Friday, July 30, 2010

USPS Said No To White House on 5-Day Test

The U.S. Postal Service declined The White House’s suggestion that it conduct a pilot test of five-day delivery, according to a document made public this week.

“I believe a pilot test would not produce substantive results that could be used to decide whether to make the change nationwide permanent,” wrote Postmaster General Jack Potter in an April 26 letter to Dr. Lawrence Summers, Director of the White House National Economic Council. “Our customers likely would, at best, find a pilot test to be confusing, and, at worst, costly and time-consuming.”

The Postal Service released the letter (in the last three pages of this document) in response to questioning during the Postal Regulatory Commission’s proceedings on whether Saturday delivery can be eliminated. Potter wrote that his letter was a response to Summers’ “recent question about the viability of the U.S. Postal Service conducting a pilot test of delivering mail five days a week.”

“The plan to eliminate carrier delivery service on Saturday . . . would save the Postal Service a projected $3.1 billion annually,” Potter wrote, without addressing whether the change would reduce revenue as well.

Paid not to work
“During such a test, we would be unable to make the permanent, necessary changes to our delivery workforce, transportation networks, and mail processing operations that would yield the projected $3.1 billion savings. The largest financial impact of a pilot would be the fact that many career employees in the pilot area would have to be paid not to work or be relocated, while many of our non-career and part-time employees would see their wages reduced or eliminated.”

Confining the pilot test to a particular region would raise issues of fairness and might violate “the statutory mandate of providing universal service to the nation,” Potter wrote.

“A pilot test, with all of the challenges that would arise, would not demonstrate the efficacy in which we could perform five-day delivery moving forward, and thus, may raise doubt among the public of our ability to do so.”

Potter’s letter provided some insight into how a shift to five-day delivery would affect employees:

“The five-day delivery proposal anticipates the reduction of approximately 25,000 full-time City Carrier assignments and $2.2 billion in annual savings in City Carrier operations” because “regular Carriers assigned to a single route would have Saturday and Sunday off, eliminating the need for the Carrier Technician and Relief Carrier assignments. We plan to transition full-time Carrier Technician assignments into Carrier positions (that cover a single route) that become available through attrition.”

Thursday, July 29, 2010

Pulp Manufacturers Scratching Their Heads Over Son of Black Liquor Ruling

U.S. pulp makers are still trying to figure out exactly what the IRS’ recent “Son of Black Liquor” ruling means, but the largest one said yesterday it sees little if any gain.

“We don’t see a huge benefit for the company,” said Timothy Nicholls, CFO of International Paper, during the company’s quarterly earnings call. “When you layer in the consideration that we would have to return the credits that we filed for last year under the alternative fuel mixture tax credits [the original black liquor tax credits] and then accrue those benefits over some period of time, we don't see the rationale for making any kind of change from what we've previously done at this point.”

Others were a bit more optimistic but still uncertain about exactly how to interpret the ruling that became public earlier this month. (For details, see IRS Brings Son of Black Liquor Back From the Dead; Ruling May Be Worth Billions to U.S. Pulp Makers and Why Tax Credits for Black Liquor Don’t Add Up | IMHO.)

Here’s the explanation presented this week by Temple-Inland’s CFO, Randy Levy, during that company’s earnings call:

“We expect to be registered as a cellulosic biofuel producer during the third quarter. We have received $228 million in cash from alternative fuel mixture tax credits for the period from late March 2009 to year-end 2009.

“We may have the potential to ultimately receive up to an additional $130 million to $140 million of after-tax credits by selecting the cellulosic biofuel producer [Son of Black Liquor] credit, about $80 million to $85 million of which is attributable to the January 1 through late March period when we were not yet mixing and about $50 million to $55 million for the incremental credit between the alternative fuel mixture credit and the cellulosic biofuel credit for the balance of the year.

“However, in order to convert from the alternative fuel mixture tax credit to the cellulosic biofuel credits the cash we previously received would have to be returned plus interest. A key piece of information for us that is currently not available is whether both credits may be claimed in the same year on different volumes. Our objective is to maximize the present value of these credits. There is still a lot of uncertainty surrounding this issue.”

The biggest uncertainty is the process for obtaining the Son of Black Liquor credits, writes Robert Tita of Dow Jones Newswires. “The IRS says companies that received 50-cent credits can't collect a second, higher credit on the same black liquor. Companies, however, could return the money from the 50-cent credit and apply for the $1.01 credit instead.” However, he notes, “the $1.01 credit would be applied as a noncash offset to companies' cash expenses for federal income taxes. The 50-cent credits were distributed as cash subsidies.”

“Given the complexities of acquiring the larger credit, companies could conclude that the reward isn't worth the effort," Tita adds. "Pursuing the higher credit also could expose paper companies to further outrage from members of Congress who remain angry over the paper industry's use of a regulatory loophole to obtain the 50-cent credit.”

Congressional outrage didn’t carry much weight or have much impact on the paper industry last year. Various members of Congress expressed outrage in the spring of 2009 when they learned that U.S. paper companies makers were receiving tax credits for doing what manufacturers of kraft pulp around the world had been doing for decades – burning black liquor to power their mills. But Congress did nothing to close the loophole before the law expired on Dec. 31, enabling pulp and paper companies to rack up more than $8 billion in direct federal subsidies.

In fact, the IRS’ logic-defying June 28 ruling looks like a gift to Congress. The relevant law requires that a qualifying cellulosic biofuel “meets the registration requirements for fuels and fuel additives established by the Environmental Protection Agency”. Normal people, and many pulp manufacturers, interpreted that to mean that a biofuel must be registered by the EPA to receive the credits and that black liquor is therefore excluded because it can’t be used as a motor fuel.

But the IRS ruling exempts black liquor from the EPA requirement specifically because it is not a motor fuel or fuel additive. (That makes me wonder what would happen if someone, perhaps a Canadian pulp manufacturer, tried to register black liquor as a motor fuel. Would the EPA’s rejection close the Son of Black Liquor loophole?)

Congress’ “pay-for” rules (that is, new programs must be paid for with offsetting cost savings or revenue gains) have led to some odd accounting methods – “odd” as in “If you, private citizen, used this kind of accounting, you’d end up in the slammer.” The ObamaCare health law includes $23 billion in “savings” from declaring black liquor ineligible for cellulosic biofuel credits starting on Jan. 1, 2010, even though no money had ever been budgeted for that alleged expense in the first place.

So how long will it take some enterprising Congressman to propose "paying for" a new multibillion-dollar program by changing that date to Jan. 1, 2009?

Tuesday, July 27, 2010

For Intelligent Mail, Occasional Failure Is An Option

The head of the Postal Service’s Intelligent Mail program apparently took umbrage yesterday at criticisms of the program’s system outages, but methinks he protesteth too much.

The criticism was posted yesterday on Intelisent’s Postal Affairs Blog, which has been reporting on the various outages of Intelligent Mail systems: “In case yesterday’s unscheduled FAST outage wasn’t a good enough example of instability with the required Full Service Intelligent Mail systems, the USPS comes through again today with another example. FAST is up and running, however the issue of the day is now PostalOne!. In order to qualify for Full Service, electronic documentation is required. Not being able to use the system forces mailers to Plan B.”

Someone identified as “Thomas Day, Senior VP – IMAQ” responded on Postalnews.com (which cited the Intelisent article): “The ‘so-called’ unscheduled outage on Sunday July 25, 2010 was in fact a scheduled outage (see DMM Advisory below). The PostalOne! outage on Monday July 26, 2010 was from 3:07 PM to 3:18 PM Eastern Time - ELEVEN MINUTES. Hardly the type of information that calls for the ‘information’ provided above. We will continue to strive to keep both FAST and PostalOne! performing on a consistent basis.”

Here’s the July 21 DMM advisory he cited: “PostalOne! Server Patching (July 25, 2010): The PostalOne! ® production and Testing Environment for Mailers (TEM) application servers will have security patches applied during the scheduled maintenance window of 4:00 a.m. through 8:00 a.m. (CDT) on Sunday, July 25, 2010. The PostalOne! system (including FAST® OPS web services) will be unavailable for internal and external users during this period.”

A bit later, the same person added: “To be very clear, the FAST outage was scheduled on Sunday and extended due to connectivity problems. Customers were updated with information about the extended outage until the system was restored later on Sunday. The PostalOne! outage was unscheduled and lasted Eleven Minutes.”

“Intelisent” responded on Postalnews as well: “With all due respect, the FAST outage was scheduled for 4 hours; however the application was down for 18 plus hours.”

Other commenters were less respectful. “One minute, 11, 111 or 111,111; it doesn't matter how many minutes, it HAPPENED!!!” wrote “OnceAmazedNowAmused”. “And the USPS wants (demands) mailers to use this system? Get a grip! Stop low-balling the IT budgets and giving bonuses to the VP's and design a system that is at least stable enough to put into a production environment. USPS has gone 'kicking and screaming' into the information age and yet demands that mailers use this and many other similarly ridiculously flawed programs. Just one more nail in the coffin...”

And, early today, “please stand by” wrote, “I came in to work today to process some intelligent mail...but instead was told to clock on to 340 and to sit in a room for 3 hours and do nothing....is anybody out there?”

Other articles in recent months demonstrating that Intelligent Mail is not so intelligent include:

Wednesday, July 21, 2010

Green Printing Bill Unveiled -- And Sure To Be Controversial

A proposed U.S. tax credit for "green" printing that was unveiled this week could lead to some interesting arguments among environmentalists, printers, paper mills, and print-buying organizations.

As Dead Tree Edition reported last month in Federal Subsidy For Green Printing To Be Proposed, Print Buyers Online revealed the proposed legislation at a conference this week as scheduled. (See full text of the bill below.)

The legislation would be good news for paper mills using recycled fiber and the Sustainable Forestry Initiative but bad news for big printers and overseas paper manufacturers.

To be declared "a qualified sustainable print project" must meet 13 of 15 criteria, including (with my comments in Italics):
  • "The materials used in the print project must be recyclable." (All of the materials? Can ink be considered recyclable if paper has to be de-inked before being recycled?)
  • "The print project must contain verbiage that encourages the reader to recycle the printed piece." (That's a no-brainer for direct mail, publications, and cereal boxes. But it's trickier for printed products that don't contain words, like wallpaper, vinyl flooring, and electronic circuits.)
  •  "The print project must contain verbiage that allows prospects/customers to opt-out from further printed communications." (How do you opt out of receiving a cardboard box? There needs to be a distinction between something meant for paying customers and one meant for prospects.)
  • "The paper or substrate must contain over 25 percent post-consumer waste for coated paper stock and 50 percent post-consumer waste for uncoated paper stock." (That will be tough for overseas paper mills because the U.S. is one of the few countries that distinguishes between pre-consumer and post-consumer waste.)
  • "The paper or substrate must be produced Totally Chlorine Free (TCF) or Process Chlorine Free (PCF)."
  • "The paper or substrate must be certified by a credible third-party chain-of-custody certifier, such as The Sustainable Forestry Initiative (SFI) or Forest Stewardship Council (FSC)." (Putting SFI on the same footing as FSC will not go over well with groups like Greenpeace and ForestEthics.)
  • "The ink, coating, laminates and/or adhesives must emit no more than 2 percent volatile organic compounds (VOC) for sheet-fed printing, no more than 30 percent VOCs for heat-set web printing, no more than 10 percent VOCs for cold-set web printing and no more than five 5 percent VOCs for flexographic printing." (What about other printing processes, like inkjet and rotogravure? And does "emit" refer to what comes off the press or what escapes from the building?)
  • "If a print project is 96 pages or less and is bound as a book, the book will be bound as saddle stitched rather than perfect bound." (Interesting. I don't recall seeing any discussion of saddle vs. perfect in articles about green printing.)
  • "The printer who manufactures the print project must not have been fined for violations in the past five years from the Environmental Protection Agency (EPA), Occupational Safety & Health Administration (OSHA), or by state or federal regulators for environmental, health or safety issues." (I'm guessing a lot of the big multi-plant printers have received an OSHA fine at one of their plants in the past five years.)
I'm skeptical of well-meaning efforts to subsidize environmentally responsible behavior because such legislation is so open to abuse by businesses and legislators. (See black liquor tax credits, Son of Black Liquor, and Grandson of Black Liquor.)

But there's something to be said for trying to define what environmentally friendly printing is, even if the first draft is a bit rough. I wonder if some day environmental groups will press corporations about the inks, binding methods, and opt-out provisions they use in their printed materials instead of just focusing on the source of the paper.

Here is the text of the bill in its entirety:

To amend the Internal Revenue Code of 1986 to allow print buyers a credit against income tax for the completion of sustainable print projects.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE

This Act may be cited as the “Print Buyer’s Reduction in Taxes Bill of 2010 (PRINT).”

SEC.2. CREDIT AGAINST INCOME TAX FOR THE PRODUCTION OF QUALIFIED SUSTAINABLE PRINT PROJECTS

(a) In General – Subpart D of Section IV of subchapter A of Chapter 1 of the Internal Revenue Code of 1986 (relating to business related credits), as amended by this Act, is amended by adding at the end of the following new section:

“SEC. 45R. NEW SUSTAINABLE PRINT PROJECT CREDIT

“(a) GENERAL RULE.— For purposes of Section 38, the new sustainable print project tax credit determined under this section for the taxable year is an amount equal to the state sales tax paid by a print buyer for a qualified sustainable print project.

“(b) LIMITATIONS.—The credit allowed by subsection (a) for a single print buyer may not exceed 25 percent of the federal income tax owed by the print buyer for the taxable year.

(1) To qualify for the credit a print buyer must spend $100,000 or above on general print projects in the taxable year.

“(c) DEFINITIONS.—For the purposes of this section—

“(1) PRINT BUYER.—The term ‘print buyer’ means an organization that finds and manages outside resources such as printing, finishing, mailing and specialty printing; communicates specifications and expectations for print projects; purchases print projects; creates and maintains contractual agreements with print suppliers; ensures quality tolerances; and ensures that projects deliver on time at an acceptable price.

“(2) QUALIFIED SUSTAINABLE PRINT PROJECT.—The term ‘qualified sustainable print project’ means a job procured by a print buyer

“(A) the production of which is completed after the date of the enactment of this section,

“(B) which meets the criteria described in paragraph (d) and

“(C) can be certified according to the criteria described in paragraph (e).
“(3) SUBSTRATE.—The term ‘substrate’ means a primary or underlying material (such as paper, plastic, or cloth) on which other materials (such as ink, coating, paint, or treatment) are applied, or from which other materials are made.

“(4) HIGH CONSERVATION VALUE AREA.—The term ‘high conservation value area’ means—

“(A) areas containing globally, regionally or nationally significant concentrations of biodiversity values (e.g. endemism, endangered species, refugia); and/or large landscape-level forests, contained within, or containing the management unit, where viable populations of most if not all naturally occurring species exist in natural patterns of distribution and abundance, or

“(B) areas that are in or contain rare, threatened or endangered ecosystems, or

“(C) areas that provide basic services of nature in critical situations (e.g. watershed protection, erosion control), or

“(D) areas fundamental to meeting basic needs of local communities (e.g. subsistence, health) and/or critical to local communities' traditional cultural identity (areas of cultural, ecological, economic or religious significance identified in cooperation with such local communities).

“(5) HEAVY METALS.—The term ‘heavy metals’ means metals with high molecular weights that are of concern because they are generally toxic to animal life and human health if naturally occurring concentrations are exceeded.

“(6) POST-CONSUMER WASTE (PCW).—The term ‘post-consumer waste’ means the fiber recovered from papers that have been used for their intended end-use, where the waste-producing use did not invoice the production of another product.

“(7) COATING.—The term ‘coating’ or ‘coated’ means a covering that is applied to the surface of the substrate to enhance appearance, adhesion, wetability, corrosion resistance, wear resistance and/or scratch resistance.

“(8) LEGALLY HARVESTED.—The term ‘legally harvested’ means a tree meets the federal requirements put in place by the Lacey Act of 1900 which require a declaration of

“(A) the scientific name of the wood or wood product contained in the importation and,

“(B) the value and quantity of the wood or forest production being imported and,

“(C) the name of the country from which the wood was harvested.

“(9) TOTALLY CHLORINE FREE (TCF).—The term ‘totally chlorine free’ means virgin paper that is unbleached or processed with a sequence that includes no chlorine or chlorine derivatives.

“(10) PROCESS CHLORINE FREE (PCF).—The term ‘process chlorine free’ means recycled paper in which the recycled content is unbleached or bleached without chlorine or chlorine derivatives.

“(11) VOLATILE ORGANIC COMPOUNDS (VOC).—The term ‘volatile organic compounds’ means toxins that are commonly found in inks, coatings and adhesives in the printing process. VOCs emit dangerous toxic gases into the air.

“(12) SHEET-FED PRINTING.—The term ‘sheet-fed printing’ means a method in which individual pages of paper are fed into a printer, as opposed to continuous rolls of paper used on web presses.

“(13) HEAT SET WEB PRINTING.—The term ‘heat set web printing’ means a printing process in which ink is dried rapidly by forcing-air heating.

“(14) COLD SET WEB PRINTING.—The term ‘cold set web printing’ means a web offset printing process in which ink is allowed to dry naturally through evaporation and absorption.

“(15) FLEXOGRAPHIC PRINTING.—The term ‘flexographic printing’ refers to a machine printing process that utilizes rollers and cylinders with a flexible rubber-like surface that prints with the raised area, much like surface printing, but with much less ink. This means the ink dries quickly and allows the machine to run at high speed.

“(16) UV CURED INK.—The term ‘UV cured ink’ means ink applied to a printed sheet that is bonded and cured with ultraviolet light.

“(17) FILM LAMINATE.—The term ‘film laminate’ means a process where a thin film of laminate is sealed into the substrate.

“(18) SADDLE STITCHING.—The term ‘saddle stitching’ means to bind by stapling the printed piece through the backbone (or center fold). Pages lie flat when the printed piece is open. In general, the maximum number of pages is ninety-six (96) plus cover for saddle stitching depending on the paper stock.

“(19) PERFECT BINDING.—The term ‘perfect binding’ means sheets that are ground at the spine and held together with the cover by glue. Perfect binding is commonly used for catalogs and paperback books and it creates a spine that can be printed on. This process is more economical for higher quantities, in general the minimum number of pages needed for perfect binding is forty-eight (48).

“(20) DEDUPING.—The term ‘deduping’ means a process of removing duplicate entries from mailing lists, resulting in lower costs because it reduces the amount of postage and marketing collateral needed for direct mail campaigns.

“(21) RENEWABLE ENERGY.—The term ‘renewable energy’ means energy which comes from natural resources such as sunlight, wind, rain, tides, and geothermal heat, which are naturally replenished.

“(22) RENEWABLE ENERGY CREDITS.—The term ‘renewable energy credits’ means tradable, non-tangible energy commodities in the United States that represent proof that 1 megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource (renewable electricity).

“(23) TAXABLE YEAR.— The term ‘taxable year’ means the twelve-month period used as the basis for computing tax on income received during that period.

“(d) SUSTAINABILITY REQUIREMENTS.—A qualified sustainable print project meets the sustainability requirements of this subsection if thirteen (13) of the fifteen (15) requirements below are employed by the printers and evidenced to the print buyer—

“(1) The materials used in the print project must be recyclable, and/or

“(2) The print project cannot include inks which contain heavy metals, such as metallics and fluorescents, scratch off devices, foils, plastic polystyrenes and/or polyesters and/or

“(3) The print project must contain verbiage that encourages the reader to recycle the printed piece, and/or

“(4) The print project must contain verbiage that allows prospects/customers to opt-out from further printed communications, and/or

“(5) The paper or substrate must contain over twenty-five (25) percent post-consumer waste for coated paper stock and fifty (50) percent post-consumer waste for uncoated paper stock, and/or

“(6) The paper or substrate must be legally harvested, and/or

“(7) The print project must not use paper or substrates from endangered forests or areas of high conservation value, and/or

“(8) The paper or substrate must be produced Totally Chlorine Free (TCF) or Process Chlorine Free (PCF), and/or

“(9) The paper or substrate must be certified by a credible third-party chain-of-custody certifier, such as The Sustainable Forestry Initiative (SFI) or Forest Stewardship Council (FSC), and/or

“(10) The ink, coating, laminates and/or adhesives must emit no more than two (2) percent volatile organic compounds (VOC) for sheet-fed printing, no more than thirty (30) percent VOCs for heat-set web printing, no more than ten (10) percent VOCs for cold-set web printing and no more than five (5) percent VOCs for flexographic printing, and/or

“(11) If a coating is applied to the print project, the coating must not be either a UV cured ink or a film laminate, and/or

“(12) If a print project is ninety-six (96) pages or less and is bound as a book, the book will be bound as saddle stitched rather than perfect bound, and/or

“(13) Print projects that are mailed via United State Postal Service

“(A) must contain the +4 extension for zip codes

“(B) must be processed for deduping or merge/purge

“(C) must have been updated in the last six (6) months for National Change of Address, and/or

“(14) The printer who manufactures the print project must not have been fined for violations in the past five years from the Environmental Protection Agency (EPA), Occupational Safety & Health Administration (OSHA), or by state or federal regulators for environmental, health or safety issues, and/or

“(15) The printer who manufactures the print project must use renewable energy (either directly using wind, solar and/or biogas, which is optimal) or by purchasing renewable energy credits (REC).

“(e) CERTIFICATION.—A project shall not be treated as a qualified sustainable print project unless the print buyer submits the relevant invoices and other documents listing the sustainable qualifications to the Internal Revenue Service (at such times and in such a manner as the IRS provides) specifying that the project meets thirteen (13) of the fifteen (15) requirements listed above.

“(f) OTHER RULES

“(1) STATES WITH NO SALES TAX.— In the case of a state with no sales tax the tax credit will be determined at the beginning of each taxable year by taking the average of the state with the lowest sales tax rate, and the state with the highest sales tax rate for the previous taxable year.

“(g) BASIS ADJUSTMENTS- If a credit is determined under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed.

“(h) TERMINATION—This section shall not apply to any print project completed after December 31, 2016.”.

(b) CREDIT MADE AS PART OF GENERAL BUSINESS CREDIT.—Section 38(b)

(relating to current year business credit), as amended by this Act, is amended by striking “plus” at the end of paragraph (34), by striking the period at the end of paragraph (35) and inserting “,plus”, and by adding at the end of the following new paragraph:

“(36) the New print project sustainability credit determined under section 45R(a).”.

(c) DEDUCTION FOR CERTAIN UNUSED BUSINESS CREDITS.—Section 196(c) (defining qualified business credits) is amended by striking “and” at the end of paragraph (12), by striking the period at the end of paragraph (13) and inserting “,and”, and by adding after paragraph (13) the following new paragraph:

“(14) the New sustainable print project credit determined under section 45R(a).”.

(d) CLERICAL AMENDMENT.—The table of sections for subpart D of part IV of subchapter A of chapter 1, as amended by this Act, is amended by adding at the end the following new item:

“Sec. 45R. New sustainable print project credit.”.

(e) EFFECTIVE DATE—The amendments made by this section shall apply to print projects completed after ninety (90) days from the date of enactment of this Act.

Tuesday, July 20, 2010

Bloat? What Bloat? Postal Service Tells Mailers

The U.S. Postal Service denied yesterday that its workforce is bloated or overpaid in a message to mailers explaining its position on the proposed exigent rate increases.

"It's being suggested that we wouldn't be in this fix if management had dealt with a bloated, overpaid postal workforce," said the e-mail sent to members of Postal Customer Councils, which was nearly identical to an item posted on USPS's Web site.

The Postal Service "was able to reduce its career workforce from an all time high of 802,970 in 1999 to today’s 588,561, while focusing on improving service and growing postal products," the message said. It then went on to undercut that argument by pointing out that it has had "a 20 percent loss in mail volume in three years."

Not impressed
The Postal Service's customers will not be impressed by those numbers. In a private-sector organization, such a rapid decrease in volume couple with major investments in productivity would lead to job losses of more than 27% over an 11-year period.

A business wouldn't pay people to do nothing or to do work manually that could have been done by an idle machine -- especially if many employees could be coaxed into retirement with a fairly small incentive. And you wouldn't keep hearing stories about how the organization's operations were overrun with supervisors who added little value and spent most of their time filling out reports.

"Some are asserting that the current price increases the Postal Service has proposed are somehow illegal," the email said. "On average, the proposal calls for a 5.6 percent increase, clearly permissible under the 'extraordinary or exceptional circumstances' clause of the law."

But the message didn't explain why the law has a price cap if the Postal Service can just violate that cap by saying, "Gee, we can't make our budget." Mailers know what happens in their own organizations if they're not making budget and sales are decreasing -- and it ain't a price increase.

Sunday, July 18, 2010

Two Timely Webinars for Publishers

Two free upcoming virtual seminars on Periodicals mail and print buying come along at a good time -- shortly after the release of new ridealong rules and the merger of two major printers.

The Southeastern Postal Customer Council is sponsoring a webinar at 10 a.m. EST this Thursday (July 22) about Periodicals eligibility in general and the new, more liberal rules regarding ride-alongs, supplements, and other Periodicals components. Details are at www1.gotomeeting.com/register/139670577. (USPS To Give Publishers a Break on Ride-Alongs discussed some of the changes; the Postal Service released the rules changes last week.)

Veteran publishing-industry consultant Bill Lufkin is doing a teleseminar at 2 p.m. Eastern on August 3 called "The Art of Print Negotiation: 12 Steps That Will Make You Money". Lufkinstrategic.com has more information. Bill's guest column for Dead Tree Edition called The 10 Most Common Paper-Purchasing Mistakes is a reader favorite.

Thursday, July 15, 2010

IRS Brings Son of Black Liquor Back From the Dead; Ruling May Be Worth Billions to U.S. Pulp Makers

The Internal Revenue Service may have handed U.S. pulp and paper companies a multibillion-dollar gift by ruling that black liquor produced in 2009 is eligible for an even more lucrative tax credit than the one claimed by manufacturers last year.

The June 28 ruling contradicts previous guidance from the Environmental Protection Agency that the molasses-like pulp byproduct could not qualify for Cellulosic Biofuel Producer Credits (CBPC) because it is not a motor-vehicle fuel or fuel additive. The new IRS ruling does not allow the same black liquor to receive both the original black liquor credits ("alternative fuel mixture") and CBPCs, the so-called Son of Black Liquor tax credits.

The exact impact of the ruling is unclear, but in theory it could be worth more than $10 billion to U.S. companies.

Publicly traded U.S. companies received more than $6.5 billion in black liquor tax credits last year by exploiting a loophole in legislation designed to subsidize "green" fuels. Privately held companies probably qualified for at least another $2 billion.

CBPCs are paid at the rate of $1.01 per gallon, versus 50 cents for the original black liquor credits, so there could be $8 billion to $9 billion available if companies can refund the black liquor tax credits they have already received so that they can get the CBPCs instead. The IRS ruling provides no guidance on that point.

Late to the party
Also, many pulp makers were late to the black liquor party last year, not qualifying for the credits until several months had passed. Publicly traded companies received about $800 million more credits in the second half of the year than the first, suggesting they produced about 1.6 billion gallons of black liquor in 2009 that did not receive the credits. Add in privately held companies and there's probably at least 2 billion gallons -- worth more than $2 billion in CBPCs -- that could qualify without the companies having first to return money to the IRS.

Because it can only be used to reduce income-tax payments, rather than being a direct payment like the original black liquor tax credits, CBPC may not be of much benefit to unprofitable or barely profitable companies. The credits, however, can be carried forward for several years, which could be helpful to the many pulp makers that paid no income taxes for 2009 but are more profitable this year. The ability to use the credits in subsequent years could make unprofitable companies more attractive for acquisition by profitable ones.

The alternative fuel mixture program expired at the end of 2009. The "ObamaCare" healthcare legislation disqualifies black liquor for CBPCs starting on Jan. 1, 2010 but had no impact on 2009, the first year of the program.

Pulp makers have already applied
"For black liquor sold or used before January 1, 2010, however, a number of black liquor producers have indicated they intend to claim a [CBPC] credit," the ruling says. "In addition, a number of these black liquor producers have applied to the IRS . . . to be registered by the IRS as producers of cellulosic biofuel."

Prior to the ruling, several pulp makers had said they did not expect any further tax credits from black liquor. A presentation from International Paper -- which could net more than $2 billion from the ruling -- stated last year "we believe that pulp & paper producers do not qualify" for CBPCs.

The IRS ruling acknowledges that one requirement for a substance to receive CBPCs is that it "meets the registration requirements for fuels and fuel additives established by the Environmental Protection Agency (EPA) under section 211 of the Clean Air Act". Because those registration requirements only apply to motor vehicle fuels and fuel additives, an EPA official indicated last year that the CBPC law apparently excludes black liquor, which is not suitable for motors.

But the new ruling cites previous IRS guidance (in logic that only a lawyer could love) stating that a "fuel meets the EPA registration requirements if the EPA does not require the fuel to be registered."

"Cellulosic fuel that is not used for fuel in a motor vehicle does not have to be registered by the EPA," the ruling adds. "Practically speaking, black liquor cannot be used as a fuel in a motor vehicle."

Six-Day Delivery Supporters Finally Speak Up To PRC

What a difference a month makes! More than 92% of the comments submitted to the Postal Regulatory Commission in June regarding the number of mail delivery days favored six-day delivery.

That 2716-223 margin in favor of keeping Saturday delivery was a huge turnaround from April and May, when (as detailed in Comments to PRC Favor 5-Day Delivery) 56% of the relevant comments favored going to five or fewer days of delivery.

It wasn't just postal employees who came to the defense of six-day delivery; most of the support came from people who identified themselves as customers, according to a summary the PRC released today.

More than one-fifth of those who supported six-day delivery said the overfunding of pensions and the so-called pre-funding of retiree health benefits should be corrected before service is reduced. Another 357 people made comments falling into the category of "Reduce Exec compensation/mgt levels/reorganize".

The most commonly mentioned concerns regarding elimination of Saturday delivery had to do with prescription medicines and increased unemployment.

Wednesday, July 14, 2010

Why Offer 30% Discounts on a 'Money-Losing' Product? Tough Question #3 For USPS

The Postal Service claimed once again last week that it loses money on Standard flats mail, just five days after kicking off a huge discount program on – guess what? – Standard flats mail.

The claim that Standard flats is "under water" was repeated in the USPS’s request for “exigent” rate increases: “To fully close the coverage gap, Standard Mail Flats prices would need to increase by 16 percent,” wrote James M. Kiefer, a USPS pricing economist, in a statement submitted to the Postal Regulatory Commission.

The discounts – up to 30% for some pieces sent by large mailers – are part of the second annual Summer Sale on Standard mail. The sale's discounts are the same for Standard flats -- mostly catalogs and retail circulars that are not in carrier-route bundles -- as for "profitable" categories like Standard letters.

The Postal Service decided to take “a cautious approach” and only increase Standard flats rates by 5.1%, Kiefer said, because “increasing postage prices too much at this vulnerable point could force catalog mailers to cut their customer lists.” Some mailers in the category (especially low-volume mailers of lightweight pieces), however, would get rate hikes rivaling the 8.0% average for Periodicals.

In any case, how can the Postal Service claim on one hand that rates for Standard flats should be raised at least 16% while on the other hand justifying temporary discounts of up to 30% on that same type of mail?

The Summer Sale is based on sensible and well-researched analysis showing that additional Standard flats mail is profitable for the Postal Service even when heavily discounted.

Postal Service Bloat
The contention that Standard flats are unprofitable is based on a completely different accounting system that improperly assigns the cost of “automation refugees” and other symptoms of Postal Service bloat to flats processing, which makes both Standard and Periodicals flats look unprofitable. The Postal Service’s supposed costs for handling flats have skyrocketed the past few years even though flats are being mailed more efficiently than ever.

In reality, according to Time Inc’s Jim O’Brien, the Summer Sale analysis suggests that the Periodicals class is covering its “short-run attributable costs” – that is, that the Postal Service is more profitable with Periodicals than without.

But the Postal Service is using Periodicals’ supposed lack of cost coverage as an excuse to jack up the class’s rates by more than 8%, which comes out to 9% for some of the most efficient mailers. And though Standard flats are getting a pass this time around, postal executives have painted a target on that category for future increases.

“Clearly, we cannot continue to price Standard Mail Flats below costs for an extended period of time,” Kiefer wrote. “The Postal Service may have to adjust Standard Mail Flats prices at above average rates at some point, but now is not the time.”

But before the Postal Service gets approval for any rates based on lack of cost coverage, it needs to explain how its accounting systems conclude that Standard flats lose money when they pay their normal rates but are profitable when discounted by 30%.

For more information on related subjects, please see:
Previous articles in the "tough questions" series:
Next in the series: Is the Periodicals Class the Postal Service's Washington Monument?

    Friday, July 9, 2010

    USPS May Split Role of Letter Carrier By Creating "100% Street" Routes

    The Postal Service believes it can achieve significant savings by having letter carriers spend their entire shift delivering mail while other employees take over the carriers' mail-preparation duties.

    The idea is to split the role of letter carrier into two different jobs -- casers who would take on any mail sorting now done by carriers and deliverers who would strictly deliver the mail. Here is what the USPS said about the tactic in a "Flats Strategy" paper it submitted to the Postal Regulatory Commission this week:

    "Route Optimization 100 Percent Street routes – (2011 and beyond) –– LARGE Opportunity": As total cased volume declines, letter carrier casing will be concentrated on a few assignments, while most carriers will only perform street duties. A “caser” would prepare and pull down all cased mail, while a deliverer would load the mail and deliver it to a greater number of customers. This concentration will produce savings in fixed office time. It is projected that route reductions will result from this initiative. Also, vehicle savings will be generated through street route reductions."

    The description raises several questions:
    • How exactly would the approach save money other than requiring fewer vehicles? Using delivery-point sequencing can certainly save money in the delivery units by giving the carriers more street time. But just divvying up the work differently among casers and deliverers would not change the number of hours required to do the work.
    • When would the casing be done? Delivery units typically have a small window between arrival of when mail for delivery and the start of the carriers' shift. Something would have to change -- perhaps earlier shipments to the delivery units (which would force changes at mail processing centers and delay delivery of some mail by a day) or later start times for deliverers (which would please neither customers nor employees). Or perhaps the role of caser would be taken on by an army of part-timers rather than people who are currently career letter carriers.
    • Will deliverers on walkng routes be able to handle a full shift on the street? Many a letter carrier has switched to other jobs in the Postal Service after knees or feet gave out. Some have expressed concern that longer routes (made possible by delivery-point sequencing and route optimization) are putting more wear and tear on the carriers. How would full-time deliverers fare on routes delivered mostly or solely on foot?
    The document sheds no light on these questions. It's not even clear whether this tactic and some others discussed in the paper reflect definite plans or just something the Postal Service is pondering.

    In fact, the paper has some other interesting, not-completely-explained statements about tactics under consideration, including "the potential of every-other-day sequencing" on Flats Sequencing System machines and elimination of "preferential manual handling of Periodicals mail".

    Thursday, July 8, 2010

    Greenpeace Is Back, But Time Warner Looks the Other Way

    Nearly 16 years to the day after protesters hung a "Take The Poison Out Of Paper" banner on the TIME-Life building, Time Warner's paper-buying practices were blasted once again this week by Greenpeace.

    But two Time Warner properties, TIME magazine and CNN, published articles about the Greenpeace study that failed to mention its listing of Time Warner's CNN Traveller magazine as one of the brands that "prop up Sinar Mas" by buying from its Asia Pulp and Paper (APP) division.

    Other magazines singled out for criticism in "How Sinar Mas Is Pulping the Planet" on Tuesday include three Hearst brands (Esquire, Marie Claire, and Cosmo Girl) and Hachette Filipacchi's Elle -- though it wasn't clear whether Greenpeace was pointing the finger at those companies or at content licensees who publish Asian-language editions.

    But the copy of CNN Traveller shown in the report is clearly an English-language edition, and the magazine's Web site indicates that the Asian edition is published by CNN.

    The TIME article notes that Greenpeace "singles out some of APP's big global customers" like WalMart, Hewlett Packard, and KFC. But nowhere does the article mention Time's UK-based sister publication. And the CNN story doesn't list any of the companies that Greenpeace criticizes for buying from the Sinar Mas empire, which has repeatedly been accused of massive deforestation in Indonesia.

    On July 11, 1994, three Greenpeace activists gained international media attention by climbing Time Inc.'s headquarters in New York and hanging a banner saying "TIME: Chlorine Kills -- Take The Poison Out of Paper". Since then, the Time Inc. branch of Time Warner has focused on studying the environmental impact of magazine paper and working with its suppliers to reduce that impact.

    Related articles:

    Wednesday, July 7, 2010

    No Quad Blues, But Quadracci Upholds Another Tradition

    video

    Joel Quadracci went white-collar today to ring the opening bell at the New York Stock Exchange, but he still managed to pay tribute to his company's history and culture.

    Quadracci, the head of printing giant Quad/Graphics, was joined by family members and key executives on the floor of the stock exchange in celebrating Quad's new status as a publicly traded company. You can see them in the video above, though you'll want to skip past the first 49 seconds.

    But Quadracci apparently left his "Quad blues" uniform -- the one he wore to announce the "new Quad" on Friday as discussed in The New Quad/Graphics Still Has The Blues -- and Soul, Too -- back in Wisconsin. He did pay homage to his late father, company's founder Harry V. Quadracci, by wearing a bow tie, as his father often did (but, I'm told, as Joel Quadracci rarely if ever does).

    Nice try, Joel, but I'll bet your dad would have worn a bow tie and a Quad uniform. Then again, your dad never gobbled up a company that was much larger than Quad or led a multimillion-dollar IPO.

    Meanwhile, there were sporadic reports of layoffs this week among corporate, sales, and office employees who came both from Worldcolor and from "old Quad". But there's no news yet about any plant closings or cutbacks.

    Tuesday, July 6, 2010

    So Much For Encouraging Publishers To Mail Efficiently . . .

    If the U.S. Postal Service wants publishers to mail more efficiently, you wouldn't know it from the exigent rate increases it requested today.

    The average proposed rate increase both for Periodicals as a whole and for the large "Outside County" subcategory is 8.04%. But it's closer to 9% for many mailers who are engaged in co-mailing and other practices that reduce costs for both publishers and the Postal Service.

    That's because the Postal Service wants to slap one of the highest increases, 9.0%, on the Basic Carrier Route rate -- the amount charged for each piece in a carrier-route bundle. But for somewhat less efficient bundles ("5-digit automation machinable"), the piece cost would only increase 5.8%.

    For most publishers, those two rates represent the majority of their postage costs. More than 61% of the Postal Service's revenue from the "Outside County" subcategory comes from these two rates.

    Except for those two rates, the vast majority of proposed Periodicals rate changes fall into the narrow range of 8.1% to 8.5%. The USPS wants to overhaul the rates in some other classes to align them more with costs, such as by charging catalogs more on a per-piece basis than on a per-pound basis.

    But despite the Postal Service's complaints that some Periodicals rates are way out of line -- for example, that publishers pay only a fraction of the costs for bundles and sacks -- it is proposing almost no realignment of Periodicals rates.

    The one exception is rate increases of about 21% for pallets that are not dropshipped, but that applies to less than one fourth of all Outside County pallets.

    The Postal Service's plan goes to the Postal Regulatory Commission, which could do its own restructuring of Periodicals rates -- if it even decides that an exigent increase is legal and justified.

    Is The FSS A Boondoggle? Tough Question #2 For The USPS

    A couple of years ago, postal officials were telling catalog and magazine publishers that the Flats Sequencing System would dramatically lower the Postal Service's costs of handling our mail.

    Now it's not so clear whether the $1.4 billion investment in Phase I of the huge FSS machines will even pay off. And that's a major annoyance to magazine publishers, who were singled out today for an  extra-special exigent rate increase today because the Postal Service can't get its costs of handling flat mail under control.

    I’ll admit that it's a bit unfair to use the word "boondoggle" in reference to FSS because that word implies that there was no logic to the investment other than as a giveaway to the contractor, Northrop Grumman. But the Postal Service is playing into the hands of the nay-sayers and conspiracy theorists by not being more forthcoming about its struggles with the FSS machines.

    I think the people who developed and approved the plan for automating the handling of flat mail honestly thought FSS would pay for itself in the form of reducing sorting and operating costs. Unlike some other Postal Service initiatives, there was competitive bidding and a careful planning process that responded to input from mailers and our suppliers.

    But the plan, which was based on steady or growing flats volume, first started to go off the track when flat mail began declining rapidly (after double-digit postage increases for catalogs and magazines that scared both industries into change-the-business-model meetings with a "less print, more Web" mantra).

    And it's been 10 months since the USPS's Office of Inspector General said no more machines should be deployed until the system met the minimum performance standards of the Northrop Grumman contract. The Postal Service responded by accelerating deployments and not officially revealing the results of further testing, though word keeps leaking out of problems with the machines.

    The OIG released another study today stating "we identified several FSS machines [in northern Virginia] that were unavailable for several months and processing issues that negatively impacted delivery operations."

    Even to those who are supportive of the FSS concept, it's starting to look as if postal officials so fell in love with the FSS plan and schedule that they couldn't dream of pulling the plug on the 100 Phase I machines or going back to the drawing board. The machines do seem to be saving money, especially in delivery operations, but are the savings enough to justify the huge capital investment?

    No Phase 2?
    One of the flood of documents the USPS submitted today with its rate proposal includes a statement that “the Postal Service intends to evaluate the feasibility of enhancing excess AFSM [Automated Flats Sorting Machine] 100 equipment to sequence additional flat mail not covered by the initial 100 Flats Sequencing System machines.”

    Maybe that’s an ingenious approach to using equipment that’s been freed up by the FSS machines and the drop in flats mail volumes. It certainly sounds less costly than buying new FSS machines.

    But the skeptic’s view is that postal executives are not seeing a favorable return on investment from the big capital outlay and therefore are eying "Plan B" (no more expensive new machines) instead of FSS Phase 2. And with the Postal Service revealing so little about whether the FSS machines are performing to standard, it's easy to be skeptical.

    So as catalog and magazine publishers hear about the Postal Service's allegedly skyrocketing costs for handling flats mail -- despite our greater use of co-mail and dropshipping and the USPS's FSS investment --
    don't be surprised if we start using the "B" word.

    Related articles:
    Next in the series: Why offer big discounts on a product that supposedly loses money?

    Monday, July 5, 2010

    "What About Bernstock?" And Other Tough Questions for Postal Execs

    The U.S. Postal Service's failure to address some inconvenient questions will hurt its chances of winning approval for several controversial measures, including the rate increase it will request tomorrow.

    The questions include "What about the Bernstock fiasco?", "Why are you offering discounts on a product that loses money?", and "Why do you hope attrition will eliminate excess employees, then discourage people from retiring?"

    Various sources report that the USPS will file for unprecedented "exigent" rate increases tomorrow of roughly 5% for most mail, with even higher price hikes for such allegedly money-losing products as Periodicals and Standard flats. Along with the elimination of Saturday delivery, reversal of overpayments to a pension account, and elimination of so-called pre-funding of retiree health benefits, that will give postal officials an ambitious slate of proposals requiring Congressional or regulatory approval.

    Postal executives argue that they need these rules changes because they have done all they can under current rules to get the USPS's finances into line. But it will be hard for Congress, the Postal Regulatory Commission, or the public to believe them as long as they avoid answering some tough questions. Over the next few days, Dead Tree Edition will be exploring five of these questions.

    The first question is: Why was a top executive allowed to run amok, and what are you doing to prevent this kind of problem from recurring?

    Bad news keeps dribbling out about Robert F. Bernstock, the former president of mailing and shipping services, in what must seem like Chinese water torture for the folks at L'Enfant Plaza. (Which is why public relations experts say that if you've got bad news, release it all at once on your own terms rather than having the news media drag it out of you bit by bit.)

    First there were the no-bid contracts to Bernstock's cronies, then the use of his Postal Service staff to conduct private business, and most recently the revelation that top postal officials looked the other way as Bernstock broke the rules.

    In a pickle
    Noting Bernstock's checkered history, Brian Sheehan at postalnews blog recently questioned why the Postal Service even hired him in the first place. (Answer: The Postal Service was in a pickle, so why not hire a guy who used to run a pickle company?)

    Even the worst-case scenario is that the money Bernstock wasted would not cover one day of the Postal Service's losses (or its interest-free loans to the federal government that are euphemistically called prepaid retiree health benefits). But the incident certainly doesn't inspire confidence in Postal Service management.

    There's a limit to what postal executives can say without running the risk of slandering Bernstock or violating his privacy. They did at least overhaul their contracting rules recently.

    But they need to go further to put the incident behind them. They should openly discuss the mistakes they made, reiterate that no one in the organization is exempt from rules or oversight, and reveal whether the USPS got its money's worth from the no-bid contracts.

    For related articles, please see:
    Tomorrow: Is the Flats Sequencing System a boondoggle?

      Friday, July 2, 2010

      The New Quad/Graphics Still Has The Blues -- and Soul, Too


      For those who wondered whether going Wall Street would change Quad/Graphics' unique culture, company chairman Joel Quadracci made an historic statement today in announcing the acquisition of Worldcolor.

      It wasn't what he said that was so significant, it was what he wore. Has the head of a publicly traded multibillion-dollar company ever before worn a company uniform with his name stitched on it while making such a major announcement?

      Quadracci's donning of "Quad blues" rather than corporate pinstripes for the video announcement demonstrated his intent to continue the rah-rah, employee-friendly culture that has led to Quad being featured in management texts. Having everyone from top executives to front-line workers wear nearly identical uniforms in Quad's plants is a long-standing tradition at the company, which Quadracci's father founded. (Commentator Brian Sheehan notes that postal executives battling an "us vs. them mentality" could learn from Quad's example.)

      Let's see if Quadracci and his family members wear Quad blues when they ring the opening bell of the New York Stock Exchange this coming Wednesday. (Update: Nope. See No Quad Blues, But Quadracci Upholds Another Tradition.)

      Quadracci's spoken message was consistent with his visual one.

      "As we undergo this transition, we're not going to change who we are," the chairman, president, and CEO said. The company will continue to be known for its commitment to its customers, employees, and the environment, he said.

      "We're a company with a soul," he added, which is an interesting statement given widespread speculation that the merged company will soon close plants and reduce its 28,000-employee workforce.

      Though Quad has dabbled in creating digital editions and apps, manufacturing equipment, and delivering parcels, Quadracci emphasized that the company's major focus would not change, using the new tagline "innovative people redefining print".

      "We believe in the power of print," he said. Print after all is a powerful foundation for every communication strategy." (Tell that to Google.)

      "The company will realize significant mailing and distribution efficiencies and offer clients improved speed-to-market and product integrity for USPS-delivered products as well as volume-driven postage savings through programs such as co-mailing," Quadracci said in a news release.

      Quad stock will start trading on the NYSE Tuesday, unfortunate timing. That's the day postal officials are slated to announce proposed "exigent" rate increases for most mail, with the biggest blows aimed at the magazine and catalog customers who have been central to Quad's and Worldcolor's business.

      Other articles about the Quad-Worldcolor merger include: