Wednesday, January 28, 2009

A smarter, smaller Postal Service?

U.S. Postal Service leaders were full of surprises today, with perhaps the biggest being that they are able to change course and adapt when necessary. Evidence of intelligent life at L’Enfant Plaza (postal HQ) today included:

  • Window envelopes: USPS announced it was backing off its plans, revealed only six days ago, to change the specifications for window envelopes in May. As Dead Tree Edition pointed out in “It’s curtains for the window envelope”, that would have outlawed all of the standard sizes of window envelopes and no doubt sent billions to landfills. The announcement says the Postal Service will work with industry to modify mailpiece standards more gradually. It still doesn't explain the interest in altering window envelopes, but some postal employees have commented that having the windows too close to the bottom edge causes them to get jammed in sorting equipment.

  • Five-day-per-week delivery: Postmaster General Jack Potter asked a Senate subcommittee for the authority to suspend delivery temporarily on “the lightest volume days.” He didn’t offer specifics and said he would implement 5-day delivery “only when absolutely warranted by financial circumstances.” But with USPS possibly heading toward a $6 billion loss this year (double last year’s loss), Potter can't very well ignore an opportunity to save several billion annually -- though skipping Saturday delivery could hurt such publishers as The Wall Street Journal, the Detroit News, and such weekly magazines as Time, BusinessWeek, and People.

  • No extra rate increase: Potter also demonstrated that postal officials understand price elasticity when he rejected calls for an “exigent” (emergency) price increase. “Driving up prices will only drive customers away,” he said, citing the loss of catalog volume after the big 2007 price increase for Standard flats. As I noted in “Postal costs to go up less than 4% – maybe”, that sensitivity to the plight of catalogs may mean higher-than-average price increases in May for Standard-class letters.

  • Facility consolidation: Potter diplomatically reminded Congress members that they often prevent USPS from becoming more efficient by trying to block the consolidation of “duplicative mail-processing operations.” He noted that everyone favors greater efficiency but “that support often weakens considerably when a specific change is proposed for a specific community.”

I’ve been generous in my criticism of the Postal Service, so it’s only fair that I offer praise when it’s warranted. The change of position on window envelopes occurred at light speed by federal-government standards. And Potter showed that he's not counting on Congress, mailers, or a miraculous economic turnaround to bail out the Postal Service. He recognizes that USPS must get smaller, including a 15% staff reduction at headquarters, and make tough choices to remain viable.

Monday, January 26, 2009

Cutting some trees but saving the forest

It’s good news when trees are being planted and bad news when trees are being cut, right?

So that means the Indonesian government’s announcement that it is planting 100 million trees per year is good news for the earth, right? The fact that timber operations in Maine have mostly stopped planting trees where they have cut is bad news, right? And environmentalists should cheer that the current slump in timber demand is putting a lot of loggers and sawmills out of business, right?

The vast majority of people would say “Right” to all of those questions. And they would be wrong.

I can’t blame them. I used to be impressed when paper companies told me (back in the 1990s, when paper companies still owned forests) that they planted two trees for every one they cut down.

It only took me a decade to ask an obvious question: Why do you need to plant trees in a forest? After all, it didn’t take human intervention to start the forest or to replant trees that have died there over the millennia. (As I have explained previously, I'm an environmental idiot.)

A logger gave me the answer: Timber operations generally plant trees when they want an area to have a single species rather than taking the pot luck of mixed species that occurs in a natural forest. That often means clear cutting, then the spraying of herbicides to keep down the vines for a few years until the seedlings are big enough.

The planting of trees in Maine (and many other North American forests) has largely ended because loggers there have generally stopped clear cutting. It’s not that they have suddenly gone green. They have found it’s more profitable to harvest trees selectively, go to the trouble of separating the different species for different markets, and then let the forest regenerate itself. That eliminates expenses for seedlings, planting, spraying, etc. (Isn’t it funny how green practices often end up saving a lot of green stuff?)

Indonesia’s massive tree planting is a symptom of an environmental nightmare: The country has lost about 70 percent of its original forest cover. Cynic that I am, I suspect that much of the tree planting is for sterile palm-oil plantations, not for reforestation.

Many environmental groups are realizing that a key to protecting a region’s privately owned forests is maintaining the viability of the region’s forest-products industry.

“We have to realize private-land timber companies are our friend. Once land gets broken up into smaller pieces, our ability to protect it is eliminated," said Guido Rahr, president of the Wild Salmon Center in Portland, Ore. The center has joined with other environmental groups that want to provide funds or other support to help the struggling timber industry stay in business, according to the The Oregonian.

The Nature Conservancy is involved in a massive effort to ensure that more than 1 million acres of timber-company land in Montana do not get sold to developers. Kirk Johnson of the New York Times recently wrote that “groups like the Wilderness Society . . . say that working forests with controlled harvests are healthier, safer, and more likely to be preserved” and that small forest-region towns with a sawmill as “an anchoring employer are less prone to real estate speculation and development.”

We environmentalists often talk about saving trees, but what we really need to focus on is saving forests.

"The environmental community has spent 40 years perfecting the art of saying no and has almost no ability to say yes," says Lawrence Selzer, president of The Conservation Fund. If we can’t find a way to say yes to private land owners trying to make a living from their forests in a sustainable way, don’t be surprised to see those forests get turned into ski slopes and shopping centers.

Friday, January 23, 2009

It's curtains for the window envelope

Update: The Postal Service changed course on this proposal after only six days. See "A smarter, smaller Postal Service?"

Postal officials want to outlaw the ubiquitous window envelope as we know it.

The U.S. Postal Service announced yesterday that it wants to change the allowable size and positioning of envelope windows on letter-sized mail. The new regulations would not allow the window to be within three quarters of an inch of the bottom. The common sizes of window envelopes leave only half an inch between the window and the bottom.

The proposed regulation would ban every window envelope “any mailer has in inventory and that is currently in production,” writes Lisa Bowes on the Postal Affairs Blog of Intelisent, a company that helps organizations mail more effectively.

USPS plans to publish the proposal in the Federal Register next month, after which there will be a comment period before the regulations can be implemented. That would leave scant time to adjust to the new regulations, especially for mailers that include return window envelopes in their invoices.

“I expect there to be an overwhelming flood of negative comments,” writes Bowes, whose blog usually explains postal regulations without wading into controversies.

The sudden change of regulations could be a boon for envelope manufacturers rushing to fill the demand for mail pieces that meet the new standards. Or it could just push more people to bypass the Postal Service altogether and to pay their bills online. In either case, it would mean a trip to the landfill for billions of unused envelopes.

“The USPS seems to be trying to regulate and restrict all mailers to the point of where we all go out of business,” Bowes writes.

She also points to another, nearly unenforceable part of the proposal that, as USPS states, would apply “new static charge and the coefficient of friction standards for automation and machinable letters to ensure they do not produce excessive static charge and can be handled efficiently when inducted and removed from processing equipment.”

Here’s a better idea for the Postal Service: Figure out how to harness some of that static electricity and use it to power a few gray cells in the brain-dead bureaucrats who drafted this proposal without considering the impact on postal customers.

Wednesday, January 21, 2009

The Perfect Newspaper Story?

Back when newspapers could afford readership consultants, reporters were told that people loved articles about children and animals.

Long articles about boring city council meetings? No way. Readers are passionate about sports, crime, and religion, the business-side folks like to say. They need interesting "art" to break up the grey type and to grab their attention. Anything longer than a "tweet" (140 characters) is likely to lose them.

Put all of that together, and here's what you get:

"Dear Lord, thank you for bringing me to Timmy's house and not to Michael Vick's. Amen."

Friday, January 16, 2009

Postal costs to go up less than 4% -- maybe

So now it’s official: If you use Periodicals, Standard, or First Class postage, your mailing costs will rise by just under 4% in May, right?

That’s not a safe bet. It’s true that the average change in rates for those “market-dominant” classes will be 3.976% for Periodicals, 3. 862% for Standard, and 3.814% for First Class. That’s based on the announcement today that the average monthly Consumer Price Index in 2008 rose by 3.8% over 2007, plus a smidgen of “unused rate authority” from last year’s rate increases. (See “Who’s it gonna be, me or the PRC” for a further discussion of how the rate cap is determined -- and Dead Tree Edition’s prediction that the rate cap would be below 4%. Nyah, nyah, told you so!)

With last year’s rate increases, all mailers in the market-dominant classes got virtually identical increases in costs. But don’t count on that happening this time around. Here are factors that could cause some mailers to get large increases and perhaps help others decrease their postage costs:

  • A little gift from the Postal Service: USPS is undertaking a massive consolidation of carrier-route boundaries early this year, though it's unclear how many fewer routes there will be. Here’s how these consolidations will help mailers: Suppose your Periodicals-class publication has five copies going to one carrier route and four going to another and that the two routes are merged: Now those copies will move from a 5-digit bundle to a carrier-route bundle, saving you at least 10 cents per copy. The biggest benefit will probably go to Periodicals mailers that already have 25% to 75% of their pieces in carrier-route bundles. For those mailers, a 10% decrease in the number of carrier routes could boost their carrier-route sortation by 5 percentage points, yielding savings of about a half-cent per piece -- typically 1% to 2% of total postage. The savings would be lower for Standard mailers because their carrier-route incentives are smaller.

  • What the Postal Service giveth, the Postal Service can taketh away: Here’s a scary thought for Periodicals mailers, especially for those benefiting the most from the consolidation of carrier routes: There is apparently nothing in the new postal law preventing the Postal Service from increasing the minimum number of pieces in a carrier-route bundle. To get the money-losing Periodicals class closer to breaking even, USPS might increase the minimum size of a carrier-route bundle from six pieces to 10 to bring it into line with Standard flats, one industry expert speculated. That would increase some mailers’ costs by two cents per copy.

  • Be careful what you wish for: Efficient Periodicals mailers, led by Time Inc., tried for years to have the Postal Service’s transportation costs fully reflected in Periodicals rates, instead of having dropshipped publications subsidizing non-dropshipped publications. The Postal Service resisted that approach as unfair to small publications. (Not true. It only hurts the small publications that mail nationwide on their own rather than in freight pools.) The resulting Periodicals rates are a patched-together Frankenstein’s monster that no one likes – and that decreased many publishers incentives to dropship. Time Inc. advocated BMC discounts, which would have especially helped small publications, but the BMC discount that ended up in Periodicals rates is virtually meaningless. USPS officials reportedly recognize that the lack of dropship incentives for publishers has caused them to scale back dropshipping, thereby increasing the Postal Service’s costs.

  • Sacks suck: Also in the category of the Postal Service being careful what it asks for is the matter of Periodicals sacks. Time Inc. and the other advocates of cost-based Periodicals rates proposed that USPS’s full costs of handling sacks be reflected in Periodicals rates, rather than having palletized publications subsidizing sacked publications. Again, USPS resisted, so the resulting rates have publishers bearing only a small portion of the Periodicals sack-handling costs. With the Postal Service in the red and realizing more than ever what a pain in the P&DC sacks are, cost-based rates are looking much more attractive to postal officials. Look for the new rates to be less accommodating to inefficient Periodicals mail. And don’t be surprised if Standard mailers start getting charged for sacks as well.

  • Squishing the flats: Postal officials reportedly realize that the huge 2006 rate increases for Standard flats (which are mostly catalogs) have contributed to a rapid decline in volume. Especially hard hit were the kind of lightweight catalogs typically used for prospecting. (Dead Tree Edition pointed out a cheaper alternative for catalog prospecting, but Google Analytics tells me the article wasn’t exactly a big hit – even though L.L Bean continues to use the method.) The Postal Service may charge Standard letters (direct mail) a larger-than-average increase so that it can give lightweight Standard flats a break.

  • Death of the SCF: The Postal Service’s efforts to consolidate its dropship network has been quiet for a few months, but roll-out of the Flats Sequencing System and cost pressures will ensure that more locations get consolidated. Such consolidations make it easier for mailers to increase their dropship discounts without spending more on freight.

    Here’s a little suggestion for postal officials trying to tweak the Periodicals rate structure. (I know they’re reading Dead Tree Edition at L’Enfant Plaza because sources tell me that postal officials have been complaining about my recent Intelligent Mail barcode post, though none have had the cahones to issue a written rebuttal.) Create meaningful BMC discounts for Periodicals to entice small mailers to start dropshipping and large mailers to do more dropshipping. There are reasons not to put Periodicals into bulk mail centers, but there is a way around that: Designate certain large ADCs as “Periodicals BMCs.” For example, make the Pittsburgh P&DC a Periodicals BMC and assign it the ZIP codes served by the Pittsburgh Bulk Mail Center; then watch as Periodicals mailers ship publications for the tiny, hard-to-reach Clarksburg, WV ADC to Pittsburgh (as Standard mailers already do) instead of mailing them from printing plants halfway across the country.

Wednesday, January 14, 2009

Can Transcon transform newspapers?

Transcontinental Inc.’s vision for transforming the North American newspaper industry will get its first test later this year when the company starts up innovative presses in San Francisco and Montreal. The bold model could shake up parts of the commercial-printing industry as well, but the Canadian printing company is apparently having second thoughts about the plan.

Transcontinental’s new San Francisco plant and expanded Montreal plant will have at least three features that set them apart:

1) The ability to do both heatset and coldset printing on the same presses. The presses will be able to print standard newspapers, higher-quality newspaper inserts, and various commercial products on a wide variety of papers including newsprint, supercalendered, and coated grades. Though a similar press is running in Germany, this will apparently be the first use of the combined heatset/coldset approach in North America.

2) The printing of newspapers by a commercial printer rather than by a newspaper publisher. Most major newspapers in the United States do their own printing or – in a few cases like USA Today and The Wall Street Journal – contract it out to other newspaper publishers. In contrast, virtually all U.S. magazines and many European newspapers use commercial printers to print their products.

3) They are intended from the outset for the production of multiple daily newspapers from different companies. The typical U.S. daily-newspaper printing plant is built around the needs and schedule of the newspaper that owns it, even if it does work for other publishers or takes in commercial jobs.

Transcontinental has contracts to take over production of Hearst Corporation’s San Francisco Chronicle in the second half of this year at the new plant and to print a variety of daily and weekly papers, including The Globe and Mail, at its Transmag plant in Montreal. The struggles of the North American newspaper industry – which have fueled speculation that the Chronicle would abandon print altogether – have slowed Transcontinental’s vision of taking its innovative model to other metropolitan areas.

“We continue to have discussions with some newspaper publishers in North America,” says the company’s most recent quarterly report to investors. “However, given the deteriorating market conditions in this industry in the U.S. and the deteriorating financial condition of potential customers, and considering our model becomes much more compelling when it includes more than one paper in a given area, we do not expect to sign additional contracts in the near term. Over the longer term, we believe our unique model will help the newspaper industry overcome its challenges.”

The model is a far cry from the usual approach in the U.S. newspaper industry, where the typical daily newspaper owns its own press (or presses) that sits idle much of the time. Many a newspaper has tried to make money off that idle press by going after commercial work. But the lack of infrastructure (such as sales, estimating, and customer service staffs), high pressroom staffing levels mandated by union contracts, limited paper capability, and the relatively poor print quality have been hurdles to success.

A couple of European mills have manufactured coated coldest papers to help newspapers compete for commercial business. But the papers look more like high-quality newsprint than like coated products, and the printing has coldset’s usual lack of precision and detail.

Rapidly deteriorating business conditions have recently caused more newspaper companies to consolidate or outsource their printing, typically to a nearby newspaper with more modern presses. With ad revenues dropping faster than you can say Craig’s List, making deadlines a couple of hours earlier to save money on printing and paper suddenly doesn’t seem like a bad option.

The San Francisco plant will supposedly benefit the Chronicle by offering later deadlines, more color pages, and better quality than the existing 40-year-old letterpress-turned-flexographic presses can. Transcontinental, which has a Canadian publishing arm, has also expressed interest in beefing up newspapers with improved quality, such as by using supercalendered papers instead of newsprint.

“Newspapers must offer quality enhancements including brighter paper, more colour, better design and provide innovative advertising value such as scented paper, in-line coupons, pop-up pages, multiple gatefolds etc.,” Fran├žois Olivier, a Transcontinental executive, told a newspaper industry gathering in 2007.

The San Francisco and Montreal plants are each getting three of MAN Roland’s Colorman XXL presses, which print blanket to blanket in a 6x2 configuration. The shaftless presses feature many bells and whistles, such as closed-loop color control, automated plate loading, and folders that can be configured for a variety of products. Transcontinental will also run the post-press operations, such as inserting.

Each of the San Francisco presses will be able to produce 48 broadsheet pages, 24 in four color. The three similarly sized Montreal presses will be able to print four colors on every page and will be rated at 90,000 tabloids per hour when operating in a “double” (that is, "straight" or two out) configuration, MAN Roland says.

The first printer to use MAN Roland’s hybrid press technology, Verlagsgruppe Passau GmbH (VGP) in Germany, reports that the ability to mix heatset and coldset in the same product has attracted additional advertisers to a newspaper it prints. (See Newspapers & Technology’s excellent interview with the two of the printer’s executives.) But it has also struggled with learning heatset; for example, it was surprised to discover that maximum ink densities varied by paper stock.

Transcontinental doesn’t face the challenge of learning about SWOP standards the hard way because it already has extensive experience with heatset web offset. And it should be encouraged by VGP’s report that its costs for heatset and coldset on the hybrid press are nearly identical.

Saturday, January 3, 2009

Port Hawkesbury's Near-Death Experience

Last year was a disaster for many North American paper mills but saw a spectacular turnaround for one -- NewPage's Port Hawkesbury, Nova Scotia mill.

When NewPage bought the mill, along with seven U.S. mills, from Stora Enso just over a year ago, Port Hawkesbury's mayor said he was "scared to death" about the mill's future. Even before the NewPage deal was announced, some customers shifted business to other mills, not wanting to rely too heavily on an operation that was reportedly losing money and seemed likely to be shut.

Now both the supercalendered (SCA) and newsprint machines at the mill seem to be running close to full and the mill is actually doing something almost unheard of these days -- hiring new employees.

The change of fortune for the supercalendered (SCA) and newsprint mill can be explained largely with two words – loonie and Katahdin.

Shortly before NewPage completed the acquisition of the mill just over a year ago, it noted that Port Hawkesbury was unprofitable because most of its expenses were in expensive Canadian loonies but most of its revenue was in cheap U.S. dollars. Since then, the loonie has weakened about 20% versus the U.S. dollar.

The closure of Katahdin’s supercalendered (SCA) mill in Millinocket, Maine this past summer kept the North American market for SCA firm despite declining demand. Katahdin, controlled by Brookfield Asset Management, has said it would reopen the mill if it can retrofit its inefficient oil-fired burner with a biomass gasifier that would enable it to generate electricity for sale. (See "Katahdin may enter green energy business.") But unless Millinocket is sold to another paper maker, Katahdin’s erratic marketing and poor communication with customers will make restarting the mill difficult despite its modern technology, high-quality paper, and high labor efficiency.

Rising prices for coated groundwood paper pushed some users to look for savings this year by switching to SCA. Port Hawkesbury's world-class SCA machine is noted for heatset-offset products that look and perform like coated groundwood -- with similar inks, press speeds, and waste levels as coated #5 paper.

Unlike the SCA machine, Port Hawkesbury's older newsprint machine did not seem to have any competitive advantages. After a labor dispute and high energy costs idled the mill for most of 2006 and caused Stora to abandon the North American newsprint market, prospects for the newsprint machine seemed especially bleak.

But even that albatross is flying. NewPage has developed a high-bright newsprint that can run on heatset-offset presses, making it a competitor to the sort of soft-nip and low-grade supercalendered papers often used for fliers and newspaper inserts. Mill closures and changes – such as Irving Paper’s virtual abandonment of SCC and SCB to make higher-priced SCA – opened up opportunities for the Port Hawkesbury product.