Sunday, May 31, 2009
Less than two months ago, we polled readers about where they expected prices for 40# #5, then at $900/ton, to be in July. Most thought the RISI index for the grade would decrease, but only 29% voted for the index to be below $820 ($41/cwt.)
Most of the voters (including me) have already turned out to be wrong: Though it hasn't released its full report yet, RISI has revealed that its 40# index for May was $810. It is also projecting that the bottom of the market for all types of coated paper will be much lower than it previously predicted.
Demand may perk up a bit as inventories are burned off and we enter the busier half of the year. But the problem is supply: There are simply too many North American mills churning out coated paper.
Market leader NewPage has indicated it has no more high-cost machines to shut down, and the black-liquor credit has given many U.S. mills a huge subsidy to keep their pulp and paper machines running. It seems likely that paper prices will keep dropping until the least efficient machines or mills can't even cover their variable costs.
Imagine the headlines if Branson's Virgin Atlantic indeed pursued Hugh Hefner's troubled offspring: "Virgin Ogles Hefner's Assets" or "Virgin Hot for Playboy". That might cause the target's stock to rise: "Virgin Gooses Playboy".
If Branson's company bought part of Playboy: "Virgin Gets a Piece of Playboy". Or got it to accept a low-ball offer: "Playboy Goes Down for Virgin".
If Branson decided to break up the House of Hef: "Virgin Deflowers Playboy". And then fired Hefner: "Hef Loses Virgin-ity".
Friday, May 29, 2009
Sharp-eyed Gordon Pritchard noticed this aberration (see photo) on the magazine's June cover.
His excellent Quality in Print blog normally deals with the finer points of prepress and printing, demonstrated with fabulous graphics. He even makes the concept of screen angles easy to understand.
But Gordo's not all business. Check out his hilarious summary of real-world magazine workflow in the context of the Marie Claire goof.
UPDATE: There's been a lot of debate on various sites about whether this is really a Photoshop mistake or just a huge cube ring on Beyonce's finger. See Gordo's new take on the image and on Photoshop disasters in general. And for more fun go right to the source, Photoshop Disasters.
Thursday, May 28, 2009
But I’m backed up by no less an authority than the Government Accountability Office, which last week reiterated its long-standing advocacy of such downsizing. Its latest report on the subject is titled “Network Rightsizing Needed to Help Keep USPS Financially Viable”. Some highlights:
- “It is important for USPS to make significant progress in consolidating its networks and reducing excess capacity or it may face more drastic cost-cutting options and have less time to achieve necessary cost reductions.” With 160,000 employees eligible for retirement this year and another 130,000 in the next four years, the Postal Service can accomplish much of its downsizing via attrition rather than layoffs, the report indicates.
- “We reported in 2005 that USPS had substantial excess capacity in its mail processing network. Long-term trends have further increased excess capacity in the processing network such as continuing automation, declining volume of single-piece First-Class Mail (e.g., bill payments, personal correspondence), and destination entry of Standard Mail . . . that reduces the need for USPS mail processing and long-distance transportation of mail."
- “New automation equipment enables USPS to sort mail faster and more efficiently, a development that, with declining mail volumes, has resulted in more equipment downtime. In addition, new equipment, referred to as the Flats Sequencing System, will sort flat-sized mail (e.g., large envelopes, catalogs, and magazines) into delivery order, which is expected to reduce the need for space-intensive manual sorting at delivery units. Because delivery units are often co-located with post offices, branches, and stations, eliminating the excess space could involve relocating or consolidating retail activities.”
- “However, USPS has closed only 1 of its approximately 400 major mail processing facilities. USPS has often faced resistance from employees, affected communities, and Members of Congress when it has attempted to consolidate its operations and networks. In enacting PAEA [postal reform], Congress recognized USPS had more facilities than it needs and strongly encouraged streamlining its networks, noting this can pave the way for eliminating excess costs. Continued congressional support for necessary closures would be helpful to facilitate progress in this area."
Wednesday, May 27, 2009
USPS directed mailers of Standard class flats (mostly catalogs) and Periodicals (magazines and newspapers) to stop dropshipping mail to a Bronx facility as of May 22; mailers of Standard letters (direct mail) received the same directions last month. Those who want an SCF (Sectional Center Facility) discount for mail addressed to the Bronx can now get it by delivering to the Manhattan SCF instead.
The Postal Service stirred up a hornet's nest of opposition when it began an "area mail processing" study in 2005 to consider whether to move mail-handling duties from the Bronx to the Morgan facility in Manhattan. In December 2007, Congressman Jose E. Serrano inserted a provision into an appropriations bill that blocked any such move. The Bronx Congressman chairs a subcommittee that oversees some appropriations to the Postal Service.
It's not clear how many jobs were affected by the recent redirection from one New York borough to another. There have been reports of the Postal Service taking flat mail that is dropshipped to some SCFs and shifting it to Area Distribution Centers (ADCs) like Morgan for actual sorting. That has apparently become more common with the introduction of faster flat-sorting machines coupled with the recent declines in magazine and catalog volumes.
AMP studies often generate significant opposition among postal workers, the local media and politicians because of the many jobs involved and the potential loss of a town's postmark. Wilkes-Barre, PA; Staten Island, NY; and Winchester, VA are among the communities currently battling AMP studies.
By contrast, "redirections" of certain dropshipped mail typically fly beneath the radar because they are not publicly announced and do not involve the hot button known as First Class mail. Lakeland and Manasota Florida vehemently protested the formal consolidation of their processing and distribution centers earlier this year into a Tampa facility, but hardly a word was spoken when Standard and Periodicals flats were redirected last month from Fort Lauderdale to a facility near Miami (apparently in preparation for the Flats Sequencing System).
So far this year, flat mail has been redirected from six towns in Oklahoma, four in Pennsylvania, and facilities in New Hampshire, Connecticut, Tennessee, Mississippi, Arizona, and California -- in addition to the Bronx. The pace of new AMP studies has also accelerated, according to a listing maintained by the American Postal Workers Union, as the Postal Service tries to adjust to lower mail volumes.
Friday, May 22, 2009
In its effort to recast itself as an upscale title, the iconic but money-losing magazine introduced its new design this week to, at best, mixed reviews. But everyone seemed to notice the improved paper in what Folio: magazine is calling “The Newsweek”.
It also means about $3 million more in paper and postage costs during the next 12 months, excluding the impact of circulation reductions, Dead Tree Edition estimates. Even after Newsweek gets its paid circulation down to its target of 1.5 million (from the current 2.6 million) in a year or two, the paper upgrade will cost it at least $2 million more than if it had stayed on 30#. (Key assumptions: Average of at least 72 pages per issue to be economically viable; paper cost per page increased 15% with the upgrade because of a slightly lower price but a large yield loss; combined postage and freight cost of 24 cents per pound on
There wasn’t much other good news for the North American coated-groundwood paper industry this week: The official April statistics came out, showing that one-third of capacity was idle and that sales were down 42% versus April 2008. And even Newsweek's increased paper usage is only temporary -- until it can start slashing its circulation significantly.
Wednesday, May 20, 2009
"With more advance notice, this number would have certainly been higher," Steve Fuller, Chief Marketing Officer for Bean, wrote Tuesday in a letter to Dan Blair, chairman of the Postal Regulatory Commission. The letter was one of several that catalog and direct-mail companies have submitted to the PRC in support of the Summer Sale, with some agreeing that their participation would be limited by the short time frame to plan and execute the additional mailings.
"I want to assure you that L.L. Bean will do everything possible to maximize our mail volume during this period," Fuller wrote in praise of what he called a novel program. "Final volumes will depend on program details and L.L. Bean's inventory position."
The sale would provide postage rebates of 30% for Standard mail (such as direct mail, catalogs, and retail flyers) sent this summer by large mailers after their mail volume reaches a certain threshold. Each mailer's threshold is based on the amount of mail it sent in previous quarters and is calculated in a way to encourage companies to mail more pieces than usual during the Postal Service's slow summer period. The PRC has indicated it would rule on the proposal by June 4.
USPS officials hope to issue the rebates to mailers' postal accounts by Dec. 1. They have also indicated that the program is an experiment from which they hope to gain valuable information about how to implement other profitable incentive-pricing programs.
The Postal Service's incremental costs for the additional Standard mail would be even lower than the discounted postage, USPS told the PRC in a document filed last week. The Postal Service's delivery network, buildings, vehicles, and equipment will have significant excess capacity this summer, meaning the cost of handling additional mail pieces during that period will be unusually low, it said.
For example, the cost of an additional catalog would be 32% to 67% lower than normal, depending upon the sortation level, calculations presented by the Postal Service show. A discounted catalog with high-density sortation would cost USPS only 2 cents but bring in 11.5 cents in revenue, according to the USPS data.
Tuesday, May 19, 2009
Batteries for the electric vehicles could be charged during off-peak hours and kept connected to the grid, writes Michael Ravnitzky, Special Assistant to Commissioner Ruth Goldway of the Postal Regulatory Commission, in a paper published today on the PRC’s Web site. When not being used in delivery vehicles, stored power in the batteries could be sold back into the grid at times of peak or unexpected surges in demand.
(A presentation Ravnitzky did recently on the concept can be found here. The paper grew out of an op-ed piece Ms. Goldway wrote for The New York Times.)
USPS’s fleet of 142,000 right-hand drive delivery trucks is nearing the end of its useful life. The vast majority could be replaced by electric vehicles using today’s battery technology, Ravnitzky writes.
“Most daily mail delivery routes are short, repetitive and well-defined, and include many stops, making the postal delivery fleet a prime application for electric drive vehicles. The electrification of the postal fleet could significantly reduce gasoline and maintenance expenses while reducing the fleet’s carbon footprint,” he says.
“Historical experience with electric drive vehicles suggests maintenance cost reductions of at least 30 percent to 50 percent,” he writes. That, and an electricity cost that is equivalent to 80-cents-per-gallon gasoline, suggests annual savings for the Postal Service could be in the hundreds of millions of dollars.
On the revenue side, Ravnitzky sees more opportunity from storing electricity and having it available to the grid on a contingency reserve basis than from actually selling electricity. As such unreliable sources as wind and solar power became more of a factor in the grid, he notes, the needs to store electricity and have it available on a rapid-response basis will grow, he says. He estimates $2000 to $2500 annually in revenue per vehicle from various “V2G” (vehicle to grid) services – which would mean several hundred million dollars if most of the fleet went electric.
“The operators of the electrical grid are essentially running a massive just-in-time delivery system and it can be tricky to keep this system balanced."
Electric vehicles cost more upfront than gasoline-powered ones, and some investment in battery-charging operations would also be needed, according to Ravnitzky. Mass production of the expensive batteries would reduce the cost and presumably give a leg up to manufacturers developing similar products for the consumer market. Further study is needed to provide detailed information on capital costs, operational savings, revenue potential, and environmental impact, Ravnitzky says.
Perhaps his vision could be employed to provide a simultaneous bailout for three needy recipients – American car companies, the U.S. Postal Service, and the environment.
Sunday, May 17, 2009
NewPage has closed five paper machines in the past year and temporarily idled others, shouldering much of the burden for adjusting supply to a weak market. Those efforts to prevent prices from crashing resulted in the company selling 43% fewer tons of coated paper in the first quarter than it sold a year earlier, NewPage reported Wednesday.
But with a quarterly loss of $114 million and a gross profit margin of only 0.3%, the company has grown weary of giving up market share while competitors keep their machines running -- and markets loose.
"We don't have any high-cost operations remaining that could be candidates for closure," president and CEO Rick Willett said during the company's quarterly earnings conference call. "The more prudent thing for us to do is manage our downtime as cost effectively as we can and really get ready for the recovery in volume."
Downtime is a way to deal with temporarily weak demand but doesn’t address the North American coated-paper industry’s more chronic problem -- more than a million annual tons of excess capacity. NewPage is leaving the task of further shutdowns to Verso, Kruger, et al.
NewPage’s quarterly earnings announcement also had several significant omissions:
- “Black liquor” revenue: NewPage was a relative latecomer to the black liquor party, not qualifying for the federal-government credits until last month. The $45 million it recently received for using black liquor/diesel mixtures during the first quarter were not booked in the quarter.
- Unisource deal: The company announced this week that it will supply more than 100,000 tons per year of coated sheets for Unisource’s private-label program, which was formerly supplied by a Chinese manufacturer.
- The “S” and “D” words: The earnings announcement noted that imports of coated paper, especially from Asia, are increasing. But there was none of the usual bluster about efforts to prevent subsidized Asian mills from unfairly dumping their product in the United States. (OK, class, today’s language lesson: When a foreign pulp mill that fuels its operation with black liquor gets help from its government, that’s called a “subsidy”. When a U.S. mill receives money from the federal government for fueling its operation with black liquor, that’s called an “alternative-energy credit”.)
- Verso settlement: Verso’s earnings report last week noted the settlement of a patent dispute with NewPage about a process for making high-bulk coated-groundwood paper. NewPage’s report was silent on the litigation and its settlement.
- Other products: The report did not break out results by category for NewPage’s other products, such as supercalendered paper, newsprint, and market pulp. Revenue for those other products in the aggregate was down “only “ 26%.
Friday, May 15, 2009
The Consumer Price Index rose only 0.25% from March to April, the U.S. Labor Department reported today, putting the index 0.7% below the level of April 2008. That means consumer prices would have to rise at an annualized rate above 4.5% for the rest of the year for the U.S. Postal Service to raise rates in May 2010 for the “market-dominant” classes – such as First Class, Standard, and Periodicals.
With the recession tamping down inflation this month and probably next month as well, prices would probably have to rise at an annualized rate of more than 6% in the second half for postal rates to increase at all in 2010.
The Postal Service would still apparently have the ability to adjust rates – such as a new pricing structure for mail going to the Flats Sequencing System – as long as average rates for a class do not increase. And with the money-losing USPS apparently on course to run out of funds within a year, there’s always the danger of it getting special permission to implement price increases that violate the CPI-based price cap.
There's also the question of when mailers will ever receive promised discounts from using the full-service Intelligent Mail barcode (IMb). Some large publishers have spent months testing the program so that they would be ready for free address-correction services on Monday. Now USPS has essentially thrown out that testing and started over, with a new round of testing to start Monday and implementation being at least weeks away.
Some of those publishers are asking for free address correction anyway, even though the Postal Service is not ready to automate the process. But postal officials involved in IMb are too busy issuing statements falsely claiming success to worry about yet another missed deadline.
Wednesday, May 13, 2009
R.R. Donnelley stunned the printing and publishing industries today by announcing its offer to be the "stalking-horse" bidder for rival Quebecor World, which is about to emerge from bankruptcy reorganization. It offered Quebecor's creditors, who essentially own the company, everything they would receive from the reorganization (which for many unsecured creditors is at most 50 cents on the dollar) plus 15% ownership of Donnelley. Donnelley stock closed down 9% today, making the stock being offered to the Quebecor creditors worth about $360 million. (See also "Q&A on the Donnelley-Quebecor Deal".)
Donnelley's proposal letter expressed confidence that the deal would be approved by the U.S. and Canadian governments, but the word "antitrust" was on the minds and lips of many major buyers of printing today.
Donnelley may point out to government agencies that the United States has thousands of printing companies. But only three -- Donnelley, Quebecor, and the privately held Quad/Graphics -- have rotogravure publication presses. And only those three have co-mail pools that typically contain at least several million magazines and/or catalogs. As good as they may be, "second-tier" printers with only offset presses and smaller co-mail pools simply cannot compete with the Big Three for much of the long-run catalog and magazine work in the U.S.
For parts of the market, such as for rotogravure magazines inserted into newspapers (like Parade and American Profile) and for telephone directories, it's really the Big Two, with Quad mostly or completely out of the picture. Quad has been trying to break into the newspaper-insert magazine market for years and reportedly built its Martinsburg, WV plant because it (mistakenly) thought it had a deal to print USA Weekend.
But a foray into coupon printing years ago that nearly bankrupted the company has engraved a commandment into Quad's corporate DNA: Don't get into price wars on printing. The Wisconsin-based company tends to compete instead with features like high-speed binderies and efficient co-mail pools -- which are irrelevant in the if-we-get-this-business-at-this-price-will-we-have-any-profit-margin? world of printing Sunday newspapers.
With its stalking-horse bid, Donnelley would set the bar for anyone wanting to buy all or part of Quebecor World, though the creditors would still be able to seek better deals. Even if the proposal does not pass anti-trust muster, it could be a winner for Donnelley by preventing competitors from buying Quebecor plants at fire-sale prices and then using their nearly debt-free status to undercut Donnelley.
I would love to hear your concerns, questions, or insights about the Donnelley proposal. Please email them to Dead.Tree.Edition@gmail.com. I promise not to attribute any comments to you or your company without your authorization.
Sunday, May 10, 2009
The Postal Service spends millions of dollars annually replenishing the supply of pallets, tubs, mailbags, and the like because so many get diverted to other uses each year. Pat Donahoe, USPS's COO, explained to the Mailers Technical Advisory Committee (MTAC) recently that, sometimes, getting the pallets back is no easy matter.
He displayed the following photo from a major U.S. zoo to prove his point.
Do you suppose there's an Intelligent Mail barcode on these orangutans?
Saturday, May 9, 2009
AbitibiBowater kicked off the strange doings last month when it revealed to a bankruptcy court that it owes $62 million to the Finance Authority of Maine. How did that happen? The company has no operations in Maine.
But the silliness was really concentrated in the coated portion of the industry, where demand dropped a record 32% in the first quarter versus last year and shows no signs of bouncing back. In light of that sorry state of affairs, consider the following recent headlines:
- Sappi filed plans with the state of Minnesota to build a huge coated-paper machine at its Cloquet mill. If press reports are to be believed, the machine would have capacity to make about 700,000 tons per year, nearly double that of any competing machine on the continent. This is the same Sappi that just reported a quarterly loss and said it expects to idle even more machines because of declining demand.
- An investment group announced it is spending $62 million to buy and upgrade Tembec’s shuttered
coated-paper mill. That operation was a money loser even before the latest wave of reduced demand and capacity shutdowns. How can it survive now? St. Francisville, LA
- Former employees of NewPage’s closed
mill are mad that the company would sell the operation only to someone who would not make coated paper there. NewPage closed the high-cost mill to ease the continent's oversupply of coated paper, where it holds the #1 position. Why would anyone dream that it would undo those efforts at market stabilization by selling to a competitor at a fire-sale price? Kimberly, WI
- Capping off the silliness was Verso's revelation Thursday that the federal government paid it nearly $105 million last quarter in "black-liquor" credits. During most of the quarter, the company's stock was worth less than half that amount.
The new owners of St. Francisville may also be grabbing for those credits by just reopening the pulp mill. And perhaps they will convert the mill to make some other product, such as linerboard or biofuels. It’s hard to envision 60# coated #3 being made again at the high-cost mill.
The Kimberly workers? They were obviously not able to read the writing on the wall that the plant had been in bad shape for nearly a decade -- or that, unlike previous owners (Repap, Consolidated, StoraEnso), NewPage tends to euthanize terminal cases, not put Band-Aids on them.
And don't ask me to explain the logic behind the federal government paying perhaps billions of dollars this year in alternative-energy credits to Verso and other U.S. companies for using black liquor as fuel -- something kraft pulp mills around the world have been doing for decades. There is no logic.
Friday, May 8, 2009
This print dinosaur in recent months has learned various aspects of Web 2.0, or 3.0, or whatever -- using Google Reader to keep track of various Web sites, participating actively in LinkedIn, and adding a button on this Web site for sharing articles via Digg, StumbleUpon, and the like.
But I could never get my head around Twitter. How can anyone say anything useful in just 140 characters, the maximum per “tweet”.
It turns out that even those who have tried Twitter are having the same trouble. Nielsen Online recently revealed research suggesting that most people who sign up for Twitter quit within a month.
Still, trying to keep an open mind, I thought I’d see what it’s like to compose a tweet. I figured that using poetry and writing about Twitter itself would lead to concise language. I did my best, but still came up a few characters short:
I pondered it.
OMG, they pleaded,
Get with it.
But most tweeters, I read,
Finding most tweets 2b
Just pure s
Thursday, May 7, 2009
Verso Paper revealed today that NewPage had granted it the right to use a NewPage patent for making high-bulk lightweight-coated (LWC) paper. The legal brouhaha started last summer when NewPage sent Verso a cease-and-desist letter claiming patent infringement and demanding that Verso stop selling its entire line of coated #5 papers.
Verso responded with a lawsuit asking a federal court to declare that it was not breaching the eight-year-old patent that had been issued to a predecessor of NewPage, Consolidated Paper. Verso and NewPage settled out of court in January.
“As part of the settlement, NewPage granted the Company an irrevocable, perpetual, nonexclusive, worldwide, royalty-free, and fully paid-up right and license for any and all purposes under the NewPage patent and any continuation, division, reissue or non-U.S. counterpart of the patent,” Verso stated in a filing today with the Securities and Exchange Commission.
The patent addressed the issue of how to bulk up offset LWC without sacrificing too much gloss (at least 40 on the TAPPI scale). For the most part, the patented method relied on tactics that are widely used among paper mills to bulk up paper – e.g. lower pressure in the supercalenders, use of a gap former, more groundwood pulp, and less coating. A more unusual feature of the patent’s recipe is the use of expensive plastic pigments in the coating “to provide increased stiffness and good gloss."
The patent apparently grew out of requests from publishers of weekly magazines, especially Time Inc., to help them save money on postage by supplying lighter paper without sacrificing bulk or quality. During the past decade, Time Inc., a major customer of both NewPage and Verso, has switched most of its weekly magazines from 32# LWC to 30#, to 28#, back to 30#, and recently to 29# -- at times roiling the entire North American LWC market because of its huge position.
With the settlement, Verso can go about its business as usual, and NewPage has no immediate worries about its patent being declared invalid. But that leaves them two other problems: customers and technology.
Ratebase cuts, shifts to supercalendered paper, and reductions in ad pages have resulted in weekly magazines buying far less high-bulk LWC than they did a few years ago.
And the combination of film coating with online "hot/soft" calendering has proven to be the easiest way to make high-bulk LWC with moderate gloss. Film-coated papers from such mills as Kruger, Catalyst, and SAPPI are often bulkier than the high-bulk sheets coming from companies like NewPage and Verso, which rely on an older, more expensive technology -- blade coating followed by offline supercalendering.
Wednesday, May 6, 2009
Not to worry, the Postal Service responded. If the tiny Intelligent Mail barcode (IMb) discounts scheduled for later this year are not enough to entice mailers, it said, two years from now the huge penalties for not using IMbs will force mailers to change their ways. Starting in May 2011, mail without IMbs will be ineligible for automation discounts, which typically are at least several cents per mail piece.
"Some mailers have said they find the pricing incentives insufficient to recover their investment in the program," said the GAO report. "For example, some large mailers said they invested millions of dollars to update and purchase hardware and software, while some smaller mailers expected to invest tens of thousands of dollars."
Other highlights of the report and the Postal Service's response:
- The Intelligent Mail program "lacks a comprehensive strategy" that includes a detailed plan or "goals and measures of success", the GAO said. The Postal Service agreed to beef up its planning but said the approach recommended by the GAO would drag out implementation too long.
- "USPS and mailers may not be ready for implementation given USPS's short-time period in which to simultaneously design, develop, test, and implement the Intelligent Mail program," the report said. Amen to that!
- An odd statement from the Postal Service: "Despite an extremely compressed schedule, the successful implementation of the Operating System environment on May 11 and the Test Environment for Mailers on May 18 demonstrates how well this effort works." May 11 and 18 haven't occurred yet, and mailers are reporting that the Postal Service is not ready for those key dates. See "Another Delay for Intelligent Mail?"
- USPS "lacks information on costs and savings attributable to the Intelligent Mail program," the GAO said. USPS responded that the program will give it valuable information enabling it to become more efficient but that "there is no sound financial method to specifically attribute these reductions to Intelligent Mail."
- "According to USPS, Intelligent Mail is the most complex project it has undertaken," the GAO report said.
Saturday, May 2, 2009
International Paper revealed that it expects to receive $413 million in "black liquor" credits from the U.S. government for the first quarter of 2009. The estimated credits for its printing-papers segment will total $170 per ton, which was 89% of the segment's EBITDA. In other words, without the credits the segment would have barely covered its cash costs but with the credits it had a rather profitable quarter.
Fraser Papers blamed those same credits, which are being lavished on kraft pulp mills in the U.S., Friday for its decision to shut indefinitely a coated-paper machine at its Madawaska, Maine mill. That mill on the Canadian border is itself a vestige of tax policy -- the former practice of placing tariffs on imported paper but not on imported pulp.
But what worked in the pre-NAFTA era is now backfiring on Fraser. Its pulp mills that supply Madawaska are not eligible for the black liquor credits because they are in Canada. The ideal set-up today would be just the opposite of Fraser's: kraft pulping in the U.S. to get the tax credits, paper making in Canada because its weak currency makes costs there so low.
"We are calling on the U.S. Government to close this outrageous tax loophole that unfairly benefits a select group of paper companies in the country,” Jeff Dutton, president and COO of Fraser, said in a statement yesterday. He said the credits "are providing an enormous incentive to certain of our competitors to produce at full capacity when they may not otherwise do so."
Even with tax credits distorting the paper market, the future of Madawaska's PM6 would have been shaky because of the economies of scale and newer technology on competitors' larger machines. Fraser also blamed the weak market for coated paper. The tax credits were merely the final straw.
The credits are a mixed blessing for one closely watched paper company -- giant AbitibiBowater, which filed for bankruptcy organization last month. It should qualify for millions in black-liquor credits for its U.S. pulp operations, but its Canadian pulp mills will struggle to compete against what are essentially heavily subsidized U.S. competitors.
And one of the company's strengths -- making groundwood papers that are a low-cost substitute for kraft-containing freesheet papers -- will be undermined if the tax credits enable competitors to make freesheet papers less expensively than the groundwood substitutes.
There isn't much confidence in AbitibiBowater these days. Half the voters in a recent Dead Tree Edition on-line poll predicted the company would be broken up. Only 16% thought it would emerge from Chapter 11 stronger than ever; 19% said it would emerge from Chapter 11 but still be weak. And 12% voted for "Put some butter on it; it's toast."
The credits will also cut both ways for NewPage, the largest maker of coated paper in North America. The tax credits will enrich it but will also undermine its argument that punitive tariffs should be placed on allegedly subsidized coated papers from China.
Friday, May 1, 2009
USPS filed the proposal for the "Standard Mail Volume Incentive Pricing Program" with the Postal Regulatory Commission, which says it will rule on the proposal by June 4. The Rural Letter Carriers Association has already indicated it will oppose the proposal because it claims its members will not be appropriately compensated for the additional work the sale will cause.
Dead Tree Edition revealed plans for the Summer Sale three weeks ago, and some details of it were subsequently released through such organizations as Postcom.org.
The sale would run in July, August, and September of this year, "which is typically a low-volume period for the Postal Service and its customers," the proposal said. The timing is meant to "take advantage of the Postal Service’s current excess capacity to deliver additional volume at relatively low cost during the summer months."
To qualify, a mailer must have sent at least 1 million Standard-class flats (generally catalogs, but also includes some free newspapers and magazines) between October 2007 and March 2008. If the mail was sent on the account of a mail service provider, mailers will have to prove they actually owned the mail. Mail service providers, such as letter shops and presort bureaus, are not eligible for the discount.
The Postal Service is estimating incremental revenue of $38 million to $95 million from the program, which it says will "easily cover" the costs. It notes that few customers have signed up for another recently announced pricing offer, the Saturation Mail incentive program and that some will be eligible for both programs.
The proposal is silent on the Periodicals class, not offering the discount for ride-alongs and not banning qualifying mailers from shifting mail that would normally be Periodicals to Standard during the sale. There are instances where the discounted Standard postage would be significantly lower than Periodicals, especially for relatively light, non-dropshipped publications.