Saturday, November 29, 2008

Postal Service eyes mega-millions from FSS

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

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

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

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

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

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

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

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

Say Farewell to Miramichi

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

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

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

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

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

Sunday, November 23, 2008

Is Quebecor back from the dead?

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

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

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

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

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

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

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

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

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

Thursday, November 20, 2008

A Second Look at Postal Hikes

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

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

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

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

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

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

Wednesday, November 19, 2008

Smaller Postal Hikes?

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

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

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

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

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

Monday, November 17, 2008

Postal problems? It's not the economy, stupid

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

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

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

Saturday, November 15, 2008

Another IMB Delay?

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

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

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

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

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

Wednesday, November 12, 2008

Awash in Paper

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

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

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

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

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

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

Tuesday, November 11, 2008

Postal Poetry

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

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

Monday, November 10, 2008

Fuelish Surcharges

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

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

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

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

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

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

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

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

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

Sunday, November 9, 2008

Talking to the Idiot

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

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

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

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

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

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

Saturday, November 8, 2008

Giving BusinessWeek the Business

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

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

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

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

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

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

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

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

Friday, November 7, 2008

What has changed?

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

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

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

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

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

BoSacks 1, Folio: 0

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

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

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

Monday, November 3, 2008

Hey, go away and sell some printing!

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

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

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

Making a Stink About EnviroInk

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

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

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

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

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