Thursday, October 29, 2009

The Reinterpretation of William Burrus

Many postal workers have jumped to the defense of APWU president William Burrus as a result of my article, Mathematically Challenged: Burrus Proposal Doesn’t Add Up for USPS. But if many of these defenders are correct, they should be angry at Burrus for garbling the message and distracting people from the real issue.

Of the scores of comments submitted to this site and several postal-news sites, many stated that what the union president meant to say is that the U.S. Postal Service can sort un-presorted letters for 1 to 3 cents apiece (depending upon the commenter), while mailers get First Class presort discounts of up to 10.5 cents each. But that’s not even close to what Burrus actually said.

It’s also contrary to the Postal Service’s own data earlier this year estimating that the presorting of First Class letters saves it far more than 3 cents. But some of Burrus' defenders have raised legitimate questions regarding whether those cost estimates match current USPS practices.

One of the best what-he-really-meant-to-say defenses of Burrus came from “uncommonsense”, a commenter who acknowledged that Burrus’ challenge to Postmaster General Jack Potter is “a publicity stunt” with “no serious evaluation of costs/benefits”. (Rather damning praise, I’d say.) Here is uncommonsense’s valuable history lesson:

"In 1999 the OCR machines that the USPS was running had the ability to read about 20% of the letters ran through them. They had a throughput capacity of 30,000 letters per hour and required 2 trips through the machine to sort to the first breakdown and only allowed 94 different breakdowns. Most of the mail that ran through this machine had to have images of it sent to human keyers on terminals at one of 55 REC sites to provide the information to barcode the mail piece.

"Today, because of faster computers and more advanced software, the equipment that the USPS is running is able to read and apply barcodes to about 97% of the letters ran through it and sort the mail pieces to over 200 possible breakdowns, ALL on the first pass @ 40,000 letters per hour. An equivalent breakdown in 1999 would have required 3 passes through the OCR @ 30,000 pieces per hour and many human keyers. So in one hour with 2 operators and a keyer, the USPS can now process what used to take 4 hours 2-3 operators and many keyers. The new equipment is also much less expensive to maintain then the old MLOCR was.

"Now, 3% of letter images are sent to human keyers at one of 2 REC sites. Despite adding Flats and Parcel images to keyer duties, technology has allowed the USPS to eliminate 53 out of 55 REC sites.
Since USPS costs for bar coding and sorting letters has decreased so much since 1999 why have the work share discounts not also decreased?"

An anonymous commenter chimed in with this spot-on observation: “Presort mailers prepare the mail to the exacting specifications of the USPS Domestic Mail Manual in order to claim any worksharing discounts. If there is an issue with the mail handling once received - we are doing what the Postal Service told us to! If it needs to change, it's a Postal Service task.”

Another commenter added, “It's the silly Post Office rules that waste money. I have seen carrier-routed mail returned to the SCF in order to co-mingle it with other mail. Why can't the carrier just case it in? Think of the man-hours, and transportation costs that this takes. All of this is because management has the silly notion of having all the carrier's mail ready to deliver when they arrive in the morning.” (In defense of the Postal Service, using otherwise underutilized mail-sorting operations to do work that takes a burden off the delivery operations might actually make economic sense.)

The picture that emerges from these comments is that, while the size of presort discounts on letters might once have been justified, they are no longer consistent with the Postal Service’s costs. Put another way, the commenters are indicating that automation and excess mail-handling capacity have shrunk the cost difference between handling presorted and un-presorted letters.

I’m not saying they are correct. Some of their cost calculations are clearly wrong – for example, some included only salaries while ignoring benefits, facility costs, etc. But the arguments of “uncommonsense” and some of the other commenters have far more logic and plausibility than Burrus’ vague, ill-conceived proposal.

Burrus muddied the waters by proposing an obvious money loser for the Postal Service – remove First Class presort discounts that average 8.9 cents per letter and pay APWU members 10.4 cents instead to do the sorting. He tried to make his sloppy math more favorable to the Postal Service this week by throwing in a bonus – free sorting of parcels – along with his usual big-mailers-are-vermin bluster.

But the proposal is still too vague to be taken seriously. Among many flaws with the Burrus plan is that it would decrease the demand for First Class mail by raising prices. So with APWU members getting their 10.4 cents on fewer letters but still having to sort parcels for free, would they end up having to take a pay cut?

In an attempt to move the discussion away from character assassination and conspiracy theories, Dead Tree Edition offers these observations and ideas:

• Rather than trying to keep excess employees busy by incenting mailers to mail in a less efficient manner, which is in essence what Burrus is proposing, downsizing the workforce via meaningful early-retirement incentives would be more productive. (See What the Postal Service Left Out of the Early-Retirement Deal.)  Presorting address data before a mailing occurs is inherently more efficient than sorting the actual mail pieces.
• Presorted letters are highly profitable for the Postal Service, as evidenced by its eagerness to offer the Summer Sale on Standard mail and the Fall Sale on First Class. USPS’ problem is not that it doesn’t charge enough for letters, it’s that it doesn’t have enough letters to charge for. Anything that would reduce the volume of letter mail, as would Burrus’ proposal, would be counterproductive for the Postal Service and its employees.

 • Under current law, any significant reduction in First Class presort discounts would require decreasing the price of un-presorted letters (that is, the 44-cent First Class stamp). Otherwise, the inflation-based price cap on First Class would be violated.

• If indeed presort discounts on First Class letters are larger than justified, there might be a way to shrink them without hurting mailers or driving business away from the Postal Service – dropship discounts. Business mailers get 4.3 cents for dropshipping Standard letters to Sectional Center Facilities but nothing for First Class, even though dropshipping clearly saves the Postal Service money. Introduction of First Class dropship discounts (which would have to clear some legal barriers) could compensate mailers for the shrinkage of presort discounts and cause them to mail in ways that are more efficient for the Postal Service.

• For the record, I am not "speaking on behalf of the Far Right" (Burrus' description this week of those who defend business mailers) and have not made anti-union statements (just criticisms of a specific union official's proposals). If I were part of the Far Right, I never would have written articles like the recent one ridiculing Rush Limbaugh or have published the ghost-written piece, How sleepy is the giant?.

• Maybe “uncommonsense” should replace Burrus as the APWU’s spokesman.

Wednesday, October 28, 2009

International Paper Drowns Its Sorrows in Black Liquor

With a name like "International Paper", you would think the company made its money from selling paper.

Nope. Once again in the 3rd Quarter, IP got far more money from Uncle Sam in the form of black-liquor credits than it made from selling actual products. The company booked $525 million in such credits during the quarter, versus $233 million in pre-tax earnings before special items, the company announced today.

The giant paper and packaging company has received $1.547 billion in black-liquor credits this year for producing and using more than 3 billion gallons of the energy-rich pulp byproduct. Again, that is far more than it earned from normal operations, which have been hampered by the recession. IP is on pace to surpass the $2 billion mark in black-liquor credits before the controversial program expires at the end of this year.

The credits grew out of highway legislation intended to encourage production of  motor fuels that contain a mix of petroleum and plant-derived substances. IP learned late last year that, if it added a bit of diesel (at least 0.1% by volume) to the black liquor typically used to power kraft-pulp mills, the mixture could qualify for "alternative fuel mixture credits".

As word got out of the loophole IP was exploiting, at least 19 other publicly traded pulp and paper companies began jumping on the bandwagon. Public companies qualified for about $2.8 billion in black-liquor credits during the first half of this year, and hundreds of millions more no doubt went to private companies. (See Black Liquor Credits Top $3 Billion So Far .) IP is one of the first pulp producers to reveal details of its 3rd Quarter credits.

Having nearly three times more kraft-pulp capacity than any other company in the U.S., IP is the biggest beneficiary of the tax loophole. It is averaging an estimated $187 in black-liquor credits per ton of kraft-pulp capacity. Kraft pulp sells on the open market in the range of $650 to $800 ton, depending upon the grade.

IP executives put the kibbosh today on speculation about huge "Son of Black Liquor" credits, formally known as cellulosic ethanol tax credits, going to the company.

"We believe that pulp & paper producers do not qualify," a company presentation said. The IRS recently ruled that black liquor meets the definition of biofuel necessary to receive the credits, but the substance would also have to pass muster with the Environmental Protection Agency for the latter program. (See Will the EPA Stop 'Son of Black Liquor'?)

A good news/bad news joke is making the rounds of papermakers: The good news is that, at the next paper-industry convention, liquor will be half-priced because the bar is taking advantage of special government incentives. The bad news is that, to qualfiy for the program, bartenders will have to add a dash of diesel to the drinks.

Tuesday, October 27, 2009

Coated Paper Market: Been Down So Long This Looks Like Up

North American coated paper mills were generally busier in September than August, but that ain’t saying much.

Despite various announcements of price increases on coated freesheet and high-brightness coated groundwood papers, the unanimous word from the trenches is that no prices are moving up except perhaps for some really low-ball spot business.

The best that can be said is that the market seems to have stablized this fall after months of plummeting prices. North American shipments of coated paper were up in September versus the previous month – 8% for coated freesheet and 5% for coated groundwood, according to the Pulp and Paper Products Council. But compared with September 2008, shipments declined 15% and 8%, respectively.

Actual consumption of coated papers in the U.S., was even less favorable, according to data from printers compiled by Idealliance. September consumption of coated was down more than 5% versus the previous month. Usage of coated freesheet was down a whopping 32% versus September 2008, while coated groundwood dropped “only” 23%.

Consumption of uncoated groundwood held its own versus August and was actually up versus the same month last year for the fifth month in a row, according to Idealliance.

To keep their coated machines busy amidst the declining demand for coated papers, several companies have recently begun making supercalendered and other uncoated-groundwood papers on machines that have coaters. (See, for example, The Rush to Make Uncoated Paper on Coated Machines and There's Little Clarity About Some SCA Papers.)

The new supply continues to place pressure on uncoated-groundwood prices, which seem to be continuing a downward drift.

Though coated-freesheet prices are at their lowest in more than two years, there was speculation a few months ago that they could crash even more. The black-liquor credits subsidizing U.S. kraft-pulp mills to the tune of about $200 per ton threatened to make freesheet papers a virtual byproduct of the kraft process, with the resulting glut continuing to drive paper prices until the credits expire at the end of this year. (See "Black Liquor" Credits Are Helping Paper Buyers.)

But the surprising recent strength of global pulp markets, which by some accounts are experiencing their strongest rebound in history, has provided an outlet for all that subsidized U.S. pulp. And the weakening U.S. dollar has discouraged imports of paper into the U.S. from overseas.

Coated prices seem unlikely to move much for the remainder of the year. And what about next year?

Some paper-company executives claim that prices “must” go up because the black-liquor credits that have kept them solvent will disappear.

But a need for higher prices does not translate into higher prices. (Exhibit A: rates for magazine advertising). And bankruptcy reorganizations of major players don’t necessarily stabilize prices (Exhibit B: the newsprint market this year). Prices won't move up significantly until demand recovers significantly, which seems unlikely in 2010, or more machines are closed.

Saturday, October 24, 2009

What Nasty Chemicals Are Lurking in Your Paper?

Almost all discussions about the environmental friendliness of papers focus on the fiber, but perhaps we should pay more attention to the non-fiber ingredients.

The new controversy about cash-register receipts and the emergence of “biolatex” underscore the growing concern about the chemicals that papers contain.

ScienceNews revealed recently that many carbonless copy papers, which are typically used for cash-register and credit-card receipts, contain high levels of bisphenol-A (BPA). Research showing that the estrogen-mimicking chemical was leaching out of plastic bottles has led to calls for tighter regulation, but ScienceNews quotes a researcher who says the BPA exposure from carbonless copy papers is far greater.

Meanwhile, the folks at Better Paper, an environmental-advocacy organization, are touting the benefits of a new corn-derived biolatex known as EcoSphere as a replacement for traditional petroleum-derived latex in coated paper.

“Several major paper manufacturers are already testing EcoSphere® biolatex™ binder in their coating formulations,” writes Jeff van Leeuwen of EcoSynthetix, which manufactures the product, at Better Paper's blog. As far as I know, none of the paper makers have gone public with their use of EcoSphere.

The product has a lower carbon footprint, is friendlier to recycling operations, and costs less than traditional latex, the company claims. It’s also biodegradable.

Other chemicals that are frequently used in papers include various plastics, titanium dioxide, and calcium carbonates.

Calcium carbonates are a mixed bag environmentally. Some people have promoted rock-based papers (which are mostly limestone-derived calcium carbonates) as being green because they are "tree free". And precipitated calcium carbonate (PCC) is sometimes considered a “carbon sink” because it is produced by combining carbon-dioxide emissions with lime.

But limestone doesn’t exactly grow on trees; it has to be mined. And its transformation into lime for shipment to PCC plants doesn’t exactly sound like an environmentally sustainable enterprise.

Then there’s bleach, which is commonly used to brighten papers but is also really good at killing just about everything. That leads me to Stupid Question #1: When you use white toilet paper, are you putting bleach on your derriere?

And that leads me to Stupid Question #2: Why do we insist on having such white toilet paper – or, for that matter, TP that’s been dyed, decorated, or perfumed? Do you really want those chemicals, how shall we say, traveling to Uranus? Or dumped into the sewer system?

Please see the following articles for more information about the environmental implications of:

Friday, October 23, 2009

Mathematically Challenged: Burrus Proposal Doesn’t Add Up for USPS

Such a deal! A labor union is offering to charge “only” 10.4 cents per letter to do work for which mailers are in essence only charging the U.S. Postal Service an average of 8.9 cents.

The offer from the American Postal Workers Union would also require a substantial increase in postage rates that would drive profitable business away from the Postal Service and harm its customers.

Here’s the “challenge” issued by William Burrus, president of APWU, last week to Postmaster General Jack Potter:

"Discontinue the exorbitant postage discounts that are offered to large mailers -- which are currently as high as 10.5 cents per letter -- and allow members of the APWU to perform all mail-processing functions at the rate of 10.4 cents for every letter and flat," Burrus said in a statement.

What the Burrus Challenge Means
The 10.5 cents refers to the difference between a 44-cent First Class stamp and the 33.5 cents paid for a one-ounce First Class letter presorted to the 5-digit level. But more than half of all presorted First Class letters pay a higher rate than the 5-digit level, resulting in an average rate of 35.1 cents, according to USPS. That’s an average postage discount of 8.9 cents off the single-piece rate.

By increasing the price of all presorted First Class letters to 44 cents, the Burrus proposal would be raising those rates by an average of more than 25%. Businesses would respond by shifting even more communication from mail to email, offering larger incentives for online billing, and finding other means of reducing their First Class mailings.

The price increases would decrease the volume of such mail by more than 6%, according to Postal Service studies that have been criticized as understating the price elasticity of First Class demand. USPS would save only 11.6 cents per letter on the lost volume, according to data USPS recently submitted for the “Fall Sale”.

A Billion-Dollar Mistake
So here’s what the math means: Presorted First Class letters currently contribute an average of 23.5 cents (35.1 minus 11.6) toward the Postal Service’s fixed costs. With Burrus’ proposal, the contribution margin would shrink to 22.0 cents (44 minus (11.6 +10.4)). Throw in the lost volume, and his challenge would decrease the contribution from presorted First Class by more than 12%, or well over $1 billion annually.

Such a financial loss would put pressure on the Postal Service to downsize even further, threatening the livelihoods of some APWU members.

Burrus’ simplistic challenge glossed over some other inconvenient facts:

Price Cap: Annual increases in First Class rates by law are capped at the rate of inflation, resulting in no increases next year and only 5% in a high-inflation year. With presorted letters constituting more than half of all First Class mail and single-piece (44-cent) letters more than a third, there’s no way to implement Burrus’ plan without violating the cap even in a high-inflation year.
Other Costs: Burrus says that APWU members would sort the letters for 10.4 cents each, but there would be other costs as well -- supervisors, maintenance of machinery, heating and lighting of buildings, etc.
Work-Sharing Discounts: Study after study has shown that work-sharing discounts in general and the discounts for presorted First Class in particular are a good deal for the Postal Service.
Mailers’ Cost Advantage: It is inherently easier and cheaper to sort bits of data than physical letters. That’s what presort is about – sequencing the addresses in an optimal manner for the Postal Service before the letters are even produced. No matter how hard they work, APWU members cannot achieve the same results as mailers at anywhere near the same cost.

Washington insiders tell me Burrus is a savvy player who knows what to say to get politicians’ attention. So why would he put forth a proposal that would hurt his own members and that probably would be impossible to implement anyway?

With his announced retirement next year, perhaps he’s more interested in getting sound bites than in proposing long-term solutions. And perhaps he realizes that no one on Capitol Hill will take his challenge seriously anyway.

Potter certainly didn’t. Less than 24 hours after Burrus issued the challenge, Potter announced that there will be no increases in postage for First Class and most other mail during 2010.

Maybe the timing was only a coincidence. Or maybe it was Potter’s way of saying to Burrus, “Don’t let the screen door hit you on your way out.”

Related Articles:

Wednesday, October 21, 2009

Will the EPA Stop 'Son of Black Liquor'?

Though the Canadian forest-products industry has gone apoplectic and stock traders have gone ape about "Son of Black Liquor" tax credits, there are growing doubts about the new tax loophole's prospects.

The doubts center around whether the Environmental Protection Agency will classify black liquor, a byproduct of the kraft-pulping process, as a fuel.

An Internal Revenue Service ruling that was released last week seemed to clear the way for U.S. producers of black liquor to claim cellulosic biofuel producer credits. As discussed in Son of Black Liquor: A $50 Billion Loophole for the U.S. Pulp and Paper Industry, the resulting loophole potentially dwarfs the controversial black-liquor credits that are enriching U.S. pulp and paper companies this year.

But the law that created the cellulosic biofuel producer credits also says that a qualifying biofuel must meet "the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act." Black liquor is not an EPA-approved fuel, and the EPA has no process for registering non-transportation fuels like black liquor, reported today.

Still, nothing in the Clean Air Act seems to prohibit the registration of non-transportation fuels. The act gives the EPA Administrator control over whether a fuel is registered, mostly on the basis of whether its emissions are harmful to public health.

EPA's process for deciding whether a fuel can be registered includes testing in a motor vehicle, a report from Morningstar stated yesterday. "Given the tarlike consistency of black liquor, it's doubtful any engine would survive such an ordeal," it said.

But Canadian pulp producers aren't ready to breathe a sigh of relief that Son of Black Liquor is dead, the Vancouver Sun reported today. They say the U.S. is raising the stakes in the subsidy game and that Canada must either respond or watch its pulp and paper industry die.

For more on the original black-liquor subsidy, please see:

Monday, October 19, 2009

Random Notes From Dead Tree Edition's First Year

This blog officially turned one on Oct. 13, and even I forgot to say Happy Birthday. Here are a few factoids from the first year:

  • Most popular article: The Unofficial Guide to Flats Sequencing, with 20,056 page views. Postal employees and mailers alike wonder what impact the huge Flats Sequencing System machines will have and are dissatisfied with the information the U.S. Postal Service has provided.
  • Absolute unique visitors (a Google Analytics terms): 115,109. Some visitors were "more unique" than others.
  • Visits: 222,480.
  • Total page views: 295,696. Darn, I didn't make it to 300,000.
  • Biggest source of visitors: It sent me eight times more traffic than all of the search engines combined. That's either a testament to the loyal following Postalnews has built by aggregating postal-related links or a commentary on my weak search-engine optimization skills.
  • Most popular search term that led people to Dead Tree Edition: "dead tree edition" and variations thereof. Second most popular was "quebecor world", a company that has certainly had an eventful year and is now known as Worldcolor.
  • Search term I totally own: "cardboard porn". The last time I tried that search in Google, Dead Tree Edition had the top two slots. Put the search term in quotation marks and it's tops at Yahoo! and Bing as well. Unfortunately, not a whole lot of people are searching on the term. And I'm not sure how many of those who do search on it want to read how a recycling-information phone number was taken over by a telephone-sex outfit.
  • Biggest rip-off: On August 23, I published an article that began, "To cope with declining volumes of catalogs and periodicals, the U.S. Postal Service is adding nearly 300 ZIP codes to the list of areas that will be served by the Flats Sequencing System." Three days later, Multichannel Merchant published an article with a staff writer's byline that began: "Due to declining volumes of catalogs and periodicals, the U.S. Postal Service is adding nearly 300 zip codes to the list of areas that will be served by the Flats Sequencing System." Much of the rest of the article is lifted word-for-word from mine, with no link to or mention of Dead Tree Edition. I have repeatedly tried to get MM, a leading publication serving the catalog industry, to quote from or mention this blog, but I've never succeeded. Do you suppose it will link to this article?

Saturday, October 17, 2009

Son of Black Liquor: A $50 Billion Loophole for the U.S. Pulp and Paper Industry

Please see Will the EPA Stop 'Son of Black Liquor'? for an update on the Son of Black Liquor issue.

For the second time in a year, the U.S. pulp and paper industry has hijacked a multi-billion dollar federal program that was supposed to promote new biofuels.

What's being called Son of Black Liquor dwarfs the original black-liquor loophole that created such a stir in Congress and among Canadian officials earlier this year.

Son of Black Liquor, officially known as cellulosic biofuel producer credits, could generate $50 billion in tax credits for U.S. kraft pulp mills before it expires at the end of 2012, Dead Tree Edition estimates. Tax expert Martin A. Sullivan, writing at, more conservatively forecasts that "this credit will provide the paper industry with $25 billion of additional tax benefits that Congress never intended."

The program, part of the 2008 farm bill, was supposed to benefit "companies that use expensive, cutting-edge technologies to distill ethanol from plant materials instead of corn," Sullivan writes. "But these new technologies developed by fledgling companies will get peanuts compared to the windfall pulp manufacturers will get from the new credit."

IRS Ruling
Despite Congress' intent, the Internal Revenue Service released a memorandum in the past few days ruling that black liquor qualifies for cellulosic biofuel producer credits because the fuel is produced and used in the U.S. and is "derived from lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis." Black liquor is an energy-rich byproduct of the kraft pulping process and the main power source for pulp mills worldwide.

The memorandum says black liquor cannot be used for both the original black-liquor loophole -- the 50-cent-per-gallon alternative fuel mixture credit -- and the $1.01-per-gallon Son of Black Liquor credits. Though it is twice as generous, Son of Black Liquor is also harder to use because it is not refundable, notes Sullivan.

As an example of how easy it is to collect the original black-liquor credits from the IRS, International Paper is on track to earn nearly $2 billion in alternative fuel mixture credits this year from its kraft pulp mills. The company paid less than $200 million in U.S. income taxes last year and had less than $400 million in earnings during the first half of this year.

U.S. pulp producers, therefore, may continue milking the original black-liquor program until it expires at the end of this year and then switch to Son of Black Liquor next year.

Doing the Math: $25 Billion or $50 Billion
Here is Sullivan's math: A Congressional committee reported that the pulp industry received more than $2.5 billion in alternative fuel mixture credits during the first half of this year. With Son of Black Liquor being twice as generous and essentially lasting three years, that indicates it has a potential for $30 billion. But because the credits are not refundable, Sullivan figures companies will only be able to claim $25 billion in benefits.

Here is Dead Tree Edition's math: As explained in Black Liquor Credits Top $3 Billion So Far, U.S. companies probably earned more than $3 billion in black-liquor credits during the first half of this year (though some were not received until later). Because some companies were late to the black-liquor party, the credits in the second half seem likely to approach $4 billion.

As companies learn to take advantage of these credits, they are no doubt tweaking their operations to maximize their output of black liquor. A paper-industry insider tells me, for example, that a mill can create more black liquor and less (though brighter) pulp by "cooking" the wood fibers longer. So it seems likely that, with a payout double that of the original black-liquor loophole, Son of Black Liquor will be worth more than $8 billion in a six-month period, which equates to $50 billion over three years.

Although $50 billion may be greater than the taxable income of U.S. pulp-mill owners during the next three years, I have enough faith in the American accounting profession and consulting industry to believe that somehow the available credits will not be wasted.

For more information on black-liquor credits, please see:

Thursday, October 15, 2009

Why Potter Is Freezing Postal Rates, And What It Means For 2010

Postmaster General Jack Potter tried to restore mailers' confidence in the U.S. Postal Service today by announcing a price freeze for most postal rates in 2010.

"The Postal Service will not increase prices for market dominant products in calendar year 2010," Potter said in a statement sent to various customer groups late this afternoon. He was responding to "pessimistic speculation" that rates might increase as much as 10%.

"There will be no exigent price increase for these products," which include First Class, Standard, and Periodicals, he said.

"While increasing prices might have generated revenue for the Postal Service in the short term, the long-term effect could drive additional mail out of the system. We want mailers to continue to invest in mail to grow their business, communicate with valued customers, and maintain a strong presence in the marketplace."

Earlier in the day, the release of the Consumer Price Index virtually confirmed what had become increasingly clear in recent months -- that USPS will not be able to impose the usual inflation-based rate increases next year. Consumer prices have declined so much since 2008 that they will end the year in negative territory unless the Fourth Quarter annualized inflation rate exceeds 9%.

Mailers feared USPS would try to close its budget gap -- probably $3 billion for the fiscal year just ended, or $7 billion if you count Congress' "forgiveness" of a bogus retirement-health payment -- by seeking exigent (emergency) rate increases.

Potter's statement did not clarify whether he was referring to all market-dominant rates or to the average rates for each class. Postal officials have subsequently put out the word that "no increase means no increase," meaning that no rates in the market-dominant classes will change.

But Potter's statement made clear that he understands the two dangers of an exigent rate increase:

1) In the short run, higher rates would suppress mail volume, but, as explained last week in Potter Doesn't Want to Hike Postage Rates in 2010, savings from such volume reduction would be minimal. The combination of lost business and slim cost savings could wipe out any gains from the higher prices per mail piece.

2) An exigent rate increase would signal to mailers that the Postal Service is unreliable and that they can no longer count on rate increases being capped by inflation. One exigent rate increase would lead to expectations of more in the future. That would accelerate mailers' efforts to replace mail with cheaper electronic substitutes -- for example, customer incentives for on-line bill payment.

So how does Potter intend to close the budget gap? He's been making numerous speeches and giving interviews touting elimination of Saturday delivery, which would save up to $3 billion annually, as one option. That would result in elimination of about 40,000 career employees positions, which could be done "through attrition because we have a lot of folks right now who are eligible to retire and who we could incent to retire,” Potter said last week in a radio interview.

Continued downsizing is clearly in the cards. Just last week, USPS announced possible consolidation of nine more processing and distribution centers. Nearly 40 such Area Mail Processing studies are in the works, along with the possible closing of hundreds of post offices.

Postal officials are looking into new revenue streams, and Potter's statement today mentioned that they want "to grow the mail through innovative incentives like the Summer Sale and contract pricing."

And, inevitably, the issue of the retiree-benefits shell game will be on the table. Officially, it's called a pre-payment of retiree health benefits, but in actuality Congress is forcing USPS to overfund a benefits account by more than $5 billion annually in a way that makes the federal deficit look smaller. Without those payments from the supposedly independent and off-budget Postal Service, USPS would have been profitable until fiscal year 2009.

Congress may end up facing a choice between ending that accounting game and allowing the Postal Service to eliminate Saturday delivery. Or the Postal Service could do an end run around Congress and end Saturday delivery on its own, as explained in How USPS Could Bypass Congress on Saturday Delivery.

Tuesday, October 13, 2009

As An Advertising Medium, Magazines Still Rock

Ads in magazines have more impact on consumers, with less cost, than ads on either the Web or television, an extensive new study indicates.

"Overall, magazines drove consumer behavior more effectively and efficiently than television or online among consumers who were reached by each medium," according to a summary of the Dynamic Logic study prepared by the Magazine Publishers of America. Though it didn't commission the study, MPA has good reason to publicize the research company's findings, which are based on an aggregation of 39 different client-commissioned studies.

Magazines kick butt especially when it comes to influencing whether "consumers have a favorable opinion of the brand" and whether they are likely to purchase a brand, the study found. In both categories, they have more influence than TV or the Web combined.

Magazines have a slight lead in aiding brand awareness and are virtually tied with TV for ad awareness.

Of the five stages of the "purchase funnel", magazines lag behind TV (but not online) only when it comes to "message association" -- that is, whether consumers "can match the message and/or concepts in the advertising . . . to the brand."

In other words, print can't match TV for embedding messages like "Tastes Great, Less Filling" or "15 minutes can save you a bundle" onto our brains. But in their own subtle way, magazine ads actually influence consumers far more than more memorable TV ads.

Magazine ads don't scream at you or pop up on top of something you're trying to read. Readers accept them, and even welcome them. Subscribers to fashion magazines would feel cheated if an issue had no ads. No one reaches for the mute button or clicks "Skip this ad." when they see a magazine ad.

In competing with the Web, the difficulty of measuring the impact of ads has been the Achilles heel of magazines. But when they do bother to measure, companies are likely to find that magazine advertising is still a great bargain and an effective way to influence what consumers buy.

Sunday, October 11, 2009

Re-Righting The Bible: No More Namby-Pamby Peacemaking

"The Lord is my CEO, I shall not want. He maketh me to dwell in a free-market economy. He leadeth me into low tax havens."

After praising a new line of carbon-neutral Bibles last month, Dead Tree Edition is going to do the fair and balanced thing by offering some help for the Conservative Bible Project. Last week, Conservapedia announced that wiki-like re-translation of the Bible to rid it of "liberal bias." (After all, most of the Bible was written by Jews!)

Speaking of liberal bias, "Blessed are the peacemakers, for they shall be called the children of God" sounds like something written by a tofu eater. Here's a red-meat conservative version of Matthew 5:9: "Blessed are the Peacekeeper missiles, for they shall be called the weapons of the godly."

Let's update "Woe to you, scribes and Pharisees" for the 21st Century: "Step aside, you trial lawyers and pointy-headed intellectuals!"

Contributions from prominent conservatives would help the project. To assist that effort, Dead Tree Edition is offering some free ghost writing.

For example, how about Rush Limbaugh rewriting "use a little wine for thy stomach's sake" (I Timothy 5:23) as "use a little OxyContin, which will give you the intestinal fortitude to fight off the feminazis"?

Or George Bush's take on "with God all things are possible" (Matthew 19:26): "Don't misunderestimate God."

Did the Last Supper really occur in an "upper room"? The Dick Cheney translation of Mark 14:15 will set the record straight: It was a bunker in "an undisclosed location."

Larry Craig could translate Matthew 5:11 as "Blessed are you when men shall revile you, and not re-elect you, and falsely accuse you of doing strange things in airport bathrooms."

Come on, folks, let's hear your suggestions for the Conservative Bible Project.

And why don't you godless liberals see what you can come up with for your heroes? Just make sure Bill Clinton doesn't refer to Bathsheba (II Samuel 11) as "an intern."

Saturday, October 10, 2009

Canadians Belly Up to the Black-Liquor Bar

Following in the footsteps of their American competitors, Canadian pulp and paper mills received government approval Friday for $1 billion in black-liquor funds.

The Pulp and Paper Green Transformation Program is a response to a U.S. tax loophole that is keeping some American mills afloat and helping to push some Canadian companies toward or into bankruptcy. And it seems designed to avoid charges of unfair trade practices from mills in the U.S., which is the largest market for most Canadian mills.

The program will help finance investments to "improve environmental performance through increased renewable energy production or improved energy efficiency" at 38 mills owned by 24 companies, said a news release from Natural Resources Canada. The funds were assigned based on each company's production of black liquor, an energy-rich byproduct of the kraft pulp process. But eligible companies can use the funds at mills that do not produce black liquor.

The largest beneficiary is Domtar Corp., with $143 million. Domtar has already received $183 million this year in U.S. black-liquor credits, while its main American competitor, International Paper, has received $1 billion.

At least three of the Canadian recipients -- AbitibiBowater, Fraser, and Smurfit-Stone Container Corp. -- are in bankruptcy reorganization, while several others are struggling to avoid bankruptcy court. (Click here for a list of the recipients, the amounts granted, and the mills getting the investments.)

The Canadian govnerment is scheduled to pay out the money late this year or early next year, about the time that the $6 billion-plus U.S. program is slated to expire.

For more information about the controversial black-liquor program in the U.S., please see:

Thursday, October 8, 2009

Potter Doesn't Want to Hike Postage Rates in 2010

Postmaster General Jack Potter has been telling mailers’ groups in recent days that he does not plan to raise postal rates next year, a reliable source tells Dead Tree Edition.

Worried that price increases would backfire and cause mail volumes to drop further, Potter is telling mailers that any increase in 2010 would be “very small,” the source says. Mailers are interpreting that as at most 2% to 3%, which would mean a one-cent increase in the price of the First Class stamp.

In a question-and-answer session today at the National Press Club, Potter said a decision about rate increases would not be made until after the first of the year and noted that such increases can be counterproductive if they reduce volume. He also hinted in a radio interview Tuesday that "exigent" (emergency) rate increases were not in the plans.

"If you think about the price of a First Class stamp being capped at the rate of inflation, you can do your own math," Potter said on The Diane Rehm Show. "Figure out what inflation will be between now and whatever date you pick and that's likely to be where the price of a stamp will be."

By law, USPS can increase rates for most mail classes each May by the previous year’s average change in the monthly Consumer Price Index. But with the CPI still below where it was a year ago, USPS has almost no chance of being able to institute such inflation-based price increases next year. (The annualized inflation rate for the rest of this year would have to be about 6% for USPS to get any inflation-based price increases in 2010.)

That has led to fears that the Postal Service would institute exigent rate increases to close its budget gap, which Potter said today was more than $3 billion in the fiscal year that ended Sept. 30.

“Without a big change in the way we’re required to do business, we’re likely looking at a deficit of more than $5 billion – for years to come,” Potter told the National Press Club today. Among the possible changes he mentioned were five-day delivery, reducing costs, ending the pre-funding of retiree health benefits, entering new businesses, and government subsidies. But not price increases.

Increasing postage rates by about 7% would close the $5 billion gap -- if it didn't hurt mail volume. But large rate increases in recent years, such as one for lightweight catalogs, have caused mailers to shift marketing money away from mail to less expensive digital formats like email and Web marketing.

Even a small exigent rate increase could undermine confidence in the Postal Service, thereby hastening that exodus from mail. And because most of the Postal Service's costs are fixed regardless of volume, less mail hurts USPS revenues far more than it reduces costs.

For more information, please see:

Tuesday, October 6, 2009

For Periodicals, The Postal Service’s Math Doesn’t Add Up

Jim O’Brien and David Straus have been arguing about Periodicals postage rates for years, but they definitely agree on one point: The Postal Service has goofed when it comes to measuring the costs of handling periodicals.

“No one to date has been able to explain the incomprehensible rise in Periodicals costs during a period of substantial increases in mailer worksharing,” O’Brien wrote recently at the “Pushing the Envelope” blog run by the Postal Service’s Office of Inspector General.

“Periodicals mailers have, in unprecedented numbers, migrated to co-mailing, co-binding, co-palletization, drop shipping, sack reductions, and increases in carrier route copies. How could this significantly more efficient mail lead to greater mail processing costs?” asked O'Brien, who is Time Inc.’s Vice President of Distribution & Postal Affairs.

Straus, a lawyer who represents the Association of Business Mailers on postal issues, agrees that USPS’s costing methodologies for Periodicals are “highly suspect” and questions the Postal Service’s claim that it loses money on the Periodicals class (mostly magazines and newspapers). Joining the same Web discussion, he noted that USPS’s calculations of Periodicals costs “continue to escalate even as volume declines, or in some cases fall far more slowly than volume.”

“The fact is that there is still a good deal of costly manual handling of machinable Periodicals, for a variety of reasons, none of which have to do with the makeup of the mail itself,” Straus wrote.

Publishers have complained for years that much of that unnecessary manual handling is the result of “automation refugees” – postal employees who are not laid off even though automation has made them unnecessary. Postal insiders say such employees are often assigned to sort periodicals manually even when they are automatable, thereby inflating the costs attributed to the Periodicals class.

O’Brien has been the chief advocate of cost-based Periodicals rates, pushing somewhat successfully for rates that encourage publishers to mail in ways that reduce the Postal Service’s costs. Straus has been O’Brien’s most frequent nemesis, arguing that Time Inc.’s proposals were biased against small publishers – though he has also encouraged his clients to get involved in such efficiency moves as co-mailing and dropshipping.

O’Brien and Straus agree that the Postal Service attributes costs to Periodicals that should actually be considered institutional or as belonging to other classes. USPS says Periodicals customers pay for only 82% of the class’s costs, even though by law each class must operate at least at breakeven. Time Inc. and ABM are among those trying to ensure that the Postal Service’s goofy cost accounting doesn’t lead to a huge spike in postage rates for publishers.

Time Inc. has enlisted the services of postal consultant Halstein Stralberg, whose recent report “The High Costs of Manual Flats Sorting” takes the Postal Service’s methodology to task. Declining volume and increasing automation have caused a sharp drop in manual sorting of flat mail, yet the costs attributed to the Periodicals class for manual sortation have not decreased, notes Stralberg, who seems to understand the Postal Service’s costs of mail handling better than anyone at USPS HQ.

The Postal Service has had difficulty over the years with accounting for the Periodicals class. Its proposed restructuring of Periodicals rates in 2006 was intended to encourage more co-mailing and dropshipping but would have had exactly the opposite effect. It established incentives for creating 5-digit pallets, which supposedly reduce its handling costs, then inexplicably torpedoed those incentives this year.

Regardless of the accounting methodology, it’s clear that many of the costs attributed to the Periodicals class would exist even without Periodicals. When so many postal workers are underemployed and so many machines underused, there is little savings from reducing volume and little cost for increased volume.

As I’ve stated before, with its current structure, the Postal Service’s main problem is not that it doesn’t charge enough for mail pieces but that it doesn’t have enough mail pieces to charge for.

For more on why USPS is more profitable with Periodicals than without, please see Can the Postal Service Still Afford Periodicals?

Saturday, October 3, 2009

Three, or Maybe Four, Green Magazine Pioneers

While some magazine publishers get plenty of PR mileage from using paper with recycled content, the real leaders in making U.S. magazines greener have gone largely unheralded.

In a recent interview with Publishing Executive, I named three publishing companies that have been “industry pioneers” in making printed products greener. I had a fourth pioneer in mind as well but disqualified it from the list. More on that later.

Here are my green heroes:

Wenner Media
I’ve previously praised U.S. News & World Report for using Catalyst Cooled “manufactured carbon-neutral paper” throughout its “green” issue this year, but it was really following in the footsteps of Wenner’s Rolling Stone magazine. Two years ago, Wenner began changing the industry’s thinking on the environment away from simplistic discussions of recycled content when it announced that all of the magazine’s inside pages would be on Catalyst Cooled.

Wenner pays for a tree-planting program that offsets the already low carbon footprint of the paper. As far as I can tell, Wenner gets no PR or marketing mileage out of that commitment other than a small mention in each issue of the magazine. It is just doing the right thing, in good times and in bad.

Time Inc.
The “Evil Empire”, as competitors and even employees call Time, made a huge contribution by commissioning the extensive, landmark Heinz Center study in 2006 called "Following the Paper Trail". That study showed that the vast majority of a consumer magazine’s carbon footprint occurs at the paper mill and that the emissions of greenhouse gases vary widely from mill to mill.

Time also pioneered the ReMix (Recycling Magazines is Excellent!) advertising campaign that encourages consumers to recycle their magazines.

Check out this audio interview with Guy Gleysteen, Time Inc.’s production chief, who talks about how the company is lobbying paper suppliers on such issues as carbon footprint and sustainable forestry. He’s especially interesting when talking about the company’s motivation for these actions and why Time doesn't mention them in its marketing to consumers.

“The issues that you’d want to educate people on are complex and are not readily described in one or two lines that would appeal to a consumer,” says Gleysteen. He adds that Time’s efforts are about “putting our company into a position where we can be trusted relative to the resources that we use.”

Being green seems to permeate the company’s culture, from its award-winning LEED-certified headquarters in New York to the rooftop worm farms (Ooh, gross!) that recycle waste from its Good Housekeeping kitchens in London (Oh. Cool!).

“By the end of 2008, 70% of our magazine paper comprised certified fiber. We have set an interim goal of 80% by the end of 2009,” says the publisher’s "Being Green" report, perhaps the best example of environmental transparency in the U.S. publishing industry. As part of that effort, Hearst and Time went public this week with their campaign to help small forest owners in Maine get certified.

“Being Green” addresses the recycled issue clearly and correctly: “Hearst is currently using more than 15% post-consumer recycled (PCR) paper across its portfolio of publications, primarily in the newsprint we buy. After extensive review, we currently believe newspapers and other end uses (packaging, wallboard, etc.) are the most efficient use for recycled fiber, which continues to be in short supply.”

Now for the almost fourth hero: Readers Digest Association deserves some credit for using paper with 85% recycled content throughout Every Day with Rachael Ray.

As Hearst suggests, coated paper is often not the best use for recycled pulp. But if you’re going to print a magazine in the Midwest on relatively heavy coated-groundwood paper, Myllykoski’s Alsip, IL mill is a green choice. By mixing high-brightness recycled products, such as unsold magazines and printer waste, with curbside-collected paper and virgin kraft pulp, the mill is able to make good magazine paper without bleaching. (The mill’s products are too heavy for Rolling Stone and most Time Inc. magazines, by the way.)

As with Wenner’s announcement about Catalyst Cooled, the marketing of Every Day with Her Perkiness brought much-deserved attention to a paper maker that is greener than its larger competitors.

So why am I not giving RDA as much credit for being green as Wenner, Time, and Hearst? It turns out that Myllykoski already gave Readers Digest plenty of credit: The Finnish company was left holding the bag with $1.65 million in accounts payable when RDA went Chapter 11 in August. That's not exactly a great way to reward a supplier for its environmentally friendly practices.

Do you disagree with my choices of magazine-industry green heroes? Then make your voice heard, not only by commenting on this article but also by entering the 2009 Aveda Environmental Award for Magazines.

For further reference: