schedule.

Wednesday, November 12, 2008

Awash in Paper

Recycled paper is starting to pile up around the world, and in some cases people are paying to have paper taken off their hands.


Scrap dealers in much of California are stockpiling paper gathered from curbside collection because they can't find a market for it, reports the Sacramento Bee. The British government may use abandoned military bases to store waste paper, according to The Times of London. The Kanawha County Solid Waste Authority in West Virginia closed its satellite recycling centers a few days ago.



Paper companies seem to have been slow to react to the global collapse of the market for recycled papers. Just yesterday, an environmental executive for a major paper manufacturer in the U.S. stated in a public presentation that there was plenty of demand for recycled paper so there was no sense up-cycling low-grade papers like newsprint to make high-quality coated paper. (See our discussions of up-cycling in "I'm an environmental idiot!" and "Talking to the Idiot".)


The price of mixed paper for export from the New York area to Asia dropped to $10 to $15 per ton in November, down from $115-120 just a year ago, Pulp & Paper Week recently reported. Much of the drop has occurred in a matter of weeks, as Chinese paper mills that were gobbling up waste paper from around the world suddenly stopped buying. The Chinese mills are idling machines because of weak paper markets and in many cases find themselves with too much waste paper. Some paper is backing up at North American ports because the Chinese companies that were supposed to buy it cannot arrange letters of credit for the shipments.


Hardest hit by the global collapse in the waste-paper market are places like California and the United Kingdom that grew accustomed to exporting their recycled paper at high prices rather than using most of it locally. Those high prices drove a 100%-recycled newsprint mill in Pomona, CA out of business 18 months ago. Once a big user like that closes down, it's hard to restart it to take advantage of lower prices for recycled fiber.


North American paper companies may face growing pressure from customers to use some of the recycled fiber rather than having it stockpiled -- or worse, landfilled. And there may be opportunities for paper mills to get their hands on cheap fiber. But it's not clear whether North America has the infrastructure (such as deinking operations) to process all of its own recycled paper.

Tuesday, November 11, 2008

Postal Poetry

The U.S. Postal Service is eliminating so many postal-clerk positions that thousands of clerks will be reassigned as letter carriers, according to postings on Web sites targeted to postal employees. That has led one person with the screen name "Postal Poet" to post the following limerick on PostalNews:

Now clerks will become letter carriers
The unions will remove all the barriers
One question remaining
If they receive proper training
How much fat will they lose in their derrières

Monday, November 10, 2008

Fuelish Surcharges

Rising crude-oil and freight prices have meant higher fuel surcharges for trucking, special freight charges for paper, and increased prices for ink this year. So what’s happening now that oil and freight prices are plummeting? In many cases, nothing.

Fuel-related price increases tend to be what economists call “sticky.” That means the suppliers "stick" it to you when they can, and you tend to be "stuck" with the surcharges for awhile even after their justification has disappeared (or something like that. Econ 101 was a long time ago.)

One paper executive recently told a group of customers that declining crude-oil prices were not showing up yet in diesel or freight costs. Don’t believe it. For the record, here is what federal agencies have to say:

The U.S.'s average on-highway diesel price has dropped 38% in the past three months. The producer price index for long-distance truckload freight dropped more than 2% from August to September and no doubt will be even lower when the October numbers come out.

Printing contracts that include significant freight services typically have a chart or formula stipulating what the fuel surcharge will be based on a Department of Energy index. Other freight providers have surcharges that tend to track market prices for diesel, though they can be a bit slow about decreasing them when fuel prices drop unless there is contract language governing such surcharges.

Ink companies make a big deal of announcing price increases when oil costs are rising. That sets the stage for printers to pass the price increases along to end users. The ink companies are much quieter when declining oil costs cause them to trim their prices.

The freight charges imposed by paper companies have an illogic of their own. Want to know how your supplier’s freight charges are being adjusted in light of declining freight costs? Sorry, it will take a couple of weeks to run the numbers; the Ouija board had to be sent out for repairs.

At least one paper manufacturer has been assessing surcharges on full-truckload orders to destinations in the same state as the mill. And plenty of folks have reported getting a price quote from a paper supplier and then having a surprise freight-surcharge show up on the invoice.

Fortunately, the U.S. Postal Service (the largest vendor for many publishers and cataloguers) is not tacking on fuel or freight surcharges. In fact, USPS is actually reducing its customers’ freight costs via informal consolidation of dropship facilities, as shown last month in our “Death of the SCF” and “Death of the SCF, Part 2” articles. (Look soon for “Death of the SCF, Part 3”, to be followed eventually by “Night of the Living SCF” and “Death of the SCF Meets Godzilla”.)

Sunday, November 9, 2008

Talking to the Idiot

The response to "I'm an environmental idiot!" in comments on this site, emails to me, and LinkedIn discussions, has been largely favorable. It turns out there are other idiots, some of them major companies, and I'm compiling a list of their statements regarding recycled-content paper for a future post.

But in the interest of more than a one-sided discussion, I'll also point out some interesting criticisms. The harshest is in a post today at paperthought, which says that "the down-cycle whine is getting pretty old" and that all paper sectors must do their part to suck up recovered fiber.

Someone sent an off-line email questioning whether down-cycling wastes 20% of recycled fiber. The book-industry report I quoted on that apparently got the information from a paper company, so perhaps there is some "spin" in that statistic.

An anonymous comment on this site pointed out that the economic recession has drastically reduced China's demand for the U.S.'s waste paper. "Up-cycling may not make sense when you could use it in other down-cycle applications, but if there is [no] market for the down-cycle product, up-cycle is better than landfill," Anonymous points out.

It's true that my timing was lousy: The last couple of weeks have seen a horrendous drop in demand, and prices, for recovered fiber. Recycled paper destined for China is backing up in North American ports because of falling demand and credit problems, and there is even talk of landfilling recycled fiber now being more profitable than selling it. Assuming we won't magically see a reopening of newsprint and other low-grade mills that relied solely or mostly recycled fiber, what's the best way for buyers to influence the market so that the recovered fiber is used appropriately?

More questions: Isn't the growth of single-stream curbside recycling (where glass, cans, and paper are put into the same bins) a major factor in making much of North America's recycled fiber difficult to use in North America? If so, why aren't all of us (paper buyers, paper mills, environmentalists), battling the spread of single-stream recycling?

Saturday, November 8, 2008

Giving BusinessWeek the Business

The Web site that urged BusinessWeek to close its print edition and “go digital” this summer took a less radical tack yesterday, suggesting that the publication go bi-weekly.

Though flawed, the latest post from 24/7 Wall St. is still an insightful look at the choices that dead-tree-edition magazines have when facing the twin monsters of economic recession and loss of print advertising to the Web. Douglas A. McIntyre points out that the three to four days required to get the magazine to subscribers (the actual range is two to five, I think) is nearly an eternity in the financial content industry.

So why not go bi-weekly, he wonders, thereby saving about $20 million annually (in the ballpark, but a bit high if we assume each issue would have more pages and that editorial staff isn’t reduced) and probably losing few advertisers. As a biweekly, BW would have to focus more on features than on breaking news, McIntyre notes.

BusinessWeek would have to drive a larger and larger portion of its readership to its website,” McIntyre says, revealing a fatal flaw in his plan. BusinessWeek is probably one of the best in the business at luring its readers online, but that probably only means it’s getting a small fraction of its print readers to go to its Web site rather than the minuscule portion that most other publishers get.

Typical readers don’t think in the print-versus-Web terms common among industry pundits these days. They go to print for certain things (longer reads, something to do on the train or toilet) and to the Web for others (breaking news, specific searches). They’re smart enough to realize that BusinessWeek is the place to go for thumb-sucker articles exploring counterfeit computer chips or trends in corporate innovation but that at least 20 Web sites do breaking business news better than businessweek.com.

Like most outsiders, and many insiders, McIntyre overstates the case for the Web and understates it for print (though he no longer advocates that BW "move completely to the internet," as he naively wrote in July). BusinessWeek’s nearly 900,000 subscribers are probably worth a few dollars per month each in advertising, while the 3 million unique monthly visitors to businessweek.com are probably worth far less. The Web site is nowhere close to supporting the 150 people (McIntyre’s count) on BW’s editorial staff.

He also pegs the average cost of producing and distributing a dead-tree copy at 75 cents and maybe close to $1. Even 75 cents seems high for a 96-page magazine on skimpy paper. (Close to $1? I’m giving up blogging and becoming a cost-reduction consultant.)

Nevertheless, McIntyre may be on target when he writes that it is “hard to make a case for the long-term survival of the print edition of BusinessWeek." In an age when even daily newspapers seem slow to market and business magazines are no longer bursting with ads, BW must rethink how it presents news, whether to trim its circulation, and even how often it prints. Maybe it should be called BusinessFortnight.

Friday, November 7, 2008

What has changed?

What a week, not just in the political world but also in magazine land. With every day seeming to bring another announcement of layoffs at a magazine publisher, it’s easy to conclude that everything has changed. Nope. It looks to me as if we’re still doing the same stupid things.

I still see us putting out three newsstand copies for every one that’s sold. For weeklies, who pay extra to get allegedly quick on-sale, it’s more like four copies distributed per sale.

I still hear about plenty of magazines mailing their titles inefficiently. I still receive the same old lame direct-mail pieces asking me to subscribe to magazines that I’ve never seen. (Stupid question: Why would I subscribe to a magazine based only on marketing copy without knowing what’s in the actual magazine?)

And, other than a few exceptions, I see little evidence that publishers are considering their impact on global climate change despite growing concern among their readers and advertisers. After all, we did elect a President this week who has promised to focus on the issue.

Here’s my advice for magazine CEOs looking to cut waste in response to falling ad revenue:
  • If you have mailings of between 10,000 and 800,000 magazines (or up to 1.2 million catalogs) that are not being co-mailed, find out why. In fact, if no one has mentioned to you the possibility of some form of co-mail for those titles in the past year, you probably need to fire someone. There are plenty of production and distribution managers on the job market now who understand how to minimize postal costs. Note that even Crain’s, which a couple of years ago presented testimony that weekly titles could not be co-mailed, is now co-binding some of its weeklies.
  • Read your magazines’ direct-mail pieces. Betcha 2 to 1 they suck.
  • Call your circulation director and newsstand distributor into your office, hold a gun to their heads, and tell them to stop wasting so many newsstand copies. “Reduce the draw, reduce the sale,” they will parrot back at you. Comag Marketing Group has proven that you can reduce draw with little impact on sales. After all, the goal should be to maximize profits, not sales.
  • Get ready for more of your advertisers to ask uncomfortable questions about the carbon footprint of your products. On the print side, you can start with the big item – paper manufacturing – by asking your paper suppliers about the carbon footprint of their products and what they are doing to reduce it. On the electronic side, make your people and your vendors stop suggesting that Web ads and digital editions are necessarily “greener” than print. (Check out Wired's take on the subject, and Multichannel Merchant's Nov. 11 webinar on improving your carbon footprint.)
Is this harsh advice a betrayal of my readers? No, you are likely to read this before the magazine CEOs, so take it as a warning. Get a ballpark estimate of what you could save with co-mail and put it in front of your CFO. If you don’t, a consultant will. Take a scalpel to your newsstand draw before the bean counters take an axe to it. And get ready for the growing movement among advertisers to track, and perhaps offset, the carbon footprint of their ads.

BoSacks 1, Folio: 0

Did you see on Wednesday (Nov. 5) that Folio:’s Web site had the “news” that paper prices have apparently peaked? (It’s not worthy of a link.)

Dead Tree Edition broke that story five days earlier, and BoSacks distributed it Sunday afternoon -- which led to a flurry of customer phone calls to paper salespeople on Monday morning. Thanks for the plug, Bob. I promise to stop making jokes about what you might have been smoking during your High Times days.

How is it that BoSacks, one guy with a Web site and bad hair, continually provides faster and better coverage of certain magazine-industry issues than the leading trade publication for the industry? Because he recognizes that the old “not-written-here” mentality doesn’t cut it in the age of Web 2.0.

Monday, November 3, 2008

Hey, go away and sell some printing!

Print buyers believe they will face "more competition in 2009 from out-of-work print sales reps, who now want to work on the other side of the table," Margie Dana reports from Graph Expo.

After speaking to and meeting with print buyers at Graph Expo last week, she reported that neither the use of overseas printers nor "green" printing were big trends. Margie is the founder of Boston Print Buyers and distributes a free "Print Tip of the Week" for people involved in buying various types of printing.

One of her conclusions from Graph Expo should sound familiar to people in both the magazine and catalog industries: "Having to defend print as a medium of choice is getting more common" for print buyers, she writes.

Making a Stink About EnviroInk

We're not the only ones wondering what to make of Quebecor World's EnviroInk announcement. (See "Green Ink or Greenwash Ink".)


At a recent presentation to customers, our contacts tell us, a Quebecor official said her phone had been "ringing off the wall" since the announcement. Several customers peppered her with questions about the ink's environmental significance, such as whether it was greener than standard heatset-offset inks and whether it represented an improvement over Quebecor's old practices. She was unable to answer those questions but promised future clarifications.


She did say the ink usually contained at least 25% renewable resources, which is more than the minimum required for SoySeal inks. The main difference is that the renewables in EnviroInk come mostly from trees and those in SoySeal inks come from soybeans.


(Before you jump to conclusions about soy ink being greener because it "saves trees," consider this question: Which would be a more environmentally friendly use of a piece of land, soy farming or working forest? Besides, no one cuts down trees to make pine rosin; it's a byproduct of making pulp.)


Quebecor has confirmed that use of the EnviroInk symbol would not violate federal "greenwashing" standards. But several who heard the presentation nevertheless expressed concern that customers would indeed view the symbol as a form of greenwashing.

Friday, October 31, 2008

Paper Prices Heading Down

Stick a fork in it: The bull market for paper is officially done.

Confirming what many market participants were already seeing, RISI released a report today declaring that prices have peaked for virtually all grades of publication paper, from newsprint to coated freesheet. RISI has a reputation for accurately reporting current prices but being a bit bullish when it comes to forecasting. So when the respected information provider for the forest products industry says prices have peaked, you can bet on it.

The firm's monthly Paper Trader report took a dramatically bearish turn, showing that market prices almost across the board were lower in October than the company had recently projected. Prices for some grades declined in October, while others hit their peak prices, the report stated.

The exception is uncoated groundwood grades, but even there RISI has turned less bullish on the super-tight supercalendered paper market. It projects that the price of the benchmark 35# SCA will peak early next year and then hold steady, rather than the previous month's forecasts of rising prices into the year 2010.

Respecting RISI's copyright, Dead Tree Edition will not reveal RISI's current or projected benchmark prices; Paper Trader is available only by paid subscription. But we will report that we are seeing and hearing about more aggressive prices for coated groundwood and that in the tighter coated-freesheet market mills are reportedly offering price caps to lock up business for next year.

Much of the contract pricing in the supercalendered market is set for six months or even a year at a time, so there had been much expectation that prices would move up dramatically in January to match this year's ratcheting up of coated prices. But the strong dollar, lower costs for energy and freight, and the deteriorating economy have put the lid on those increases -- and are wreaking havoc for coated groundwood.

Mr. Paper Executive, do you hear those phones ringing at your favorite paper brokers' office? It's not the end users who are calling; they're too busy adjusting their bloated inventories in response to declining ad pages and reductions in catalog circulation. It's the European mills, who have noticed that the dollar has risen nearly 20 percent versus the euro in barely three months while prices were rising, suddenly making the U.S. an attractive market.

Woe to the paper executives who thought "market discipline" had something to do with whips and chains rather than just holding the line on prices. You are likely to find RISI's forecast of a gentle downturn to be overly bullish.

Paper buyers, still smarting from your arrogance when markets were tight, are now watching waves of layoffs and shutdowns roll through their industries. They won't hesitate to push prices as low as possible to keep more titles, and their own jobs, from going under. And they'll find plenty of suppliers willing to price aggressively to keep their machines running, despite your brave talk of ROI targets and shutting more mills.

Wednesday, October 29, 2008

Forest Development, Add-a-name, Intelligent Mail

A few items on other sites worth noting:

  • "Private forest owners can make more money selling their land for subdivisions than harvesting it for timber," begins a recent item in the Corvalis, Oregon Gazette-Times.


  • Add-a-name and drop-a-name are tricks that cataloguers use to reduce their postal costs, as an item in Multichannel Merchant explains this week. I know of one magazine publisher that tested add-a-name a few years ago and wonder whether others have tried it recently now that the incentives are better. Quick explanation: If you have five Periodicals pieces going to the same postal carrier route, adding a sixth piece will make them eligible for a carrier-route bundle, saving more than 50 cents in postage on the five pieces. That sixth piece might have a negative incremental cost.


  • Intelisent's Postal Affairs Blog has a brief item explaining the difference between the "basic option" and "full-service option" for the Intelligent Mail Barcode. Isn't "intelligent mail" an oxymoron?


  • If you agree that there's more to environmentally friendly paper than recycled content, go to Folio:'s recent piece about sustainable paper and place a comment saying that people should read "I'm an environmental idiot!". Be sure to copy the piece's URL (http://deadtreeedition.blogspot.com/2008/10/im-environmental-idiot.html) into the comment because Dead Tree Edition is still hard to find via search engines. If what you want is in-depth coverage of sustainability issues regarding paper from a buyer's perspective, go to the Sustainability section of PaperSpecs blog.

Why are monthly magazines so “unwieldy”?

Nat Ives at Advertising Age has a great piece this week discussing monthly magazines being slow to market from an advertiser's perspective. He notes that, in times of uncertainty, marketers want to wait until the last second to make a commitment.

“Unfortunately for monthlies, which often need about two months to get an ad into an issue, the "last second" is often actually well past their deadlines,” he writes.

Don’t be surprised if your publisher starts asking questions (again?) about why your ad-close deadlines are so far in advance of an issue’s actual production and why it takes nearly a month for copies to hit the newsstands.

Here’s the sad part: The Magazine Publishers of America formed an “immediacy committee” five years ago to focus on the issue, but the group has disbanded, Ives writes.

Tuesday, October 28, 2008

I'm an environmental idiot!

I used to think that using post-consumer recycled content to make paper was good, that cutting trees to make paper was bad, and that online editions were greener than “dead-tree” editions. Silly me.

It's taken me years to realize that using post-consumer waste (PCW) in North America to make magazine-quality paper not only does not “save trees”, it’s often actually bad for the environment. The problem is “up-cycling”, the use of low-quality recycled material (such as post-consumer newsprint) to make higher-quality products, such as coated and supercalendered papers.

“Up-cycling of fibers wastes an additional 400 pounds of fiber per ton to make high-quality recycled paper,” states the Association of American Publishers Handbook on Book Paper and the Environment, which does a nice job explaining up-cycling and down-cycling. PCW usually has to be deinked and bleached to make higher-quality papers. There is no such fiber loss when the PCW instead goes into products like cardboard. So insisting that North American mills include PCW in the paper we buy merely bids up the price of that fiber and diverts it from more ecologically appropriate uses. For that reason, at least one publisher has asked its North American paper suppliers not to put post-consumer waste into its paper.

The situation is different in some European countries, where waste streams for office paper (mostly uncoated freesheet) and magazine/catalog paper are kept separate from lower-grade products like newsprint. To get such high-quality recycled fiber in North America generally means using pre-consumer fiber, such as printer waste and unsold newsstand copies.

An argument often made for recycled fiber is that it has a lower carbon footprint than virgin fiber. That is a gross over-generalization that often is simply not true. Pulp and paper mills relying on virgin fiber tend to get their energy from biomass (such as bark) and hydroelectricity. Making pulp from PCW may require less energy, but that energy typically comes from natural gas and coal-fired electricity.

As an environmentalist, it pains me that so much of the guidance the environmental movement has offered regarding paper purchasing, however well intentioned, has been misleading. Take the idea that cutting trees is bad.

Deforestation is definitely harmful to the environment, but there is little correlation in North America between forestry and deforestation. Agriculture and urban development are much larger despoilers of forests.

“To address climate change, we must use more wood, not less,” says Dr. Patrick Moore, a founder of Greenpeace and more recently of Greenspirit. “Using wood sends a signal to the marketplace to grow more trees and to produce more wood. That means we can then use less concrete, steel and plastic -- heavy carbon emitters through their production. Trees are the only abundant, biodegradable and renewable global resource.”

And how about the idea that it’s greener to publish a digital or Web edition than to put ink on paper? There is nothing green about all the electricity it takes to power Web servers and keep them cool. You can buy carbon-neutral paper, but I haven’t heard of any carbon-neutral PCs.

Global climate change is the key environmental issue of our generation, so our green efforts should focus on minimizing emissions of carbon dioxide and other greenhouse gases. For me, when I buy paper, that means selecting mills that use earth-friendly fiber (whether from sustainable forestry or from appropriate recycled content) and emit few greenhouse gases, then having the paper transported in the most energy-efficient manner (e.g. rail instead of truck).

Disagree? Then speak up. I am willing to publish other viewpoints as long as they are well-reasoned and well written; you can email them to dead.tree.edition@gmail.com. Or just click the “Comment” button at the end of this post to share your immediate, unedited response. If we’re going to preserve the Earth as we know it, we need to have more intelligent discussions and debates and fewer knee-jerk reactions and oversimplifications.

Monday, October 27, 2008

Big postage increases ahead for magazines?

Magazine publishers expecting a small increase in postage rates next year may be in for a double whammy, our contacts are indicating. Contrary to popular opinion in the industry, Periodicals rates could increase by more than the rate of inflation next year, especially for inefficient mailers.

The U.S. Postal Service seems likely to implement extra-high rate increases next year for Periodicals-class mailers who use sacks instead of pallets, especially if the sacks are not dropshipped, several contacts say. The thinking is that the Postal Service can no longer afford heavy subsidization of sacks and other practices that cost it so much money. Political pressure has prevented USPS from passing its full cost of handling sacks on to the customers.

The big rate increases for sacks would be good news for publishers that mail their magazines mostly on dropshipped pallets, but they might also be in for a surprise. By law, the average rate increase for each class normally would not exceed the annual rate of inflation, currently just under 5%, so usually a large increase for some publishers would mean a small increase, or even a decrease, for others.

The second part of the whammy is that the Postal Service may soon issue a decision on whether it is at least breaking even on the Periodicals class. If Periodicals is a money loser, as some claim, then the Postal Service may be forced by law to implement large Periodicals rate increases.

USPS is slated to announce rate increases for all classes of mail in February, for implementation 90 days later, in May.

Sunday, October 26, 2008

How sleepy is the giant?

And now for a quick diversion into politics. It's completely off the subject of this blog, but at least it distracts me from peaking at my 200.5K (formerly 401K) account.


I know a public schoolteacher in a multi-ethnic district who went to a doctor whom a friend recommended -- then walked out when she discovered the doctor was black. I would bet she's not voting for Barack Obama next week. I'm also guessing that, if a pollster asked her, she wouldn't admit why she's voting against him and might not even reveal that she's made up her mind for John McCain.


The point is that, despite what the polls say, Obama does not have this election in the bag. He has done an excellent job of not waking what one Southern black politician used to call "the sleeping giant" -- racism. But the giant will still influence many voters this year, and some of that influence is not showing up in the polls. In fact, there is a pattern of black candidates doing worse in actual elections than the polls predicted.


Besides, there is still time for an October (or even November) Surprise. Don't be astonished if rumors of Obama's relationship with a white woman start circulating. It doesn't matter whether they are obviously false, just that enough gullible people believe the rumors and repeat them -- as with the "Obama is Muslim" lie that took so long to dispel.


Am I attacking McCain's character? No way. Both candidates are too busy to control or even know most of what their campaigns are doing. At this point in an election, people working in the campaigns tend to view the race as Armageddon, thus they justify any dirty deeds that might help the Forces of Light overcome the Forces of Darkness.


A personal note: As a child in the South, I heard the epithet "nigger lover" a few times and even witnessed a burning cross on our front yard because of my family's beliefs and actions. To see a black man in serious contention for the Presidency affirms that, to paraphrase James Weldon Johnson, "our weary feet have come to the place for which our parents sighed."

Saturday, October 25, 2008

Catalog Prospecting: Thar's gold in them thar pages

Our contacts note that some catalogs are cozying up to magazines more than ever.

For example, a toy seller is binding a mini-catalog into a children's magazine, and L.L. Bean seems to be buying more print ads than ever. Magazines struggling to get ad pages (and which ones aren't these days) and catalogs wrestling with high prospecting costs: take note.

Consider the Bean example. It typically buys full-page ads for a single product, often with an invitation to request a free catalog. The traditional cataloguer's view is that magazine ad pages lack precise targeting and have a low response rate. So why does Bean, reportedly one of the most marketing-savvy multichannel merchants, keep running ads in national magazines?

The Bean folks know the metric that matters is cost per response, not response rate. A typical lightweight catalog (the kind that got slammed with postal rate increases of 20% or even more last year) probably costs about 40 cents per piece. An ad in a national magazine probably costs roughly 4 cents per copy ($40 cpm) these days. That means that a response rate on the magazine ad of only 0.5% is equivalent to a 5% response on a lightweight catalog.

Advertisers want to know which media have "engaged," responsive audiences but often have trouble tracking that. Bean has done it for them: You can bet that Bean tracks responses closely by medium, so any magazine that gets its repeat business must have a responsive audience.

My employer's advertising and marketing people would tell you that I don't understand advertising. But I've got one up on them and the rest of the magazine industry: The last time I checked, two mohels were running ads next to one of my Oct. 23 posts. Don't recall seeing that in People, Cosmo, or the other biggies.

Maybe I should contact one of those mohels to help me with budget reductions. They're probably much better than our bean counters at making cuts without damaging essential items.

Friday, October 24, 2008

When business is down, kick the customers

The head of a major postal union offered a novel solution for what ails the U.S. Postal Service this week: Stop communicating so much with your customers.

"You must evict the Mailers Technical Advisory Committee (MTAC) from postal headquarters," William Burrus, president of the American Postal Workers Union, said in an open letter to Postmaster General Jack Potter. He wrote the letter because "the current USPS business plan is not working and cannot be expected to work in the future" and to warn against cost cuts as a response to declining revenue.

"It is unhealthy to have individuals whose allegiances are to their private-sector employers located inside postal headquarters," Burrus went on. "There is no similar arrangement elsewhere in our society, where by sheer proximity a major customer has unlimited access to the nerve center of a company. Do you believe that UPS or FedEx would permit a customer to set up shop inside its headquarters? Can you imagine providing the APWU with offices at postal headquarters? Evicting MTAC will change the psychology of the relationship, and shift them from partners to valued customers."

Burrus is correct that mailers have an unusual level of access to Postal Service management -- unusually bad.

Production managers at magazines and catalogs talk frequently with various people at their paper suppliers and printers. We sit down with them frequently to work out mutual problems and to explore opportunities. We have frequently toured their facilities, met with company presidents, and occasionally even gone into the homes of executives.

But with the Postal Service, a larger supplier for most of us than any printer or paper company, we get a once-in-a-blue-moon visit from a national account rep who knows little about our business and has limited ability to get anything done. We have to rely on industry associations and especially on MTAC to work out existing problems with the Postal Service and to prevent new ones.

I have had disagreements with people on MTAC, but I can't imagine how bad things would be for customers and the Postal Service without this kind of group working on a variety of technical issues. Even as an outsider, I can see that such major Postal Service initiatives as Intelligent Mail Barcode and the Flats Sequencing System would be doomed if not for the work of MTAC.

Here is a link to more information about MTAC. Do you see anything nefarious there? The meeting minutes are especially informative because you can link on PowerPoint presentations that were made at the MTAC meetings.

Thursday, October 23, 2008

Speaking of Katahdin . . .

In reference to Katahdin's idled paper mill (see our Oct. 21 post), someone passed along this moving story from U.S. News & World Report about what this all means to the people in a one-industry town like Millinocket. And, yes, it did appear in U.S. News' dead-tree edition: "Death Watch in a Mill Town"

Call a mohel, this baby's growing!

At just 8 days old (thus the reference to a mohel -- it's Hebrew, look it up), this baby already passed 3,000 visits.


Thanks for the encouraging words, the gossip and tips (need more of those), and for spreading the word to friends and colleagues. I hope not just to write but to stir up conversations that help us all navigate these trying times. I welcome comments, criticism, suggestions, insights, and even guest postings. Feel free to "talk to the Tree" at dead.tree.edition@gmail.com


This truly is a labor of love intended to help this industry I love. Yeah, there are a few ads on the site, but they are mostly so I can occasionally splurge on a Starbucks double mocha latte like the office’s Web genius is always drinking instead of swilling the free crapola from my employer’s coffeepot. Besides, this old ink-on-paper dinosaur is fascinated by an ad model (Google AdSense) where the words “competitive separation”, “ratebase,” and “makegood” are never uttered. And I actually learned something from clicking on one of the ads. (Hint, hint . . .)


Anyway, shoutouts (Hey, if I'm going to do this Web thing, I occasionally have to talk like a Gen-Y) to the Web sites that have featured our posts, including PostalNews, PostalMag, Forestweb (a paid-subscription site), PostCom, and Postal Affairs Blog.


And be careful with that knife, rabbi!