The accounting geniuses at the U.S. Postal Service calculate that the cost of delivering a publication rose 6% in the past year, despite lighter copy weights and various efficiency moves.
As a result, the Periodicals class was even more of a money loser in Fiscal Year 2009 than in FY 2008, according to the annual compliance report the USPS released yesterday. The class covered only 76.1% of its costs during the year that ended Sept. 30, down from 84.0% the previous year, according to Postal Service calculations.
Those results will fuel claims that Periodicals rates should be increased drastically so that publishers bear their fair share of Postal Service costs.
But the numbers will also bolster arguments that the Postal Service’s system of assigning costs to particular classes of mail is fatally flawed, especially in the case of Periodicals. (See For Periodicals, The Postal Service’s Math Doesn’t Add Up for an explanation of "automation refugees" and other flaws in the way the USPS assigns costs to the Periodicals class.)
The alleged 6% increase occurred during a period in which publications got lighter, co-mail adoption increased, and the Flats Sequencing System began taking on significant volumes -- all of which should have decreased the cost per copy. Nevertheless, the USPS reports that its average cost of handling a periodical increased from 31.7 cents to 33.7.
The new report might also prompt another look at the rules and rates that lead to inefficient Periodicals mailings. One area of focus might be the shipping of publications in sacks rather than on pallets because the USPS has recently become more aware of sacked mail’s high costs. A correspondent noted that a mailing of 500,000 catalogs (Standard class) is usually 100% palletized and dropshipped, while even huge 10-million-plus magazine co-mail pools typically create hundreds of sacks that generally are not dropshipped.
Periodicals volume dropped 8% and revenue 10% during the year. Although Periodicals rates rose about 4% in May, Periodicals revenue per piece declined 3% during the year as a result of fewer ad pages and lighter copies.
One bright spot was a 3% increase in the number of “in-county” Periodicals copies delivered by the Postal Service. Those are mostly small, non-daily newspapers, which have held up better during the recession than have big-city dailies. Some have recently switched from using a carrier force to the USPS for delivering their copies.
See also Can the Postal Service Still Afford Periodicals? for an explanation of why the USPS is better off with Periodicals than without, despite what its cost studies say.
Wednesday, December 30, 2009
Friday, December 25, 2009
Why Planting Trees Is Not Necessarily Green
A leading biologist says that encouraging the planting of trees can lead to ecological disaster while in some cases the cutting of trees helps preserve the environment.
Dr. Bernd Heinrich's recent op-ed piece in The New York Times ridicules "easily duped bleeding-heart 'environmentalists,' who absolutely love tree planting because it sounds so 'green.'" In a forest, there is no need for people to plant trees, he explains, sounding a bit like Dead Tree Edition, only more eloquent and knowledgeable.
"A forest is an ecosystem. It is not something planted. A forest grows on its own," writes Heinrich, emeritus professor of biology at the University of Vermont and an author of numerous books about biology and ecology. "When a tree falls, the race is on immediately to replace it. In the forests I study, there are so many seeds and seedlings that if a square foot of ground space opens up, more than a hundred trees of many different species compete to grow there."
The Kyoto Protocol set a bad precedent by allowing carbon credits for planting trees but not for preserving forests, Heinrich says. That has created incentives to clear-cut forests and replace them with single-species tree farms that have "to be ever coddled with fertilizers, herbicides, pesticides and fungicides."
He notes that forests are more likely to be preserved if they have economic value -- a truth that the environmental movement so often fails to grasp.
"I admit that those of us who really do care about forests have not exactly been helpful. We have not encouraged selective harvesting from naturally occurring stands, which may be necessary," Heinrich says.
For more on this subject, please see:
"A forest is an ecosystem. It is not something planted. A forest grows on its own," writes Heinrich, emeritus professor of biology at the University of Vermont and an author of numerous books about biology and ecology. "When a tree falls, the race is on immediately to replace it. In the forests I study, there are so many seeds and seedlings that if a square foot of ground space opens up, more than a hundred trees of many different species compete to grow there."
The Kyoto Protocol set a bad precedent by allowing carbon credits for planting trees but not for preserving forests, Heinrich says. That has created incentives to clear-cut forests and replace them with single-species tree farms that have "to be ever coddled with fertilizers, herbicides, pesticides and fungicides."
He notes that forests are more likely to be preserved if they have economic value -- a truth that the environmental movement so often fails to grasp.
"I admit that those of us who really do care about forests have not exactly been helpful. We have not encouraged selective harvesting from naturally occurring stands, which may be necessary," Heinrich says.
For more on this subject, please see:
Friday, December 18, 2009
Mamas, don’t let your babies grow up to be mail sorters
Several industries and occupations related to printed materials will be among those with the worst job losses through 2018, a new government report predicts. As if we didn’t already know that.
The Postal Service, printing, and newspaper publishing will be in the top 10 for employment declines between 2008 and 2018, the Bureau of Labor Statistics report says.
The 30 occupations with the largest projected decreases during that period include “postal service mail sorters, processors, and processing machine operators” (-30%); “paper goods machine setters, operators, and tenders” (-21%); “postal service clerks” (-18%); and “mail clerks and mail machine operators, except postal service” (-11%).
Oddly enough, the predictions, if accurate, might actually be good news for some of the industries and their employees. They indicate that the rapid employment declines of the past year will taper off.
For example, the report predicts the U.S. Postal Service’s employment will decline 13%, from 748,000 in 2008 to 650,000 in 2018; USPS is already about halfway there. Postal officials’ presentations indicate they will finish 2010 with about 650,000 employees, and it seems likely that downsizing will continue in subsequent years.
However, the BLS does seem to be on target with its projection that the bulk of USPS job cuts will occur among non-supervisory employees who do not deliver the mail. Letter carriers, it predicts, will decrease by only 1% and represent the vast majority of new USPS hires.
The projected decreases of 25% for newspapers and 16% for printers don’t seem so big when you consider the cuts they have already made during this recession-racked year. And the 8% decrease in “reporters and correspondents” since 2008 has probably already happened.
For further reading:
The Postal Service, printing, and newspaper publishing will be in the top 10 for employment declines between 2008 and 2018, the Bureau of Labor Statistics report says.
The 30 occupations with the largest projected decreases during that period include “postal service mail sorters, processors, and processing machine operators” (-30%); “paper goods machine setters, operators, and tenders” (-21%); “postal service clerks” (-18%); and “mail clerks and mail machine operators, except postal service” (-11%).
Oddly enough, the predictions, if accurate, might actually be good news for some of the industries and their employees. They indicate that the rapid employment declines of the past year will taper off.
For example, the report predicts the U.S. Postal Service’s employment will decline 13%, from 748,000 in 2008 to 650,000 in 2018; USPS is already about halfway there. Postal officials’ presentations indicate they will finish 2010 with about 650,000 employees, and it seems likely that downsizing will continue in subsequent years.
However, the BLS does seem to be on target with its projection that the bulk of USPS job cuts will occur among non-supervisory employees who do not deliver the mail. Letter carriers, it predicts, will decrease by only 1% and represent the vast majority of new USPS hires.
The projected decreases of 25% for newspapers and 16% for printers don’t seem so big when you consider the cuts they have already made during this recession-racked year. And the 8% decrease in “reporters and correspondents” since 2008 has probably already happened.
For further reading:
- The BLS news release, which lists the top 10 industries and top 30 occupations for both job gains and losses.
- The full study on which the news release is based.
- Mail Volumes Have Declined Faster Than The Postal Workforce, But That Might Change, which presents details of actual and projected employment declines at the Postal Service.
Thursday, December 17, 2009
Green Publishing Quiz
An abbreviated version of this article appears in the December issue of Publishing Executive magazine under the title “Looking to Make Your Magazines ‘Greener’? – Take This Quiz First”. Yeah, that’s right, I’ve actually written something for a real dead tree edition of a magazine, though you can also check it out on PubExec’s dead dinosaur edition. Although geared to magazines, the quiz is relevant to other printed materials, especially catalogs.
I started trying some years ago to make the magazines on which I work more environmentally friendly, but there was a big problem: Me.
It took me a long time to realize that much of what I believed regarding the environmental impact of magazine publishing was misguided or just plain wrong. The realization that I'm "an environmental idiot" has inspired me to devote many of the articles at Dead Tree Edition to publishing-related environmental issues.
Rather than subjecting you to another let’s-all-go-green pep talk, I compiled the following quiz to help you recognize gaps in your knowledge. I hope it provides you useful information you can use to make informed decisions about the environment.
Q: Which of the following constitutes the largest portion of the typical American magazine’s carbon footprint?
a) Printing
b) Distributing the magazine, including freight and postal services
c) Paper manufacturing
d) Cutting the trees to produce the paper
e) The hot air generated by loquacious writers and pompous editors.
A: (C), paper manufacturing. A study commissioned by Time Inc. found that 77% of one magazine’s carbon footprint and 61% of another’s occurred in the manufacturing of pulp and paper. Subsequent studies by others have reached similar conclusions. Making paper is an energy-intensive process, with some mills generating more than a ton of carbon dioxide and equivalents for every ton of paper they produce.
Q: True or false, anything you do to make your publication greener will cost you money.
A: False. Here are some things you can do that won’t cost you a dime or that might even save you money:
• Display a “Please Recycle This Magazine” logo prominently in your publication. Magazine Publishers of America offers free downloads of the logo, even to non-members, as well as several public service announcements.
• Have the paper you purchase shipped in full railcars. See Use Rail to Lower Your Carbon Footprint for more on this potentially money-saving tactic.
• Use Gray Component Replacement (GCR) to reduce ink consumption. Money-Saving Trend: Using GCR to Reduce Ink Consumption explains how.
• Check whether you are using the optimal roll sizes of paper. It’s amazing how often printers quote, and publishers use, roll sizes that are wider than necessary.
• Ask your paper suppliers what they are doing to minimize their carbon footprint. The more they hear that customers are concerned about this, the more they will focus on reducing their emissions of greenhouse gases.
• An obvious one: Print as little as you need. Clean up mailing lists. Reduce newsstand shipments to underperforming locations. Eliminate unnecessary office and inventory copies.
Q: Which has a lower carbon footprint:
a) Paper made nearby at a mill with a high carbon footprint, or
b) Paper shipped halfway across the continent from a low-carbon mill?
A: While generalizations are always dangerous (How’s that for a generalization?), the answer is almost always (b). Transport of paper to printing plants is a tiny portion of the typical magazine’s carbon footprint, while paper manufacturing usually accounts for the majority. The variation in carbon footprint from one mill to another is much greater than the total footprint of the freight. The Time Inc.-commissioned study put transport to the printer at only about 1% to 2% of the total footprint.
Q: Is it easy to compare the carbon footprints of two competing paper mills?
A: Not at all. For example, if you include the carbon footprint of electricity used by mills, you will penalize those that are located in areas where the utilities happen to rely on coal. But if you don’t, you will fail to recognize those that generate green power on site through hydroelectric dams or other means. Rather than looking for a single number from a paper supplier, you should discuss what comprises that footprint, what the mill is doing to reduce its environmental impact, and what you as a customer can do to help.
Q: True or false, environmentally preferable paper always has high PCW (post-consumer waste) content.
A: False. Using PCW in North America to make magazine-quality paper can actually be bad for the environment if it involves “up-cycling”, as explained in I'm an environmental idiot!. Using large amounts of recycled pulp is especially challenging in lightweight papers, which can still be a good choice environmentally because of their efficient use of pulp. By the way, the U.S. is one of the few countries that distinguishes between PCW and other waste; in most of the world, recycled paper is recycled paper.
Q: When you buy paper that has virgin content, you should favor suppliers who promise to plant one tree for every one they harvest, right?
A: Wrong. Generally speaking, there is no need to plant trees in a sustainably managed forest, as Cutting some trees but saving the forest explains. And Illegal Logging in Indonesia: Not Funny shows that tree-planting programs can indicate unsustainable forestry.
Q: Does all sustainably harvested fiber have a certification from an organization like the Forest Stewardship Council or the Sustainable Forestry Initiative?
A: No. There is plenty of sustainable forestry that is not certified. That’s especially true in places like Maine and Finland where much of the forest is in the hands of small landowners because the FSC and SFI guidelines are more suited to large corporate and government land owners. There has also been criticism of the forestry practices of some certified logging operations, though it’s hard to separate fact from fiction because the certification organizations seem to be putting more resources into fighting each other than into promoting sustainable forestry. Still, using paper with certified fiber is the easiest way to ensure it comes from sustainable forestry.
Q: Are printers and paper mills that have chain-of-custody certification more environmentally friendly than those that don’t?
A: Not necessarily. CoC certification has nothing to do with an organization’s environmental practices, just its ability to track which fiber or paper was used on a particular job. Only certification of specific paper -- not of a mill or printing plant -- matters.
Q: Does the harvesting of trees in North America cause or prevent deforestation?
A: Both. Larry Selzer, president and CEO of The Conservation Fund, explains how logging can prevent deforestation: “We know that forests offering value economically and socially are more likely to continue offering value environmentally. And the economic value is an added incentive for owners to manage their forests with care, and to maintain them as forest rather than selling them for profit -- which often results in the forests being turned into malls or subdivisions.” Logging can cause environmental damage but rarely leads to true deforestation, which is the permanent loss of forest. Agriculture and development are more common causes of deforestation.
Q: Does delivering content electronically rather than in printed products save trees and help the environment?
A: Not necessarily. Data centers and electronic gadgets are huge consumers of electricity. While paper mills often rely heavily on renewable resources for their power, conventional electricity typically comes from coal or petroleum. That’s why I refer to digital content as “dead dinosaur editions” (as opposed to ink-on-paper “dead tree editions”). The mountaintop-removal method of coal mining and the processing of oil sands for petroleum are both significant sources of deforestation in North America. See Smackdown: Printed Editions vs. Digital Editions for more on how the environmental footprint of dead-dinosaur editions compares with that of printed editions.
Q: Will publishers that make their products more environmentally sustainable be more profitable as a result?
A: Some people take it as an act of faith that “Green business is good business”, but they don’t seem to be the ones actually making the magazine industry greener. Guy Gleysteen, who heads up production for North America’s largest magazine publisher, Time Inc., says going green is “about doing the right thing” because a publisher’s sustainability efforts “are not readily described in one or two lines that would appeal to a consumer.”
And just because some advertisers are touting their green efforts, don’t expect that to influence how they advertise. For the most part, the decisions about where to advertise are still placed in the hands of 23-year-old media buyers who have only been told to compare CPMs (cost per thousand), not carbon footprints.
Let's hope some day our customers demand that we be green. And let's be ready for that day.
I started trying some years ago to make the magazines on which I work more environmentally friendly, but there was a big problem: Me.
It took me a long time to realize that much of what I believed regarding the environmental impact of magazine publishing was misguided or just plain wrong. The realization that I'm "an environmental idiot" has inspired me to devote many of the articles at Dead Tree Edition to publishing-related environmental issues.
Rather than subjecting you to another let’s-all-go-green pep talk, I compiled the following quiz to help you recognize gaps in your knowledge. I hope it provides you useful information you can use to make informed decisions about the environment.
Q: Which of the following constitutes the largest portion of the typical American magazine’s carbon footprint?
a) Printing
b) Distributing the magazine, including freight and postal services
c) Paper manufacturing
d) Cutting the trees to produce the paper
e) The hot air generated by loquacious writers and pompous editors.
A: (C), paper manufacturing. A study commissioned by Time Inc. found that 77% of one magazine’s carbon footprint and 61% of another’s occurred in the manufacturing of pulp and paper. Subsequent studies by others have reached similar conclusions. Making paper is an energy-intensive process, with some mills generating more than a ton of carbon dioxide and equivalents for every ton of paper they produce.
Q: True or false, anything you do to make your publication greener will cost you money.
A: False. Here are some things you can do that won’t cost you a dime or that might even save you money:
• Display a “Please Recycle This Magazine” logo prominently in your publication. Magazine Publishers of America offers free downloads of the logo, even to non-members, as well as several public service announcements.
• Have the paper you purchase shipped in full railcars. See Use Rail to Lower Your Carbon Footprint for more on this potentially money-saving tactic.
• Use Gray Component Replacement (GCR) to reduce ink consumption. Money-Saving Trend: Using GCR to Reduce Ink Consumption explains how.
• Check whether you are using the optimal roll sizes of paper. It’s amazing how often printers quote, and publishers use, roll sizes that are wider than necessary.
• Ask your paper suppliers what they are doing to minimize their carbon footprint. The more they hear that customers are concerned about this, the more they will focus on reducing their emissions of greenhouse gases.
• An obvious one: Print as little as you need. Clean up mailing lists. Reduce newsstand shipments to underperforming locations. Eliminate unnecessary office and inventory copies.
Q: Which has a lower carbon footprint:
a) Paper made nearby at a mill with a high carbon footprint, or
b) Paper shipped halfway across the continent from a low-carbon mill?
A: While generalizations are always dangerous (How’s that for a generalization?), the answer is almost always (b). Transport of paper to printing plants is a tiny portion of the typical magazine’s carbon footprint, while paper manufacturing usually accounts for the majority. The variation in carbon footprint from one mill to another is much greater than the total footprint of the freight. The Time Inc.-commissioned study put transport to the printer at only about 1% to 2% of the total footprint.
Q: Is it easy to compare the carbon footprints of two competing paper mills?
A: Not at all. For example, if you include the carbon footprint of electricity used by mills, you will penalize those that are located in areas where the utilities happen to rely on coal. But if you don’t, you will fail to recognize those that generate green power on site through hydroelectric dams or other means. Rather than looking for a single number from a paper supplier, you should discuss what comprises that footprint, what the mill is doing to reduce its environmental impact, and what you as a customer can do to help.
Q: True or false, environmentally preferable paper always has high PCW (post-consumer waste) content.
A: False. Using PCW in North America to make magazine-quality paper can actually be bad for the environment if it involves “up-cycling”, as explained in I'm an environmental idiot!. Using large amounts of recycled pulp is especially challenging in lightweight papers, which can still be a good choice environmentally because of their efficient use of pulp. By the way, the U.S. is one of the few countries that distinguishes between PCW and other waste; in most of the world, recycled paper is recycled paper.
Q: When you buy paper that has virgin content, you should favor suppliers who promise to plant one tree for every one they harvest, right?
A: Wrong. Generally speaking, there is no need to plant trees in a sustainably managed forest, as Cutting some trees but saving the forest explains. And Illegal Logging in Indonesia: Not Funny shows that tree-planting programs can indicate unsustainable forestry.
Q: Does all sustainably harvested fiber have a certification from an organization like the Forest Stewardship Council or the Sustainable Forestry Initiative?
A: No. There is plenty of sustainable forestry that is not certified. That’s especially true in places like Maine and Finland where much of the forest is in the hands of small landowners because the FSC and SFI guidelines are more suited to large corporate and government land owners. There has also been criticism of the forestry practices of some certified logging operations, though it’s hard to separate fact from fiction because the certification organizations seem to be putting more resources into fighting each other than into promoting sustainable forestry. Still, using paper with certified fiber is the easiest way to ensure it comes from sustainable forestry.
Q: Are printers and paper mills that have chain-of-custody certification more environmentally friendly than those that don’t?
A: Not necessarily. CoC certification has nothing to do with an organization’s environmental practices, just its ability to track which fiber or paper was used on a particular job. Only certification of specific paper -- not of a mill or printing plant -- matters.
Q: Does the harvesting of trees in North America cause or prevent deforestation?
A: Both. Larry Selzer, president and CEO of The Conservation Fund, explains how logging can prevent deforestation: “We know that forests offering value economically and socially are more likely to continue offering value environmentally. And the economic value is an added incentive for owners to manage their forests with care, and to maintain them as forest rather than selling them for profit -- which often results in the forests being turned into malls or subdivisions.” Logging can cause environmental damage but rarely leads to true deforestation, which is the permanent loss of forest. Agriculture and development are more common causes of deforestation.
Q: Does delivering content electronically rather than in printed products save trees and help the environment?
A: Not necessarily. Data centers and electronic gadgets are huge consumers of electricity. While paper mills often rely heavily on renewable resources for their power, conventional electricity typically comes from coal or petroleum. That’s why I refer to digital content as “dead dinosaur editions” (as opposed to ink-on-paper “dead tree editions”). The mountaintop-removal method of coal mining and the processing of oil sands for petroleum are both significant sources of deforestation in North America. See Smackdown: Printed Editions vs. Digital Editions for more on how the environmental footprint of dead-dinosaur editions compares with that of printed editions.
Q: Will publishers that make their products more environmentally sustainable be more profitable as a result?
A: Some people take it as an act of faith that “Green business is good business”, but they don’t seem to be the ones actually making the magazine industry greener. Guy Gleysteen, who heads up production for North America’s largest magazine publisher, Time Inc., says going green is “about doing the right thing” because a publisher’s sustainability efforts “are not readily described in one or two lines that would appeal to a consumer.”
And just because some advertisers are touting their green efforts, don’t expect that to influence how they advertise. For the most part, the decisions about where to advertise are still placed in the hands of 23-year-old media buyers who have only been told to compare CPMs (cost per thousand), not carbon footprints.
Let's hope some day our customers demand that we be green. And let's be ready for that day.
Wednesday, December 16, 2009
Illegal Logging in Indonesia: Not Funny
A government official in Indonesia has now acknowledged what environmental groups have been saying for years: The country’s enforcement of logging laws is a joke.
West Kalimantan Governor Cornelis was supposed to present “a key environmental speech” last week in support of the country’s “One Man, One Tree” effort to promote voluntary tree planting, the Jakarta Globe reports. But he kept getting interrupted by huge logging trucks rumbling by.
“If we ask the drivers, I don’t think they will have permits,” he laughed as two trucks rolled by. Finally, he ordered police to block any logging trucks until his speech was finished.
Legal or illegal, certified or not, logging has generally been an environmental nightmare in Indonesia, which has lost an estimated 70% of its original forest cover. And the tree-planting efforts ballyhooed by the government are mostly for single-species plantations that replace clear-cut natural forests.
Plans are already afoot in Indonesia to game the proposed REDD (Reducing Emissions from Deforestation and Forest Degradation in Developing Countries) program being debated in Copenhagen, reports Angela Dewan for NewMatilda.com. The plans involve clearing tropical rainforests (in some cases releasing greenhouse gases from the peat swamps), replacing them with “sustainable” tree plantations, and then collecting REDD credits for operating the plantations in a sustainable way.
Don’t count on the Indonesian government to stand in the way. Many have documented and described its rampant corruption -- none better than a farmer Dewan interviewed named Muhamad Nasir:
"When the government sends us a buffalo, by the time it gets here, all that is left is the tail.”
West Kalimantan Governor Cornelis was supposed to present “a key environmental speech” last week in support of the country’s “One Man, One Tree” effort to promote voluntary tree planting, the Jakarta Globe reports. But he kept getting interrupted by huge logging trucks rumbling by.
“If we ask the drivers, I don’t think they will have permits,” he laughed as two trucks rolled by. Finally, he ordered police to block any logging trucks until his speech was finished.
Legal or illegal, certified or not, logging has generally been an environmental nightmare in Indonesia, which has lost an estimated 70% of its original forest cover. And the tree-planting efforts ballyhooed by the government are mostly for single-species plantations that replace clear-cut natural forests.
Plans are already afoot in Indonesia to game the proposed REDD (Reducing Emissions from Deforestation and Forest Degradation in Developing Countries) program being debated in Copenhagen, reports Angela Dewan for NewMatilda.com. The plans involve clearing tropical rainforests (in some cases releasing greenhouse gases from the peat swamps), replacing them with “sustainable” tree plantations, and then collecting REDD credits for operating the plantations in a sustainable way.
Don’t count on the Indonesian government to stand in the way. Many have documented and described its rampant corruption -- none better than a farmer Dewan interviewed named Muhamad Nasir:
"When the government sends us a buffalo, by the time it gets here, all that is left is the tail.”
Sunday, December 13, 2009
The 10 Most Common Paper-Purchasing Mistakes
I wrote recently that I was on the verge of publishing “the best article I have ever seen on paper purchasing” when Google’s robots disabled this blog. Here it is, from guest columnist Bill Lufkin, one of the country's top experts on paper buying. As president of Lufkin Strategic Procurement, Bill has helped a wide variety of publishing, catalog, and printing companies save millions of dollars on paper through better purchasing and negotiating practices, as well as helping buyers negotiate new printing contracts. Bill is the former Vice President of Materials Procurement at R.R. Donnelley and has spoken at several industry conferences. Check out LufkinStrategic.com, which offers an additional article on the basic elements of a paper-purchasing strategy and another on how to negotiate a printing contract.With paper being the second largest cost item for most catalog and magazine publishers, avoiding common purchasing mistakes can be one of the best ways to reduce expenses.
Lufkin Strategic Procurement recently completed a proprietary survey of more than 50 catalog and magazine publishers’ paper and print purchasing practices over the past ten years. The study found a number of recurring mistakes that, once corrected, saved some of the publishers millions of dollars.
For paper purchasing, the 10 most common mistakes, in reverse order, were:
10. Not understanding the potential value of paper underconsumption. So often a buyer focuses so heavily on the price per hundredweight that he overlooks the other part of the paper cost equation, the pounds the printer states are needed to produce the job. When catalog or magazine publishers purchase their own paper, most contracts stipulate that underconsumption (that is, using less paper than estimated) will be shared 50/50. On larger runs, 1% or 2 % savings on the waste allowance can be significant dollars. Since the printers are responsible for overconsumption, they tend to be conservative in their estimated pounds requirements. In 27% of the cases in this study, the buyers were not aware that potential underconsumption was a benefit of purchasing their own paper.
9. Publishers avoiding purchasing their own paper fearing that the administration and paper work is complex. This mythical illusion of complexity was an issue in 31% of the cases, influencing the publishers to buy paper through their printers when in many cases it may have been to the publishers strategic and economic advantage to buy their own paper. When a merchant or broker sells the paper to the publisher, much of the “paper work” is handled by the seller.
8. Assuming that the big printer’s volume equates to lower customer paper prices. While some of the large printers are able to secure low contract prices on paper, that doesn’t necessarily mean that the price to the customers will reflect that volume advantage. Again, in 31% of the study cases, this presumption influenced the publisher’s decision to go with printer-purchased paper. Many of the printers treat paper purchasing as a profit center and charge prices as high as the competitive situation will allow.
7. Moderate sized publishers assuming their modest paper volume lacks purchasing power. For 35% of the cases, these publishers thought volume scale was the biggest influence on price negotiation when actually market knowledge and relationships can be equally powerful. In a number of situations, the publisher can take advantage of spot purchases in a soft market through a broker that may equal or beat the large volume contract prices. Even with contract pricing, the price spread between large buyers and moderate-sized buyers isn’t especially large.
6. Receiving a $1.50/cwt. price decrease from the incumbent broker or printer when the market price really went down $2.50. Fifty percent of the time, buyers were so pleased to get a reduction they were unaware the market slide was more dramatic. Likewise, an industry-announced increase of $2.50 passed through to the publisher may have been delayed or reduced to the middleman. A number of printers or brokers use these abrupt price movements as an opportunity to increase their margins. Carefully benchmarking their prices against others can help the buyer keep pace with the competitive environment.
5. Accepting industry-announced price increases when resistance can often delay or reduce the increase. For 58% of the buyers there was a presumption that you could not be successful in fighting an industry-wide price increase. Again, market knowledge and relationships can play an important role in minimizing the impact of upward price movements. Another tactic that can control the pace and magnitude of price escalation is through some form of indexing.
4. Commitment to primary supply contract may preclude occasional spot purchases. A variety of large to small buyers totaling 62% of the cases had aligned 100% of their volume with one or two suppliers and had no tonnage available for opportunistic spot deals. With many publishers’ pages and print orders down substantially, they felt their negotiating leverage had disappeared. We found that a viable solution in several situations was to keep 10% to 15% of their volume uncommitted so they can still enjoy the supply assurance of a contract while taking advantage of spot situations that can help monitor current pricing.
3. Accepting printer’s paper pound requirements that may be padded. For some reason, over 65% of the buyers accepted the printer’s stated requirements without checking the level of waste allowance included. As mentioned earlier, paper is a profit center for many printers, and they are entitled to underconsumption savings when they purchase the paper. A quoted “competitive” price per cwt. may not be advantageous when the pounds billed on the invoice are higher than necessary. Just like manufacturing, paper requirements are negotiable and subject to competitive comparisons. In print contracts that were last negotiated several years ago, allowances that were previously competitive may have become out of line because of improved technology and efficiency gains. A printer is likely to retain such paper savings unless challenged in a competitive environment.
2. Trusting suppliers’ input on competitive market prices. For 77% of the cases, the buyer’s trust was being abused from slightly to significantly by the incumbent printer, broker, or mill. Because it can be cumbersome and time consuming to pursue competitive bidding every quarter, most publishers presume the incumbent supplier is providing valid market pricing input. Monitoring prices through an independent source that is not involved in selling paper is an alternative way to assure your prices stay competitive. If the incumbent supplier knows the buyer is diligently tracking the market, their pricing is more likely to stay within a competitive range. Also, by keeping a modest portion of their volume uncommitted, buyers can occasionally get a new quotation from a challenging supplier.
1. Accepting quarterly price volatility when six-month locks, caps, and/or collars may be available. This number one common mistake was an issue in 85% of the cases. For years paper buyers have become used to the paper industry practice of quarterly price movements. Mills would rarely hold prices for longer periods. Buyers who have been able to soften the volatility of their pricing have generally fared better than those who have ridden the roller coaster of soft and tight markets. Identifying the best strategies and dealing with the most trusted sellers have helped certain buyers save their companies significant dollars. Knowing when the best time to negotiate a longer term deal is critical to the success of these arrangements.
While the 10 mistakes outlined above were the most common, there were several others that came up multiple times and had a significant negative effect on the particular cases involved:
- Fragmentation of volume or suppliers or purchasing authority. Consolidation is still a good idea in most aspects of paper purchasing strategy.
- Choosing paper grades or weights that have higher specifications than necessary for the catalog or magazine’s content. An office supply catalog using a coated freesheet for its body stock is probably spending more money on paper quality than is necessary.
- Allowing printer’s handling and storage charges for customer paper to influence an otherwise prudent decision for publisher to purchase own paper. The paper has to be handled regardless of who purchases it. The charge should be minimal to cover some of the printer’s administrative cost but not so high as to discourage customers from buying their own paper.
- Allowing too many brokers to contact the same mills for bids. Mills will not provide their most competitive bids if they sense a free-for-all approach. A broker who is challenging a printer-purchased paper situation should not contact the incumbent mill.
- Frequent spot purchases may lead to “bottom fisher” label. During very tight markets, the buyers who consistently shop for the lowest spot prices have had difficulty getting supply at any price.
©2009 Lufkin Strategic Procurement. All rights reserved. None of this report may be reprinted without express written consent. www.lufkinstrategic.com.
Thursday, December 10, 2009
Environmentalists Try To Put a Cork Into Black-Liquor Loopholes
Twenty-seven environmental groups are ganging up to bury the black-liquor tax loophole and to prevent “Son of Black Liquor” from being born.
They sent a joint letter this month to EPA Administrator Lisa Jackson asking her not to let “cellulosic biofuel producer credits” subsidize the burning of black liquor by pulp mills. The so-called Son of Black Liquor loophole has the potential to dole out $50 billion to U.S. pulp mills from 2010 to 2012 if the EPA makes a favorable ruling.
Signed by such organizations as Forest Ethics, Green America Better Paper Project, the National Wildlife Federation, and the Natural Resources Defense Council, the letter urges the EPA to declare “that black liquor is not eligible for the cellulosic biofuels producer credit.”
The letter also expresses concern about Wisconsin Congressman Steve Kagen’s recent proposal to extend the original black-liquor loophole rather than allowing it to expire at the end of this year. U.S. pulp mills are on pace to receive more than $8 billion from the U.S. government in 2009 for burning black liquor, a byproduct of the kraft pulping process, to power their mills.
“The original intent of both of these tax credits is to reduce dependence on fossil fuels and incentivize the production and use of domestic alternatives,” the letter says. “Instead, paper companies brazenly crafted a creative yet crude way to dip into the pockets of US taxpayers and are being paid billions for what they have been doing for over 75 years, and would continue to do without the credit.”
The letter cites a Goldman Sachs analysis stating that the “black liquor to gold scheme” is doing the “opposite of what the lawmakers likely had in mind when the tax credit was established” to encourage the use of ethanol and other biofuels. The letter also notes that subsidizing kraft pulp through black-liquor credits creates perverse incentives for paper makers to use virgin rather than recycled pulp.
“Thus, an incentive to increase the use of products that have less impact on our climate had the opposite effect: high energy and carbon intensive virgin paper was rewarded while lower energy and lower carbon recycled paper products were not,” states the letter, which is dated Dec. 4 but not released publicly until this week.
For further reading:
They sent a joint letter this month to EPA Administrator Lisa Jackson asking her not to let “cellulosic biofuel producer credits” subsidize the burning of black liquor by pulp mills. The so-called Son of Black Liquor loophole has the potential to dole out $50 billion to U.S. pulp mills from 2010 to 2012 if the EPA makes a favorable ruling.
Signed by such organizations as Forest Ethics, Green America Better Paper Project, the National Wildlife Federation, and the Natural Resources Defense Council, the letter urges the EPA to declare “that black liquor is not eligible for the cellulosic biofuels producer credit.”
The letter also expresses concern about Wisconsin Congressman Steve Kagen’s recent proposal to extend the original black-liquor loophole rather than allowing it to expire at the end of this year. U.S. pulp mills are on pace to receive more than $8 billion from the U.S. government in 2009 for burning black liquor, a byproduct of the kraft pulping process, to power their mills.
“The original intent of both of these tax credits is to reduce dependence on fossil fuels and incentivize the production and use of domestic alternatives,” the letter says. “Instead, paper companies brazenly crafted a creative yet crude way to dip into the pockets of US taxpayers and are being paid billions for what they have been doing for over 75 years, and would continue to do without the credit.”
The letter cites a Goldman Sachs analysis stating that the “black liquor to gold scheme” is doing the “opposite of what the lawmakers likely had in mind when the tax credit was established” to encourage the use of ethanol and other biofuels. The letter also notes that subsidizing kraft pulp through black-liquor credits creates perverse incentives for paper makers to use virgin rather than recycled pulp.
“Thus, an incentive to increase the use of products that have less impact on our climate had the opposite effect: high energy and carbon intensive virgin paper was rewarded while lower energy and lower carbon recycled paper products were not,” states the letter, which is dated Dec. 4 but not released publicly until this week.
For further reading:
- The letter sent to Jackson, including a list of the 27 organizations that signed it.
- Will the EPA Stop 'Son of Black Liquor'?, which explains why the EPA is crucial to determining whether black liquor can qualify for cellulosic biofuel producer credits.
- Wisconsin Congressman Tries To Extend Black-Liquor Credits, about Rep. Kagen's proposal.
- Less Than Free Enterprise, which links to a report discussing the connection between black-liquor credits and healthcare legislation. It also provides a company-by-company projection of black-liquor credits that pulp and paper companies will earn this year; the total is $8.5 billion, even higher than the $6 to $8 billion estimated in the 27 non-profits' letter to Jackson.
- A report from the Confederation of European Paper Industries to the U.S. Senate providing various examples of how the black-liquor credits “lead to market distortions and constitute unfair competition.”
Wednesday, December 9, 2009
A Storm in the Cloud: Is Google Run By Brain-Dead Robots?
Cloud computing is hot these days, and for most of us The Cloud means Google.
We use Gmail to send and receive messages, GDocs to create or exchange documents, and Google Reader to track our favorite Web sites. Those on the Web check their traffic with Google Analytics and monetize their sites with Google's AdSense. Some of us even use Google’s Blogger to create and host our sites.
All of these services are free – except that they can be very expensive. I found out the hard way:
Seven days ago, without warning or notification, Blogger (AKA Blogspot) disabled my blog. Visitors got a screen saying simply, “The blog you were looking for was not found” without any indication that the blog had ever existed.
My Blogger account had this message: “Blogger's spam-prevention robots have detected that your blog has characteristics of a spam blog. Since you're an actual person reading this, your blog is probably not a spam blog. Automated spam detection is inherently fuzzy, and we sincerely apologize for this false positive.”
I suspect a few recent spammy comments caused the problem, but I wasn’t even able to go into my account to delete those. I went through Google’s process of requesting a review and an appeal but got no response from the Googlopoly except this, “We received your unlock request on December 2, 2009. On behalf of the robots, we apologize for locking your non-spam blog. Please be patient while we take a look at your blog and verify that it is not spam.”
(Brilliant idea: If you've got a customer-service problem, blame it on the robots!)
The timing couldn’t have been worse. Several prominent postal-news Web sites had linked to my Dec. 1 article about the Flats Sequencing System, bringing thousands of visitors. Dead Tree Edition’s coverage of the black-liquor controversy had recently received praise from the Vancouver Sun’s Gordon Hamilton -- who as far as I can tell is the only reporter covering the North American forest products industry full time. A guest columnist had drafted the best article I have ever seen about paper buying. And a magazine that was planning to publish an article I wrote -- with links to Dead Tree Edition for more information -– got cold feet because of the outage.
I posted several messages on Google help forums that got no response except a rather surly one and a fellow blogger agreeing that the site obviously wasn’t spam. Finally, after 5 ½ days, I put in a query that caught the attention of an actual human being -- or maybe a robot that was programmed to mimic the customer-service skills of a Division of Motor Vehicles clerk: “OK, I've put this in Gatsby's queue. Possible resolution tomorrow, if you are not a turkey.”
He (She? It?) then suggested I read his post characterizing Blogger users as hyenas, coyotes, and turkeys – none of them having flattering descriptions. More than 24 hours later, this person or robot notified me that Dead Tree Edition was alive again.
When I started this blog a little more than a year ago, I decided to keep things simple because I didn't know my RSS from a hole in the ground. I chose Blogger assuming it would work well with other Google products and Google search. I also figured the money Google made from AdSense ads would give it an incentive to provide reasonable service even though I pay nothing for Blogger itself.
Two problems:
1) Google is brilliant in some areas but arrogantly incompetent in others. Several competitors have leapfrogged over its neglected Blogger product. And I’m glad I’m not into IM because Gmail’s “Chat” feature seems to be down at least half the time.
2) Google’s products don’t talk to each other well. While the blog was disabled, AdSense and Analytics continued recording visits and clicks at the cached version of Dead Tree Edition. But their bots apparently never said to the Blogger bots, “Hey, traffic and revenue suddenly dropped by more than 99 percent. What the hell is going on?”
So now what? I've already changed the settings so that I have to approve any comment before it is posted. I have learned so much from comments, so I hope that doesn't stifle participation.
I’m still studying the advice and feedback that came in during the past week from various webmasters and editors, which are worth sharing:
We use Gmail to send and receive messages, GDocs to create or exchange documents, and Google Reader to track our favorite Web sites. Those on the Web check their traffic with Google Analytics and monetize their sites with Google's AdSense. Some of us even use Google’s Blogger to create and host our sites.
All of these services are free – except that they can be very expensive. I found out the hard way:
Seven days ago, without warning or notification, Blogger (AKA Blogspot) disabled my blog. Visitors got a screen saying simply, “The blog you were looking for was not found” without any indication that the blog had ever existed.
My Blogger account had this message: “Blogger's spam-prevention robots have detected that your blog has characteristics of a spam blog. Since you're an actual person reading this, your blog is probably not a spam blog. Automated spam detection is inherently fuzzy, and we sincerely apologize for this false positive.”
I suspect a few recent spammy comments caused the problem, but I wasn’t even able to go into my account to delete those. I went through Google’s process of requesting a review and an appeal but got no response from the Googlopoly except this, “We received your unlock request on December 2, 2009. On behalf of the robots, we apologize for locking your non-spam blog. Please be patient while we take a look at your blog and verify that it is not spam.”
(Brilliant idea: If you've got a customer-service problem, blame it on the robots!)
The timing couldn’t have been worse. Several prominent postal-news Web sites had linked to my Dec. 1 article about the Flats Sequencing System, bringing thousands of visitors. Dead Tree Edition’s coverage of the black-liquor controversy had recently received praise from the Vancouver Sun’s Gordon Hamilton -- who as far as I can tell is the only reporter covering the North American forest products industry full time. A guest columnist had drafted the best article I have ever seen about paper buying. And a magazine that was planning to publish an article I wrote -- with links to Dead Tree Edition for more information -– got cold feet because of the outage.
I posted several messages on Google help forums that got no response except a rather surly one and a fellow blogger agreeing that the site obviously wasn’t spam. Finally, after 5 ½ days, I put in a query that caught the attention of an actual human being -- or maybe a robot that was programmed to mimic the customer-service skills of a Division of Motor Vehicles clerk: “OK, I've put this in Gatsby's queue. Possible resolution tomorrow, if you are not a turkey.”
He (She? It?) then suggested I read his post characterizing Blogger users as hyenas, coyotes, and turkeys – none of them having flattering descriptions. More than 24 hours later, this person or robot notified me that Dead Tree Edition was alive again.
When I started this blog a little more than a year ago, I decided to keep things simple because I didn't know my RSS from a hole in the ground. I chose Blogger assuming it would work well with other Google products and Google search. I also figured the money Google made from AdSense ads would give it an incentive to provide reasonable service even though I pay nothing for Blogger itself.
Two problems:
1) Google is brilliant in some areas but arrogantly incompetent in others. Several competitors have leapfrogged over its neglected Blogger product. And I’m glad I’m not into IM because Gmail’s “Chat” feature seems to be down at least half the time.
2) Google’s products don’t talk to each other well. While the blog was disabled, AdSense and Analytics continued recording visits and clicks at the cached version of Dead Tree Edition. But their bots apparently never said to the Blogger bots, “Hey, traffic and revenue suddenly dropped by more than 99 percent. What the hell is going on?”
So now what? I've already changed the settings so that I have to approve any comment before it is posted. I have learned so much from comments, so I hope that doesn't stifle participation.
I’m still studying the advice and feedback that came in during the past week from various webmasters and editors, which are worth sharing:
- “You should look at hosting the blog yourself or use something like Wordpress.com or Typepad. BlogSpot is too much BS.” (This being a very part-time venture, I don't relish the thought of moving everything to a different site and changing software.)
- “Do not resist. You will be assimilated."
- “For what it's worth, I use Blogger.com to produce [a website], but I don't use Blogspot to host it."
- “If you have copies of your articles that you can post elsewhere (posterous.com is a good option), let me know and I'll pass the word.” (Posterous is an interesting service, but I don’t see a business model for posting my stuff there – not that I have much of a business model now.)
- Two sites offered to host the blog, but the business model there is a bit murky because not all of the content is suited to either site. Maybe I could cut Dead Tree Edition up and pass the parts around to different Web sites – one for postal stuff, another for paper articles, a third for environmental reporting, etc. Not sure if any legitimate site would want the infamous “cardboard porn” series or other humor items.
- “Google, as you know, practically owns the Internet -- or at least they think they do. I don't know how you got in touch with them for an explanation...they try very hard not to give you anything but 'see our forums.'”
- “I would strongly advise purchasing web hosting to have better control.”
- “Get off Blogger.”
- “I sometimes will run across such a problem with my websites, and because everything is automated, it's hard if not impossible to speak to an actual person.”
- “I hate Google.”
- "I hope the outage is 'only a flesh wound' and that you are 'not dead yet'," wrote a fellow Monty Python fan.
Tuesday, December 1, 2009
Flats Sequencing Forecast: Cloudy With a Chance of Bravado
Despite equipment problems, schedule delays, and evidence of engineering miscues, postal officials are eagerly moving ahead with installation of the Flats Sequencing System.
The U.S. Postal Service’s recently released annual report says FSS “is revolutionizing the way we process flat-size mail, such as magazines and catalogs, by sorting it in the order in which it’s delivered by carriers. This new technology will deliver high-impact efficiency and improve mail processing, and make sure customers get even more value from the mail.”
Other recent USPS statements and presentations about FSS have been equally positive, generally ignoring such negatives as two failed acceptance tests and the reported replacement of the engineers who designed the system. The huge machines definitely seem to be reducing the Postal Service’s operating costs; the question is whether the savings will be great enough to justify the roughly $1 billion investment.
Below is a roundup of recent items about the Flats Sequencing System. Further information about FSS can be found at The Unofficial Guide to Flats Sequencing.
The U.S. Postal Service’s recently released annual report says FSS “is revolutionizing the way we process flat-size mail, such as magazines and catalogs, by sorting it in the order in which it’s delivered by carriers. This new technology will deliver high-impact efficiency and improve mail processing, and make sure customers get even more value from the mail.”
Other recent USPS statements and presentations about FSS have been equally positive, generally ignoring such negatives as two failed acceptance tests and the reported replacement of the engineers who designed the system. The huge machines definitely seem to be reducing the Postal Service’s operating costs; the question is whether the savings will be great enough to justify the roughly $1 billion investment.
Below is a roundup of recent items about the Flats Sequencing System. Further information about FSS can be found at The Unofficial Guide to Flats Sequencing.
- Behind Original Schedule: Eleven machines are up and running in four locations, while another 16 are being installed in nine other facilities, according to postal officials. (See the recent presentation to MTAC for details.) A year ago, the schedule called for about one-third of the 100 Phase I machines to be running by now, but equipment problems and a need to rework the plan in light of volume decreases has put Phase I about six months behind that schedule. Phase I is now to be completed in 2011 rather than late 2010.
- Replaced Engineers?: Postalnewsblog.com included this in a summary of a late October meeting between postal officials and USPS management associations: "The current FSS deployment has been plagued by software issues. The USPS will continue its plans to install equipment but the actual deployment from a use standpoint must be resolved by the contractors. DPMG Donahoe advised that the USPS is working with the contractors to resolve the bugs in the system and that the contractor has replaced all of the engineers who have been working to correct the bugs." Financial statements of the contractor, Northrop Grumman, reveal nothing about the problems.
- Full Speed Ahead: USPS is moving forward with FSS installation despite the Office of Inspector General's recommendation that it install only one more machine "until the system demonstrates operational stability and sucessfully passes the field acceptance test." (See Can the Flats Sequencing System Be Fixed? for more details.) FSS improved in its second acceptance test but still failed; results of the third test have not been revealed.
- Good Results: "We exceed 98% quality on a daily basis," Deputy Postmaster General Pat Donahoe said in a recent video. USPS learned from the mistakes that were made on delivery-point sequencing of letters, enabling it to have a smooth start-up of machines, he said.
- No News Is Good News: As far as mailers are concerned, FSS has been a non-event so far. Most indications are that service has not suffered and that there have been no other major problems where FSS has been implemented.
- Volume Down: The volume of flat mail declined nearly 14% during the fiscal year that ended Sept. 30, with a smaller decline projected for the current fiscal year. The original FSS plan assumed stable or rising volume, but flats mail has declined about 35% in the past three years. As a result, the 100 Phase I machines are being deployed in 42 locations rather than the 32 in the original plan. (See Declining Volumes Lead to FSS Expansion for details.) A revised deployment schedule has been "under development" for several months.
- More Street Time: FSS is meeting its goal of giving letter carriers "less time in the office, more time on the street," Donahoe said in the video. Carriers who used to case (sort) seven to eight feet of flats are now casing one to two feet, he said.
- A Few Tweaks: "An ergonomic stowage and retrieval system has been designed for delivery vehicles receiving FSS flats with a limited deployment set for 2010. An FSS optimization effort is underway in Northern Virginia to streamline current operations and reduce manual processing of flats," according to USPS's recent 2009 Comprehensive Statement on Postal Operations.
- Site Deployment: "FSS deployment requires precise integration of facility expansions, operational moves, equipment migrations, equipment disposals, and site preparation activities including training and staffing. Site readiness in all 31 original Phase 1 locations is complete," the operations report says.
- Change of Location: Postal officials revealed two weeks ago that San Diego is replacing San Francisco as a Phase I location. There was no word on whether that meant Bay Area flats sorting would be consolidated into San Jose, which is slated for four Phase I machines.
- Delayed Rate and Regulation Changes?: Eventually, mailers will package flats for FSS areas differently (e.g. larger bundles, no carrier-route bundles) than non-FSS areas and will presumably have a different price structure for FSS. There was talk that the new packaging regulations and the accompanying rate changes would be implemented in 2010, but the Postal Service's promise not to change rates for most classes of mail next year probably means a 2011 implementation.
Wednesday, November 25, 2009
Everything You Need To Know About Full-Service Intelligent Mail Discounts
The U.S. Postal Service has some mailers in a panic because it is reportedly planning to issue complex, last-minute changes to the rules for Full-Service Intelligent Mail discounts.
Not to worry: After getting a sneak peak at the rules that will supposedly be released Friday to mailers and to the employees who will enforce the rules, Dead Tree Edition offers this simple, exclusive analysis: Using Full-Service Intelligent Mail barcodes (IMbs, AKA FUBAR codes) is like having a first-class cabin on a luxurious cruise ship -- The Titanic.
In The Postage Discount No Mailer Wants, Dead Tree Edition explained two days ago a few of the ways the FUBAR code has been a disaster so far. As if to underscore that article's point, postal officials revealed to some mailers today a number of rules changes that they might announce on Friday for implementation three days later on what Lisa Bowes at Intelisent is calling Black Monday. The Association for Postal Commerce (PostCom) noted that the proposed changes have to do with "Full-Service IMb Verification procedures and error tolerances and postage consequences.
Bowes sums up postal executives' thinking on the FUBAR code this way: "Let’s acknowledge that there are major issues with Intelligent Mail, but proceed as if 'everything is fine' anyway."
Another of her top ten thoughts today from the "Intelligent Mail think tank": "Let’s write and then continually edit/update at least a dozen different guides and specifications necessary to do Full Service Intelligent Mail."
I know what you're thinking: "OK, Mr. Tree, I'm so interested in these new rules that I can't wait until Friday. I've already called my relatives to tell them I'm skipping Thanksgiving dinner to get to work on this, so give me the details."
Here you go: They're rearranging the chairs on the deck, and the captain insists on trying to break the record for fastest crossing of the Atlantic. Yes, this will be an historic trip. No, you don't want to be on it.
For the foreseeable future, that's all you need to know about Full-Service Intelligent Mail.
Not to worry: After getting a sneak peak at the rules that will supposedly be released Friday to mailers and to the employees who will enforce the rules, Dead Tree Edition offers this simple, exclusive analysis: Using Full-Service Intelligent Mail barcodes (IMbs, AKA FUBAR codes) is like having a first-class cabin on a luxurious cruise ship -- The Titanic.
In The Postage Discount No Mailer Wants, Dead Tree Edition explained two days ago a few of the ways the FUBAR code has been a disaster so far. As if to underscore that article's point, postal officials revealed to some mailers today a number of rules changes that they might announce on Friday for implementation three days later on what Lisa Bowes at Intelisent is calling Black Monday. The Association for Postal Commerce (PostCom) noted that the proposed changes have to do with "Full-Service IMb Verification procedures and error tolerances and postage consequences.
Bowes sums up postal executives' thinking on the FUBAR code this way: "Let’s acknowledge that there are major issues with Intelligent Mail, but proceed as if 'everything is fine' anyway."
Another of her top ten thoughts today from the "Intelligent Mail think tank": "Let’s write and then continually edit/update at least a dozen different guides and specifications necessary to do Full Service Intelligent Mail."
I know what you're thinking: "OK, Mr. Tree, I'm so interested in these new rules that I can't wait until Friday. I've already called my relatives to tell them I'm skipping Thanksgiving dinner to get to work on this, so give me the details."
Here you go: They're rearranging the chairs on the deck, and the captain insists on trying to break the record for fastest crossing of the Atlantic. Yes, this will be an historic trip. No, you don't want to be on it.
For the foreseeable future, that's all you need to know about Full-Service Intelligent Mail.
Sunday, November 22, 2009
The Postage Discount No Mailer Wants
For an update of this article, please see Everything You Need To Know About Full-Service Intelligent Mail.
With less than a week to go before a new postage discount debuts, knowledgeable mailers want nothing to do with the new program.
It’s officially called the full-service Intelligent Mail barcode (IMb). But as the horror stories and unresolved problems rack up, Dead Tree Edition hereby dubs it the FUBAR (Failed Unbelievably Bureaucratic Addressing Regulations) code. Those of you with military experience know another meaning for FUBAR, and the IM program certainly fits that definition as well.
“Most, if not all, Standard Mailers are steering clear of Full Service ACS [address correction],” Lisa Bowes wrote recently at Intelisent’s Postal Affairs Blog. “Full Service ACS may be pretending to be ready for prime time, but the reviews so far are negative.”
Many Periodicals mailers are also spooked about the Intelligent Mail program after hearing how it cost Time Inc. more than $90,000 in duplicate address-change charges in a period of just two months. Newsweek, often a leader on postal issues in the magazine industry, spread the word among publishers a few months ago that it was not putting any more resources into Intelligent Mail.
Postal officials in charge of the much-delayed IM program gave their usual everything-is-on schedule presentation at last week’s Mailers Technical Advisory Committee meeting. (“This ship is unsinkable! Ooh, look at the pretty iceberg.”) And once again they baffled mailers with yet another broken promise. The Association for Postal Commerce (Postcom) summarized the situation this way:
“Despite the Postal Service’s repeated assurances that it would not establish error tolerances and consequences for IMb Full-Service mailings until both the USPS and industry have more experience with the complexities of Full-Service and data can be collected and analyzed, the USPS said its verification procedures and consequences will take effect on November 29, 2009 – the date the IMb Full-Service price differential takes effect.”
The discounts amount to 0.3 cents per piece for First Class mail and a whopping 0.1 cents per piece for Standard and Periodicals. But the penalty for putting unreadable IM bar codes on mail pieces can easily be several cents per piece. The Postal Service has not standardized the process for determining whether such bar codes are readable, so mail that gets the green light from postal equipment at a printing plant might get flagged as unacceptable when it gets to the Postal Service’s sorting machines.
Bowes noted Friday that the IM program’s list of “issues” (problems) has grown to 16 pages, more than 100 items, and offered a hilarious translation of a gobbledygook advisory that IM officials issued that day. Her take on one of the mealy-mouthed statements: “A bunch of stuff is broken, and the USPS knows about them, but it is still full steam ahead.”
One of the issues for which the Postal Service was not prepared is that procedures need to be changed for letter carriers, writes Monica Lundquist of Window Book, Inc. Letter carriers typically cross out the traditional barcode when they handle a mail piece with an old or bad address, preventing the piece from getting redirected to the same bad address after it goes through processing for address-correction notification.
“If the Intelligent Mail barcode (IMb) is obliterated by the mail carrier, it will not be able to be scanned . . ., which means that the USPS will not be able to process the address corrections in the Intelligent Mail environment.” The solution, she says, is to train letter carriers how to handle poorly addressed pieces that have an IMb, but “the likelihood of this training getting accomplished quickly and thoroughly is not very high.”
Previous articles about the Intelligent Mail train wreck:
With less than a week to go before a new postage discount debuts, knowledgeable mailers want nothing to do with the new program.
It’s officially called the full-service Intelligent Mail barcode (IMb). But as the horror stories and unresolved problems rack up, Dead Tree Edition hereby dubs it the FUBAR (Failed Unbelievably Bureaucratic Addressing Regulations) code. Those of you with military experience know another meaning for FUBAR, and the IM program certainly fits that definition as well.
“Most, if not all, Standard Mailers are steering clear of Full Service ACS [address correction],” Lisa Bowes wrote recently at Intelisent’s Postal Affairs Blog. “Full Service ACS may be pretending to be ready for prime time, but the reviews so far are negative.”
Many Periodicals mailers are also spooked about the Intelligent Mail program after hearing how it cost Time Inc. more than $90,000 in duplicate address-change charges in a period of just two months. Newsweek, often a leader on postal issues in the magazine industry, spread the word among publishers a few months ago that it was not putting any more resources into Intelligent Mail.
Postal officials in charge of the much-delayed IM program gave their usual everything-is-on schedule presentation at last week’s Mailers Technical Advisory Committee meeting. (“This ship is unsinkable! Ooh, look at the pretty iceberg.”) And once again they baffled mailers with yet another broken promise. The Association for Postal Commerce (Postcom) summarized the situation this way:
“Despite the Postal Service’s repeated assurances that it would not establish error tolerances and consequences for IMb Full-Service mailings until both the USPS and industry have more experience with the complexities of Full-Service and data can be collected and analyzed, the USPS said its verification procedures and consequences will take effect on November 29, 2009 – the date the IMb Full-Service price differential takes effect.”
The discounts amount to 0.3 cents per piece for First Class mail and a whopping 0.1 cents per piece for Standard and Periodicals. But the penalty for putting unreadable IM bar codes on mail pieces can easily be several cents per piece. The Postal Service has not standardized the process for determining whether such bar codes are readable, so mail that gets the green light from postal equipment at a printing plant might get flagged as unacceptable when it gets to the Postal Service’s sorting machines.
Bowes noted Friday that the IM program’s list of “issues” (problems) has grown to 16 pages, more than 100 items, and offered a hilarious translation of a gobbledygook advisory that IM officials issued that day. Her take on one of the mealy-mouthed statements: “A bunch of stuff is broken, and the USPS knows about them, but it is still full steam ahead.”
One of the issues for which the Postal Service was not prepared is that procedures need to be changed for letter carriers, writes Monica Lundquist of Window Book, Inc. Letter carriers typically cross out the traditional barcode when they handle a mail piece with an old or bad address, preventing the piece from getting redirected to the same bad address after it goes through processing for address-correction notification.
“If the Intelligent Mail barcode (IMb) is obliterated by the mail carrier, it will not be able to be scanned . . ., which means that the USPS will not be able to process the address corrections in the Intelligent Mail environment.” The solution, she says, is to train letter carriers how to handle poorly addressed pieces that have an IMb, but “the likelihood of this training getting accomplished quickly and thoroughly is not very high.”
Previous articles about the Intelligent Mail train wreck:
Wisconsin Congressman Tries To Extend Black-Liquor Credits
It's a simple piece of legislation you could call the Publication-Paper Manufacturers Protection Act. Or perhaps the Bankrupt The Canadian Pulp Industry Amendment.
At barely 100 words, Rep. Steve Kagen's recently introduced bill never mentions pulp, paper, or black liquor. But, if enacted, H.R. 4066 would indefinitely continue the black-liquor credits that have been worth billions of dollars this year to U.S. pulp mills. Kagen, a Democrat, represents a section of northeastern Wisconsin dotted with such mill towns as Green Bay and Appleton.
At least 32 companies operate kraft pulp mills in the United States and are probably receiving more than $2 billion per quarter in "alternative fuel mixture" credits for powering their mills with a mix of diesel fuel and black liquor, a pulp byproduct. The companies sell the pulp to other manufacturers, often overseas, or use the pulp to make such products as copier paper, packaging materials, and high-quality publication papers.
The credits have been a nice boost to the bottom line for some of the companies. For others, they have been a lifeline -- especially for makers of coated paper and other publication grades, which have been hit especially hard by declining prices and demand this year
The stock of Verso Paper, the country's #2 coated manufacturer, is so beaten down that it would have been cheaper for the federal government to buy the company outright rather than to pay it the black-liquor credits it has earned so far this year. Privately held, and heavily leveraged, NewPage, the #1 coated maker, seems to be in an even more precarious state.
Today's prices are below the cash costs of many U.S. mills, NewPage executives say. They say that if the black-liquor credits expire, as scheduled, at the end of this year, some mills will either have to raise prices or shut down. Some market observers think the consequences would be even more severe -- bankruptcy reorganization for one or more U.S. companies.
But extending the black-liquor program would be devastating for many Canadian manufacturers, which sell much of their product in the U.S. without benefit of a $200-per-ton government subsidy. Fraser Papers blames the program for driving it into bankruptcy reorganization, and such companies as Tembec and Catalyst Paper are struggling to stay afloat while competing against the subsidized products.
A permanent U.S. program would either force Canada to answer with its own subsidies or to watch its pulp industry die. (Canada's answer to the U.S. subsidies so far is a less generous program that helps pay for capital investments.)
Kagen's bill is likely to face opposition from those who say the government's alternative-fuels efforts are supposed to encourage the development of new bio-fuels, not to reward companies for merely doing what has been standard practice at pulp mills worldwide for decades.
For more information, please see:
At barely 100 words, Rep. Steve Kagen's recently introduced bill never mentions pulp, paper, or black liquor. But, if enacted, H.R. 4066 would indefinitely continue the black-liquor credits that have been worth billions of dollars this year to U.S. pulp mills. Kagen, a Democrat, represents a section of northeastern Wisconsin dotted with such mill towns as Green Bay and Appleton.
At least 32 companies operate kraft pulp mills in the United States and are probably receiving more than $2 billion per quarter in "alternative fuel mixture" credits for powering their mills with a mix of diesel fuel and black liquor, a pulp byproduct. The companies sell the pulp to other manufacturers, often overseas, or use the pulp to make such products as copier paper, packaging materials, and high-quality publication papers.
The credits have been a nice boost to the bottom line for some of the companies. For others, they have been a lifeline -- especially for makers of coated paper and other publication grades, which have been hit especially hard by declining prices and demand this year
The stock of Verso Paper, the country's #2 coated manufacturer, is so beaten down that it would have been cheaper for the federal government to buy the company outright rather than to pay it the black-liquor credits it has earned so far this year. Privately held, and heavily leveraged, NewPage, the #1 coated maker, seems to be in an even more precarious state.
Today's prices are below the cash costs of many U.S. mills, NewPage executives say. They say that if the black-liquor credits expire, as scheduled, at the end of this year, some mills will either have to raise prices or shut down. Some market observers think the consequences would be even more severe -- bankruptcy reorganization for one or more U.S. companies.
But extending the black-liquor program would be devastating for many Canadian manufacturers, which sell much of their product in the U.S. without benefit of a $200-per-ton government subsidy. Fraser Papers blames the program for driving it into bankruptcy reorganization, and such companies as Tembec and Catalyst Paper are struggling to stay afloat while competing against the subsidized products.
A permanent U.S. program would either force Canada to answer with its own subsidies or to watch its pulp industry die. (Canada's answer to the U.S. subsidies so far is a less generous program that helps pay for capital investments.)
Kagen's bill is likely to face opposition from those who say the government's alternative-fuels efforts are supposed to encourage the development of new bio-fuels, not to reward companies for merely doing what has been standard practice at pulp mills worldwide for decades.
For more information, please see:
- Black Liquor Bonanza: Earnings Exceeding Projections of Experts and Congress, which describes how the more than $2 billion in black-liquor earnings during the 3rd Quarter surpassed all projections.
- Black Liquor Scorecard: $4.7 Billion Through September, which lists the amount of credits earned through September by each of the 21 publicly traded companies that own about three-fourths of the country's kraft pulp capacity.
- Boozing It Up on Black Liquor: One Company's High Is Another's Hangover, which explains that previous tax laws caused Fraser to build a pulp mill in Canada and a paper mill just across the border in the U.S. -- a strategy that backfired with the black-liquor program.
- Canadians Belly Up to the Black-Liquor Bar, which describes the recently approved black-liquor program in Canada.
Thursday, November 19, 2009
Mail Volumes Have Declined Faster Than The Postal Workforce, But That Might Change
The U.S. Postal Service’s workforce reductions did not keep pace with declines in mail volume the past two years, but postal officials indicate that may change this fiscal year.
Mail volume was down 13% and revenue was down 9%, but the number of career employees declined only 6% in the fiscal year that ended September 30, postal officials revealed this week. The previous year, volume declined 4% while career employees decreased 3%.
Postal officials revealed their projections Wednesday that both mail volume and the number of career employees will decrease by 6%. Revenue is only projected to decline by 3%.
With labor constituting about 80% of the Postal Service's costs, it has been scrambling to reduce its workforce the past couple of years in light of decreasing mail volumes. As the economy shows signs of climbing out of the recession, the Postal Service's cost decreases this fiscal year might actually exceed its revenue reductions.
A lot of numbers have been flying out of L’Enfant Plaza (USPS HQ) and elsewhere this week regarding the Postal Service. Here’s a summary of some key ones:
• 20,150: Employees, as of Oct. 31 who accepted the early-retirement offer made in August. USPS had planned for up to 30,000 to accept. Please see What the Postal Service Left Out of the Early-Retirement Deal and The Postal Service's Early-Retirement Snafu for more information the offer and its flaws.
• 40,110: Decrease in career employees during the past fiscal year, which ended Sept. 30 – a reduction of : 6%. Of the major categories of career employees, the decreases ranged from 3% for those in or related to headquarters to 9% for supervisors and managers in the field and also for clerks. Postmasters were down 6%, mail handlers and city carriers each decreased 5%, and rural carriers and building and equipment maintenance personnel were down 2% each.
• 12%: Decrease in the number of career employees since 2005, ranging from 2% for headquarters to 20% for clerks.
• 13%: Decrease in the number of non-career employees in just the past year after several years of relatively steady levels.
• 53,000: Projected decrease in full-time equivalents this fiscal year. That suggests another big cut in work hours for non-career employees.
• 36: Number of deliveries per hour in FY2009, up from 30 four years ago. Delivery operations are a productivity bright spot for USPS: There were 8% fewer career carriers but 4% more delivery points than there were four years ago.
• 13%: Decrease in number of mail pieces last year – including drops of 8% for Periodicals, 9% for First Class, and 17% for Standard.
• 223: Increase in the number of post offices, stations, and branches during the past year. At 36,946 facilities, the total has decreased by less than 1% in the past four years.
• -0.3%: The likely change in the average monthly Consumer Price Index for 2009, which sets the ceiling for annual increases in most postal rates and is used in determining some cost-of-living pay increases. Even before release of the October CPI, which was lower than a year ago for the seventh month in a row, postal officials had aalready announced they would not increase most rates in 2010.
• 25% to 30%: Projected decrease in paper consumption for JC Penney catalogs next year as a result of discontinuing its “big books”. No word on how much less its postage bill will be, but the move can’t be good news for the Postal Service.
• 1,869,168: Number of October 26 issues of Newsweek that were mailed in the U.S., down at least 600,000 from a few months ago and more than 1 million from two years ago. As it has reduced its circulation this year to match its lower ratebase, the weekly magazine has cut back drastically on free copies and low-priced subscriptions, according to a statement it filed with USPS. And its annual postage bill has also decreased by millions of dollars.
• 34%: The increase in U.S. credit-card solicitations during October versus the previous month, according to Mintel Comperemedia. That’s the first significant monthly increase this year, though October levels were still lower than a year ago.
Mail volume was down 13% and revenue was down 9%, but the number of career employees declined only 6% in the fiscal year that ended September 30, postal officials revealed this week. The previous year, volume declined 4% while career employees decreased 3%.
Postal officials revealed their projections Wednesday that both mail volume and the number of career employees will decrease by 6%. Revenue is only projected to decline by 3%.
With labor constituting about 80% of the Postal Service's costs, it has been scrambling to reduce its workforce the past couple of years in light of decreasing mail volumes. As the economy shows signs of climbing out of the recession, the Postal Service's cost decreases this fiscal year might actually exceed its revenue reductions.
A lot of numbers have been flying out of L’Enfant Plaza (USPS HQ) and elsewhere this week regarding the Postal Service. Here’s a summary of some key ones:
• 20,150: Employees, as of Oct. 31 who accepted the early-retirement offer made in August. USPS had planned for up to 30,000 to accept. Please see What the Postal Service Left Out of the Early-Retirement Deal and The Postal Service's Early-Retirement Snafu for more information the offer and its flaws.
• 40,110: Decrease in career employees during the past fiscal year, which ended Sept. 30 – a reduction of : 6%. Of the major categories of career employees, the decreases ranged from 3% for those in or related to headquarters to 9% for supervisors and managers in the field and also for clerks. Postmasters were down 6%, mail handlers and city carriers each decreased 5%, and rural carriers and building and equipment maintenance personnel were down 2% each.
• 12%: Decrease in the number of career employees since 2005, ranging from 2% for headquarters to 20% for clerks.
• 13%: Decrease in the number of non-career employees in just the past year after several years of relatively steady levels.
• 53,000: Projected decrease in full-time equivalents this fiscal year. That suggests another big cut in work hours for non-career employees.
• 36: Number of deliveries per hour in FY2009, up from 30 four years ago. Delivery operations are a productivity bright spot for USPS: There were 8% fewer career carriers but 4% more delivery points than there were four years ago.
• 13%: Decrease in number of mail pieces last year – including drops of 8% for Periodicals, 9% for First Class, and 17% for Standard.
• 223: Increase in the number of post offices, stations, and branches during the past year. At 36,946 facilities, the total has decreased by less than 1% in the past four years.
• -0.3%: The likely change in the average monthly Consumer Price Index for 2009, which sets the ceiling for annual increases in most postal rates and is used in determining some cost-of-living pay increases. Even before release of the October CPI, which was lower than a year ago for the seventh month in a row, postal officials had aalready announced they would not increase most rates in 2010.
• 25% to 30%: Projected decrease in paper consumption for JC Penney catalogs next year as a result of discontinuing its “big books”. No word on how much less its postage bill will be, but the move can’t be good news for the Postal Service.
• 1,869,168: Number of October 26 issues of Newsweek that were mailed in the U.S., down at least 600,000 from a few months ago and more than 1 million from two years ago. As it has reduced its circulation this year to match its lower ratebase, the weekly magazine has cut back drastically on free copies and low-priced subscriptions, according to a statement it filed with USPS. And its annual postage bill has also decreased by millions of dollars.
• 34%: The increase in U.S. credit-card solicitations during October versus the previous month, according to Mintel Comperemedia. That’s the first significant monthly increase this year, though October levels were still lower than a year ago.
Wednesday, November 18, 2009
12 Telltale Signs That You Are A Printing Geek
You may be a printing geek if you:
1. Hear “PMS” and think first of ink. (And you’re a printing supergeek if you hear about a woman having PMS problems and think, “I wonder if she’s just tried using process colors.”)
2. Know that dot whacking in public won’t get you thrown into jail.
3. Realize that a debarker belongs at a pulp mill, not a veterinarian’s office.
4. Cringe when someone says “red ink” and find yourself reflexively responding, “It’s magenta.”
5. Don’t snicker when someone refers to blow-ins.
6. Are aware that commingling isn’t something you do at a networking function.
7. Understand that there’s nothing intelligent about the Intelligent Mail barcode.
8. Know that “too much showthrough” does not refer to a black bra under a white blouse.
9. Realize that dot gain has nothing to do with that weight your Aunt Dorothy has put on. (And you’re a printing freakazoid if you insist on saying “tone value increase” instead of “dot gain”.)
10. Know how to spell “supercalendered” even though spell-check keeps telling you “super calendar”.
11. Reply “Additive or subtractive?” when your child asks about primary colors.
12. Assume a woman worked in prepress if she says she’s a retired stripper.
Believe it or not, this article was inspired by an excellent -- and far more serious -- guest column called "You Know Print Buying Is Your Passion When" that was posted at Bostonprintbuyers.com but is no longer available. But if you’re really a printing geek, or aspire to be one, you are probably already a regular reader of “Margie’s Print Tips” at that site.
Other humorous articles at Dead Tree Edition include
1. Hear “PMS” and think first of ink. (And you’re a printing supergeek if you hear about a woman having PMS problems and think, “I wonder if she’s just tried using process colors.”)
2. Know that dot whacking in public won’t get you thrown into jail.3. Realize that a debarker belongs at a pulp mill, not a veterinarian’s office.
4. Cringe when someone says “red ink” and find yourself reflexively responding, “It’s magenta.”
5. Don’t snicker when someone refers to blow-ins.
6. Are aware that commingling isn’t something you do at a networking function.
7. Understand that there’s nothing intelligent about the Intelligent Mail barcode.
8. Know that “too much showthrough” does not refer to a black bra under a white blouse.
9. Realize that dot gain has nothing to do with that weight your Aunt Dorothy has put on. (And you’re a printing freakazoid if you insist on saying “tone value increase” instead of “dot gain”.)
10. Know how to spell “supercalendered” even though spell-check keeps telling you “super calendar”.
11. Reply “Additive or subtractive?” when your child asks about primary colors.
12. Assume a woman worked in prepress if she says she’s a retired stripper.
Believe it or not, this article was inspired by an excellent -- and far more serious -- guest column called "You Know Print Buying Is Your Passion When" that was posted at Bostonprintbuyers.com but is no longer available. But if you’re really a printing geek, or aspire to be one, you are probably already a regular reader of “Margie’s Print Tips” at that site.
Other humorous articles at Dead Tree Edition include
- OMG! I Was Only Kidding, Not Psychic : Twitter as Person of the Year?: I've got my own candidate for Bird of the Year and look back fondly on Rosie O'Donnell's infamous bird of the year in 2001.
- Re-Righting The Bible: No More Namby-Pamby Peacemaking: What if prominent conservatives re-wrote Bible passages to rid them of liberal bias?
- Playboy and Virgin Fail to Hook Up: Headline writers are still in mourning that this deal didn't occur.
Monday, November 16, 2009
Black Liquor Bonanza: Earnings Exceeding Projections of Experts and Congress
Never underestimate the power of American ingenuity when it comes to taking maximum advantage of tax breaks. And never underestimate the ability of Congress to mess up a calculation involving money.
Pulp and paper companies' 3rd Quarter earnings statements suggest that the industry is earning more black-liquor credits than analysts thought possible and far more than Congress projected.
Publicly traded companies racked up more than $1.8 billion in the controversial credits for the pulp byproduct from the U.S. government, according to an exclusive Dead Tree Edition analysis of Securities and Exchange Commission reports. Most of the companies would have been unprofitable without the credits, and some were unprofitable even with them.
Through the end of September, the public companies had earned more than $4.7 billion for mixing diesel fuel with the pulp-mill byproduct and then burning the mixture to power their mills. (See the accompanying article, Black Liquor Scorecard: $4.7 Billion Through September, for a listing by company.)
With more than one-fourth of the country’s kraft-pulp capacity in the hands of private companies, the numbers indicate that the industry earned well over $2 billion in credits during the quarter and about $6 billion during the first nine months of the year. At this rate, by the time the program expires at the end of this year, the U.S. pulp and paper industry will blow past the $8 billion that analysts had said would be the maximum it could earn from controversial program.
ERA Equity Research Associates, which earlier this year projected the program would yield $6.6 billion, recently estimated it would $8.5 billion. The earlier estimate assumed an 85% operating rate, but U.S. mills have been running full steam for months because of rising prices and the generous subsidy. Some companies’ numbers suggest their mills are squeezing more than the usual amount of black liquor from the wood they process into pulp.
Congressional Goof
Congress still seems to be using a $5 billion estimate for the program, an error that could affect healthcare legislation it is considering. The faulty estimate is based on a September report from its Joint Committee on Taxation (JCT) stating:
"For the first six months of 2009, and just for liquid fuel derived from biomass, more than $2.5 billion in cash payments has been claimed. The bulk of that $2.5 billion is attributable to paper manufacturers using “black liquor” and a small quantity of diesel fuel in their boilers (a stationary fuel use). Because the paper
manufacturers have no excise tax liability, they receive the full amount of the claim as a cash payment from the Treasury."
That statement was the basis of tax expert Martin A. Sullivan's projection that the so-called Son of Black Liquor credits could be worth $25 billion to U.S. pulp mills. If six months of the black-liquor loophole was worth $2.5 billion, then the full year should be worth $5 billion. And because the new cellulosic biofuel producer program will be twice as generous and last three times longer, simple math put the potential payments at $30 billion. Sullivan estimated that only $25 billion would be paid out for black liquor because the program will require the credits to be used to offset income taxes.
The healthcare-reform legislation passed by the House earlier this month arrives at the same number. By proposing to close the Son of Black Liquor loophole, the House figured it was "finding" another $25 billion to help pay for new healthcare programs.
But based on the Third Quarter financials, publicly traded companies alone could create enough black liquor for $44 billion in Son of Black Liquor credits. Adding privately held companies would push the number close to $60 billion -- or about $50 billion if we accept Sullivan's reasonable assumption that a small portion of the claims would not be paid out.
Using the JCT estimate to project the size of the black liquor or Son of Black Liquor credits failed for two reasons:
Pulp and paper companies' 3rd Quarter earnings statements suggest that the industry is earning more black-liquor credits than analysts thought possible and far more than Congress projected.
Publicly traded companies racked up more than $1.8 billion in the controversial credits for the pulp byproduct from the U.S. government, according to an exclusive Dead Tree Edition analysis of Securities and Exchange Commission reports. Most of the companies would have been unprofitable without the credits, and some were unprofitable even with them.
Through the end of September, the public companies had earned more than $4.7 billion for mixing diesel fuel with the pulp-mill byproduct and then burning the mixture to power their mills. (See the accompanying article, Black Liquor Scorecard: $4.7 Billion Through September, for a listing by company.)
With more than one-fourth of the country’s kraft-pulp capacity in the hands of private companies, the numbers indicate that the industry earned well over $2 billion in credits during the quarter and about $6 billion during the first nine months of the year. At this rate, by the time the program expires at the end of this year, the U.S. pulp and paper industry will blow past the $8 billion that analysts had said would be the maximum it could earn from controversial program.
ERA Equity Research Associates, which earlier this year projected the program would yield $6.6 billion, recently estimated it would $8.5 billion. The earlier estimate assumed an 85% operating rate, but U.S. mills have been running full steam for months because of rising prices and the generous subsidy. Some companies’ numbers suggest their mills are squeezing more than the usual amount of black liquor from the wood they process into pulp.
Congressional Goof
Congress still seems to be using a $5 billion estimate for the program, an error that could affect healthcare legislation it is considering. The faulty estimate is based on a September report from its Joint Committee on Taxation (JCT) stating:
"For the first six months of 2009, and just for liquid fuel derived from biomass, more than $2.5 billion in cash payments has been claimed. The bulk of that $2.5 billion is attributable to paper manufacturers using “black liquor” and a small quantity of diesel fuel in their boilers (a stationary fuel use). Because the paper
manufacturers have no excise tax liability, they receive the full amount of the claim as a cash payment from the Treasury."
That statement was the basis of tax expert Martin A. Sullivan's projection that the so-called Son of Black Liquor credits could be worth $25 billion to U.S. pulp mills. If six months of the black-liquor loophole was worth $2.5 billion, then the full year should be worth $5 billion. And because the new cellulosic biofuel producer program will be twice as generous and last three times longer, simple math put the potential payments at $30 billion. Sullivan estimated that only $25 billion would be paid out for black liquor because the program will require the credits to be used to offset income taxes.
The healthcare-reform legislation passed by the House earlier this month arrives at the same number. By proposing to close the Son of Black Liquor loophole, the House figured it was "finding" another $25 billion to help pay for new healthcare programs.
But based on the Third Quarter financials, publicly traded companies alone could create enough black liquor for $44 billion in Son of Black Liquor credits. Adding privately held companies would push the number close to $60 billion -- or about $50 billion if we accept Sullivan's reasonable assumption that a small portion of the claims would not be paid out.
Using the JCT estimate to project the size of the black liquor or Son of Black Liquor credits failed for two reasons:
- Many companies were late to the black liquor party. Few were mixing diesel into their black liquor at the beginning of the year, and some didn't start until March.
- Because of uncertainty about whether the credits are taxable income, some companies are not claiming the credits as they are earned but rather are waiting to include them with their 2009 income tax returns. Buckeye Technologies's Third Quarter financial report explains why: "We have treated the credits received in cash as taxable income and the income tax credits as non-taxable income."
- Did Black Liquor Credits Pave the Way for Healthcare Legislation?, which describes how both the original black-liquor credits and the potential Son of Black Liquor loophole are entwined with healthcare-reform politics.
- Will the EPA Stop 'Son of Black Liquor'?, which shows that the Son of Black Liquor loophole may not even exist, with or without the House's healthcare bill.
- International Paper Drowns Its Sorrows in Black Liquor, which states that International Paper's 3rd Quarter credits were more than double its profit for the quarter.
Black Liquor Scorecard: $4.7 Billion Through September
Publicly traded pulp and paper companies have earned more than $4.7 billion in controversial black-liquor credits from the U.S. government during the first three quarters of the year, according to their financial reports.
The 21 companies generated enough of the pulp byproduct in the 3rd Quarter to receive more than $1.8 billion of the subsidies, according to an exclusive Dead Tree Edition analysis of Securities and Exchange Commission reports..About one-fourth of the country's kraft-pulp capacity is in the hands of privately held companies, which do not have to file financial reports with the SEC.
Here are the amounts earned by the companies. "Net of expenses" means the company subtracted out certain costs in its reporting of the "alternative fuel mixture credits" rather than stating the full amount of payments from the IRS
The 21 companies generated enough of the pulp byproduct in the 3rd Quarter to receive more than $1.8 billion of the subsidies, according to an exclusive Dead Tree Edition analysis of Securities and Exchange Commission reports..About one-fourth of the country's kraft-pulp capacity is in the hands of privately held companies, which do not have to file financial reports with the SEC.
Here are the amounts earned by the companies. "Net of expenses" means the company subtracted out certain costs in its reporting of the "alternative fuel mixture credits" rather than stating the full amount of payments from the IRS
- International Paper: $1.547 billion
- Smurfit-Stone Container: $473 million
- Domtar; $336 million
- MeadWestvaco: $281 million, "net of associated expenses"
- Weyerhaeuser: $229 million
- NewPage: $214 million
- AbitibiBowater: $201 million
- Verso Paper: $191 million
- Temple-Inland: $149 million
- Rayonier $142 million, "net of associated expenses"
- Boise: $135 million, "net of fees and expenses"
- Packaging Corporation of America: $129 million
- Clearwater Paper: $124 million
- Kapstone Paper & Packaging: $122 million
- Graphic Packaging; $104 million, "net of expenses"
- Buckeye Technologies: $93 million
- SAPPI: $87 million
- P.H. Glatfelter: $76 million
- Rock-Tenn: $54 million, "net of expenses"
- Appleton Papers: $13 million
- Wausau $10 million
Sunday, November 15, 2009
Summer Sale Boosted Catalog Mailings, Paper Exec Says
The U.S. Postal Service's recent Summer Sale on Standard Class mail boosted catalog volume, according to a major paper company executive.
Richard D. Willett Jr., President and CEO of NewPage, cited the program as a significant factor in the recently improved outlook for coated paper.
“Several of our catalog customers took advantage of discounted rates on incremental volumes and increased their Third Quarter mailing volumes by more than 20 percent over prior budgets,” he said in a presentation to analysts on Tuesday. He also applauded USPS's recent decision to freeze postage rates in 2010, saying that would help demand improve.
Willett didn't indicate how much additional volume the Summer Sale caused for NewPage, which is North America's largest maker of coated paper. But with the company selling 708,000 tons of coated paper during the quarter, the Summer Sale would have had to generate millions of additional catalogs for NewPage customers for the program even to show up on the company's radar screen.
The Summer Sale, which offered discounts of up to 30% on incremental volumes of Standard mail, was not approved until early June, which most eligible mailers indicated was not enough time for them to plan and implement additional mailings. An exception was L.L. Bean, which said publicly the sale would cause it to mail an additional 10 million catalogs but agreed that the program was announced too late to have maximum impact.
A Postal Service Experiment
The sale was something of an experiment to test mailer response to temporary pricing incentives and the Postal Service's ability to administer them. USPS subsequently introduced a Fall Sale on First Class mail and has talked about a possible Winter Sale on the Standard class for early next year.
One lesson the Summer Sale taught postal executives is that it lacked good data on the mail volumes of its largest customers. Some mailers have multiple permits, sometimes under different names, and relying on vendors' mail permits is not uncommon.
Mailers had to use their own mailing permit to earn the Summer Sale discounts. That limited co-mailing and commingling of various companies' mail pieces because with Standard mail (unlike Periodicals) only a single permit can be used for a mailstream.
USPS has told Summer Sale participants that their discounts will be calculated and paid into their accounts late this month or perhaps early December.
Related articles:
Richard D. Willett Jr., President and CEO of NewPage, cited the program as a significant factor in the recently improved outlook for coated paper.
“Several of our catalog customers took advantage of discounted rates on incremental volumes and increased their Third Quarter mailing volumes by more than 20 percent over prior budgets,” he said in a presentation to analysts on Tuesday. He also applauded USPS's recent decision to freeze postage rates in 2010, saying that would help demand improve.
Willett didn't indicate how much additional volume the Summer Sale caused for NewPage, which is North America's largest maker of coated paper. But with the company selling 708,000 tons of coated paper during the quarter, the Summer Sale would have had to generate millions of additional catalogs for NewPage customers for the program even to show up on the company's radar screen.
The Summer Sale, which offered discounts of up to 30% on incremental volumes of Standard mail, was not approved until early June, which most eligible mailers indicated was not enough time for them to plan and implement additional mailings. An exception was L.L. Bean, which said publicly the sale would cause it to mail an additional 10 million catalogs but agreed that the program was announced too late to have maximum impact.
A Postal Service Experiment
The sale was something of an experiment to test mailer response to temporary pricing incentives and the Postal Service's ability to administer them. USPS subsequently introduced a Fall Sale on First Class mail and has talked about a possible Winter Sale on the Standard class for early next year.
One lesson the Summer Sale taught postal executives is that it lacked good data on the mail volumes of its largest customers. Some mailers have multiple permits, sometimes under different names, and relying on vendors' mail permits is not uncommon.
Mailers had to use their own mailing permit to earn the Summer Sale discounts. That limited co-mailing and commingling of various companies' mail pieces because with Standard mail (unlike Periodicals) only a single permit can be used for a mailstream.
USPS has told Summer Sale participants that their discounts will be calculated and paid into their accounts late this month or perhaps early December.
Related articles:
Friday, November 13, 2009
OMG! I Was Only Kidding, Not Psychic : Twitter as Person of the Year?
A few months ago, I joked that Twitter was “no doubt [Time] magazine’s leading candidate for Bird of the Year”. Now, it’s no joke.
Three of six panelists at a Time Inc. event Thursday night voted for Twitter as the top candidate for Person of the Year, Folio: reports. The other three voted for another non-human, The Economy, which seems like last year’s news: Anyone who was surprised by The Economy in 2009 wasn’t paying attention more than a year ago when the financial system was circling the drain.
If Time’s going to feature old news for Person of the Year, it might as well go with Obama again. One magazine executive jokes that Obama is “the new Jesus” because putting him on the cover does wonders for newsstand sales, just as a Christianity cover around Easter or Christmas always sells well for magazines like Time. (The latest word on the President, by the way, is that after blowing up balloons for one of his daughter’s birthday parties, he’s being nominated for the Nobel Prize in Physics.)
Panelist Bahbwa Walters suggested an interesting competitor for Bird of the Year – jailbird Bernie Madoff. Nope. If you’re going to go the evil route, select someone really evil – like maybe the Microsoft sadists who invented Vista or the idiot at Geico who decided to give less air time to the gecko so they could run those awful cavemen ads.
Speaking of Bird of the Year, some folks in the magazine business already awarded that informally to Rosie magazine back in 2001 for its infamous staph infection cover. (Hubba, hubba, Rosie in a bathrobe!). It sure looks as if that bandaged hand is flipping the Great Speckled Bird to the millions of former McCall’s subscribers who had recently been involuntarily switched over to her magazine.
For the record, I’m still using Google Reader instead of Twitter to track favorite Web sites and have only tweeted to my 53 followers about the newly posted articles. I should note that a few of those followers were clearly trying to get me to follow them in return so they could pelt me with Twitter spam. (What, by the way, do you call tweets that resemble spam? Twam? Spitter? Shredded tweet? Bird poop?)
As for Bird of the Year, I’d vote for the AFLAC duck if he’d start showing up more in magazine ads. Especially in my magazines.
Related articles:
Three of six panelists at a Time Inc. event Thursday night voted for Twitter as the top candidate for Person of the Year, Folio: reports. The other three voted for another non-human, The Economy, which seems like last year’s news: Anyone who was surprised by The Economy in 2009 wasn’t paying attention more than a year ago when the financial system was circling the drain.
If Time’s going to feature old news for Person of the Year, it might as well go with Obama again. One magazine executive jokes that Obama is “the new Jesus” because putting him on the cover does wonders for newsstand sales, just as a Christianity cover around Easter or Christmas always sells well for magazines like Time. (The latest word on the President, by the way, is that after blowing up balloons for one of his daughter’s birthday parties, he’s being nominated for the Nobel Prize in Physics.)
Panelist Bahbwa Walters suggested an interesting competitor for Bird of the Year – jailbird Bernie Madoff. Nope. If you’re going to go the evil route, select someone really evil – like maybe the Microsoft sadists who invented Vista or the idiot at Geico who decided to give less air time to the gecko so they could run those awful cavemen ads.
For the record, I’m still using Google Reader instead of Twitter to track favorite Web sites and have only tweeted to my 53 followers about the newly posted articles. I should note that a few of those followers were clearly trying to get me to follow them in return so they could pelt me with Twitter spam. (What, by the way, do you call tweets that resemble spam? Twam? Spitter? Shredded tweet? Bird poop?)
As for Bird of the Year, I’d vote for the AFLAC duck if he’d start showing up more in magazine ads. Especially in my magazines.
Related articles:
- Twitter vs. RSS: So Much for Superior Technology
- Poe-Tweet for Twitter Quitters, which features a 140-character poem about why so many people quit Twitter.
Monday, November 9, 2009
Money-Saving Trend: Using GCR to Reduce Ink Consumption
The concept of Gray Component Replacement (GCR) has been around for years but seems to have caught fire recently among commercial printers and newspaper publishers because of technological advancements. Ink savings of up to 20% have been reported on jobs having heavy four-color ink coverage.
Some magazine publishers and other print buyers have negotiated lower ink costs by applying, or allowing a printer to apply, GCR to their prepress files.
Explaining GCR requires a brief lesson in color theory: When combined, red light, green light, and blue light create white light, which is why they are called the three primary colors.
Ink is a filter for light being reflected off of paper. Cyan blocks red, magenta filters out green, yellow blocks blue, and black filters out all three primary colors. You can create a heavy black area with 100% coverage each of cyan, magenta, and yellow. But you could use less expensive ink, and less of it, if you just printed the area in 100% black.
In theory, GCR can take an area that is 60% cyan, 60% magenta, 40% yellow, and 0% black and create the same color at lower cost by converting it to something along the lines of 20%C-20%M-0%Y-40%K. But such “heavy GCR” can lead to a variety of print-quality problems.
That's why most printers use a GCR program that is less radical in substituting black ink for the chromatic inks, as shown in the image above (taken from Gordon Pritchard's Quality in Print blog.) The graphic shows a traditional separation on the left and a GCR separation on the right.
Besides the ink savings, printers and software vendors tout such benefits of GCR as faster makereadies, shorter drying times, less ink slinging, less paper waste, more efficient use of the earth's resources, and more stable color throughout a press run.
“For many printers, the increased color stability is a perfect compliment to the industry trend for a ‘by the numbers’ print manufacturing process,” Pritchard says in his excellent and well illustrated eight-part series on GCR. (To read the series, go to this link and then scroll down past the first two articles.)
The vast majority of print buyers pay for ink by the page rather than by the pound, so they don’t automatically reduce their ink costs by using GCR. But some have been able to negotiate lower ink costs by switching to GCR, with the printer in some cases getting a share of the savings.
Sunday, November 8, 2009
Did Black Liquor Credits Pave the Way for Healthcare Legislation?
The Democrats' healthcare plan hasn't even been approved by Congress yet, but it already seems to be doing wonders for several hundred pulp-mill workers in Baileyville, Maine.
Pundits have been expressing surprise the past few days that the House version of healthcare reform includes a seemingly unrelated provision to block the so-called "Son of Black Liquor" loophole that could be worth $50 billion in tax credits to U.S. pulp mills. But as The Reel Time Report newsletter pointed out this week, that doesn't seem to be the first time that black-liquor subsidies have been entwined with healthcare politics.
The newsletter, published by Forestweb, suggests Democrats used the oldest trick in the book to get a woman to say yes -- plying her with liquor. In this case, the woman is Sen. Olympia Snowe (R-Maine), and the liquor is black liquor, an energy-rich byproduct of the kraft pulping process.
The following chronology from the past eight months tells the story:
Never mind that closing the loophole would not add any money to the federal budget, just prevent the government from doling out funds that weren't in the budget. And never mind that the Son of Black Liquor loophole probably doesn't even exist because EPA regulations won't allow it. (See Will the EPA Stop 'Son of Black Liquor'?)
With the kind of Alice in Wonderland accounting that occurs only in Washington, House Democrats can claim they found a way to help pay for healthcare legislation and to prevent a continuation of controversial pulp-mill subsidies. But if Democrats once again find themselves coveting some key moderate votes from paper-producing states, don't be surprised to see Son of Black Liquor rise miraculously from the dead.
Pundits have been expressing surprise the past few days that the House version of healthcare reform includes a seemingly unrelated provision to block the so-called "Son of Black Liquor" loophole that could be worth $50 billion in tax credits to U.S. pulp mills. But as The Reel Time Report newsletter pointed out this week, that doesn't seem to be the first time that black-liquor subsidies have been entwined with healthcare politics.
The newsletter, published by Forestweb, suggests Democrats used the oldest trick in the book to get a woman to say yes -- plying her with liquor. In this case, the woman is Sen. Olympia Snowe (R-Maine), and the liquor is black liquor, an energy-rich byproduct of the kraft pulping process.
The following chronology from the past eight months tells the story:
- March 5: Domtar Corp. announced it would indefinitely idle its Woodland pulp mill in Baileyville, ME in May, putting 300 people out of work.
- Late March: Stock analysts and the news media revealed that some pulp companies had discovered a loophole in a U.S. law that was meant to encourage production of "green" motor fuels. By mixing a bit of diesel with black liquor, the companies were able to get government alternative-fuel payments equal to one-third to one-half the market value of the pulp they produced. See Pulp Fiction: Eco-Credits for Black Liquor.
- April 5: Word started circulating that Sen. Max Baucus (D-Montana), chairman of the Senate Finance Committee, wanted to close the black-liquor loophole before its scheduled expiration at the end of this year. Reports indicated that legislation, supported by the Obama Administration, was imminent.
- April 6: Sen. Snowe visited the Woodland mill and told workers that her goal was to save the mill.
- April 23: "The black liquor tax credit is crucial to the survival of the paper industry, and to maintain and create jobs," said Sen. Snowe as she joined joining several other senators from pulp-making states to urge continuation of the credits. NewPage, Verso, and Sappi also own kraft pulp mills in Maine.
- June 10: Domtar announced it would reopen the Woodland mill, partly because of black-liquor credits.
- June 11: Baucus and Sen. Chuck Grassley (R-Iowa) released a draft of legislation that would close the black-liquor loophole.
- Sept. 16: After months of Finance Committee work on the subject, Baucus introduced his version of healthcare-reform legislation.
- Late September: Baucus and other Democrats backing healthcare reform stepped up their wooing of Sen. Snowe because she was the only Republican member of the Finance Committee who was not clearly opposed. A yes vote by Sen. Snowe, some said, would kill any hopes of a Republican filibuster if the legislation made it to the Senate floor.
- Oct. 13: Sen. Snowe joined 13 Democrats on the Finance Committee in approving Baucus' bill.
- Nov. 5: The Reel Time Report published a special report estimating that about $6 billion in black-liquor credits have been paid out to U.S. pulp mills this year and that the total will surpass $8.5 billion by the end of the year. If anything, the estimates appear to be a bit low because in some cases the newsletter used companies' reports of black-liquor credits "net of expenses" rather than the full, pre-tax amount of the credits.
- Nov. 8: As of this date, the Baucus-Grassley draft on black liquor has not been introduced. The Reel Time Report notes that Baucus and other Democratic critics of the credits "became quiet" at the same time that Snowe "took up the cause of the kraft pulp producers." The newsletter adds, "The point is that Senator Snowe was the key that kept this money flowing."
Never mind that closing the loophole would not add any money to the federal budget, just prevent the government from doling out funds that weren't in the budget. And never mind that the Son of Black Liquor loophole probably doesn't even exist because EPA regulations won't allow it. (See Will the EPA Stop 'Son of Black Liquor'?)
With the kind of Alice in Wonderland accounting that occurs only in Washington, House Democrats can claim they found a way to help pay for healthcare legislation and to prevent a continuation of controversial pulp-mill subsidies. But if Democrats once again find themselves coveting some key moderate votes from paper-producing states, don't be surprised to see Son of Black Liquor rise miraculously from the dead.
Wednesday, November 4, 2009
No Quick Exit For AbitibiBowater
With AbitibiBowater likely to remain under bankruptcy protection well into next year, a Canadian court has approved additional financing for the giant papermaker.
The company received permission Friday from a Montreal Superior Court to increase its debtor-in-possession (DIP) financing from $140 million to $370 million, despite the objections of some creditors.
Ernst & Young Inc., the court-appointed monitor, recommended approval of the DIP financing because it believes AbitibiBowater will remain under bankruptcy protection until at least late next summer. The accounting firm told the court that AbitibiBowater, North America's largest newsprint maker, projects negative cash flow of $70 million next year.
AbitibiBowater was hoping to exit bankruptcy protection in just a few months. But Ernst & Young says “it will take a number of months to complete the business plan and consider all of the restructuring scenarios, negotiate the Plan of Arrangement, raise exit financing, conduct creditor meetings, complete negotiations with employee groups and complete all of the other tasks required to emerge” from bankruptcy protection.
The company’s liquidity requirements “are highly dependent upon the market price and demand for paper and wood products as well as the exchange rate of the Canadian dollar relative to the U.S. dollar,” notes the report.
AbitibiBowater’s projections assume that announced newsprint price increases of $120 per ton from the August low will be implemented by the first of the year and then level off. That is more conservative than independent projections from RISI, which show newsprint prices continuing to rise during 2010.
But the projections also assume an exchange rate of 1 Canadian dollar to 90 U.S. cents, while in recent weeks the Canadian dollar has been a few cents stronger. With each penny in the exchange rate equating to $17 million in annual cash flow and the recent volatility in the U.S. dollar, AbitibiBowater needs access to additional DIP funds so that it can weather fluctuations in currency and paper markets, the Ernst & Young report says.
Meanwhile, a provincial official has made vague comments in recent days about Quebec possibly investing in AbitibiBowater, and a Canadian union has delayed contract negotiations until it gets resolution on the company’s $1.3 billion in unfunded pension liabilities.
AbitibiBowater (AKA AbitibiUnderwater) entered bankruptcy protection in April and has subsequently been damaged even further by declining paper prices and the strengthening Canadian currency.
For other recent articles about AbitibiBowater, please see:
The company received permission Friday from a Montreal Superior Court to increase its debtor-in-possession (DIP) financing from $140 million to $370 million, despite the objections of some creditors.
Ernst & Young Inc., the court-appointed monitor, recommended approval of the DIP financing because it believes AbitibiBowater will remain under bankruptcy protection until at least late next summer. The accounting firm told the court that AbitibiBowater, North America's largest newsprint maker, projects negative cash flow of $70 million next year.
AbitibiBowater was hoping to exit bankruptcy protection in just a few months. But Ernst & Young says “it will take a number of months to complete the business plan and consider all of the restructuring scenarios, negotiate the Plan of Arrangement, raise exit financing, conduct creditor meetings, complete negotiations with employee groups and complete all of the other tasks required to emerge” from bankruptcy protection.
The company’s liquidity requirements “are highly dependent upon the market price and demand for paper and wood products as well as the exchange rate of the Canadian dollar relative to the U.S. dollar,” notes the report.
AbitibiBowater’s projections assume that announced newsprint price increases of $120 per ton from the August low will be implemented by the first of the year and then level off. That is more conservative than independent projections from RISI, which show newsprint prices continuing to rise during 2010.
But the projections also assume an exchange rate of 1 Canadian dollar to 90 U.S. cents, while in recent weeks the Canadian dollar has been a few cents stronger. With each penny in the exchange rate equating to $17 million in annual cash flow and the recent volatility in the U.S. dollar, AbitibiBowater needs access to additional DIP funds so that it can weather fluctuations in currency and paper markets, the Ernst & Young report says.
Meanwhile, a provincial official has made vague comments in recent days about Quebec possibly investing in AbitibiBowater, and a Canadian union has delayed contract negotiations until it gets resolution on the company’s $1.3 billion in unfunded pension liabilities.
AbitibiBowater (AKA AbitibiUnderwater) entered bankruptcy protection in April and has subsequently been damaged even further by declining paper prices and the strengthening Canadian currency.
For other recent articles about AbitibiBowater, please see:
- There's Little Clarity About Some SCA Papers, which reports that the company is making supercalendered paper on a coated machine.
- Noisy Boise Is Reviving Its Newsprint Sales: How the termination of a marketing agreement with AbitibiBowater and huge black-liquor subsidies in the U.S. led to newsprint prices crashing.
- Black Liquor Credits Top $3 Billion So Far and Canadians Belly Up to the Black-Liquor Bar: The company is benefiting from the U.S.'s black-liquor subsidies and is in line to receive some from Canada as well.
Thursday, October 29, 2009
The Reinterpretation of William Burrus
Many postal workers have jumped to the defense of APWU president William Burrus as a result of my article, Mathematically Challenged: Burrus Proposal Doesn’t Add Up for USPS. But if many of these defenders are correct, they should be angry at Burrus for garbling the message and distracting people from the real issue.
Of the scores of comments submitted to this site and several postal-news sites, many stated that what the union president meant to say is that the U.S. Postal Service can sort un-presorted letters for 1 to 3 cents apiece (depending upon the commenter), while mailers get First Class presort discounts of up to 10.5 cents each. But that’s not even close to what Burrus actually said.
It’s also contrary to the Postal Service’s own data earlier this year estimating that the presorting of First Class letters saves it far more than 3 cents. But some of Burrus' defenders have raised legitimate questions regarding whether those cost estimates match current USPS practices.
One of the best what-he-really-meant-to-say defenses of Burrus came from “uncommonsense”, a commenter who acknowledged that Burrus’ challenge to Postmaster General Jack Potter is “a publicity stunt” with “no serious evaluation of costs/benefits”. (Rather damning praise, I’d say.) Here is uncommonsense’s valuable history lesson:
"In 1999 the OCR machines that the USPS was running had the ability to read about 20% of the letters ran through them. They had a throughput capacity of 30,000 letters per hour and required 2 trips through the machine to sort to the first breakdown and only allowed 94 different breakdowns. Most of the mail that ran through this machine had to have images of it sent to human keyers on terminals at one of 55 REC sites to provide the information to barcode the mail piece.
"Today, because of faster computers and more advanced software, the equipment that the USPS is running is able to read and apply barcodes to about 97% of the letters ran through it and sort the mail pieces to over 200 possible breakdowns, ALL on the first pass @ 40,000 letters per hour. An equivalent breakdown in 1999 would have required 3 passes through the OCR @ 30,000 pieces per hour and many human keyers. So in one hour with 2 operators and a keyer, the USPS can now process what used to take 4 hours 2-3 operators and many keyers. The new equipment is also much less expensive to maintain then the old MLOCR was.
"Now, 3% of letter images are sent to human keyers at one of 2 REC sites. Despite adding Flats and Parcel images to keyer duties, technology has allowed the USPS to eliminate 53 out of 55 REC sites.
Since USPS costs for bar coding and sorting letters has decreased so much since 1999 why have the work share discounts not also decreased?"
An anonymous commenter chimed in with this spot-on observation: “Presort mailers prepare the mail to the exacting specifications of the USPS Domestic Mail Manual in order to claim any worksharing discounts. If there is an issue with the mail handling once received - we are doing what the Postal Service told us to! If it needs to change, it's a Postal Service task.”
Another commenter added, “It's the silly Post Office rules that waste money. I have seen carrier-routed mail returned to the SCF in order to co-mingle it with other mail. Why can't the carrier just case it in? Think of the man-hours, and transportation costs that this takes. All of this is because management has the silly notion of having all the carrier's mail ready to deliver when they arrive in the morning.” (In defense of the Postal Service, using otherwise underutilized mail-sorting operations to do work that takes a burden off the delivery operations might actually make economic sense.)
The picture that emerges from these comments is that, while the size of presort discounts on letters might once have been justified, they are no longer consistent with the Postal Service’s costs. Put another way, the commenters are indicating that automation and excess mail-handling capacity have shrunk the cost difference between handling presorted and un-presorted letters.
I’m not saying they are correct. Some of their cost calculations are clearly wrong – for example, some included only salaries while ignoring benefits, facility costs, etc. But the arguments of “uncommonsense” and some of the other commenters have far more logic and plausibility than Burrus’ vague, ill-conceived proposal.
Burrus muddied the waters by proposing an obvious money loser for the Postal Service – remove First Class presort discounts that average 8.9 cents per letter and pay APWU members 10.4 cents instead to do the sorting. He tried to make his sloppy math more favorable to the Postal Service this week by throwing in a bonus – free sorting of parcels – along with his usual big-mailers-are-vermin bluster.
But the proposal is still too vague to be taken seriously. Among many flaws with the Burrus plan is that it would decrease the demand for First Class mail by raising prices. So with APWU members getting their 10.4 cents on fewer letters but still having to sort parcels for free, would they end up having to take a pay cut?
In an attempt to move the discussion away from character assassination and conspiracy theories, Dead Tree Edition offers these observations and ideas:
• Rather than trying to keep excess employees busy by incenting mailers to mail in a less efficient manner, which is in essence what Burrus is proposing, downsizing the workforce via meaningful early-retirement incentives would be more productive. (See What the Postal Service Left Out of the Early-Retirement Deal.) Presorting address data before a mailing occurs is inherently more efficient than sorting the actual mail pieces.
• Presorted letters are highly profitable for the Postal Service, as evidenced by its eagerness to offer the Summer Sale on Standard mail and the Fall Sale on First Class. USPS’ problem is not that it doesn’t charge enough for letters, it’s that it doesn’t have enough letters to charge for. Anything that would reduce the volume of letter mail, as would Burrus’ proposal, would be counterproductive for the Postal Service and its employees.
• Under current law, any significant reduction in First Class presort discounts would require decreasing the price of un-presorted letters (that is, the 44-cent First Class stamp). Otherwise, the inflation-based price cap on First Class would be violated.
• If indeed presort discounts on First Class letters are larger than justified, there might be a way to shrink them without hurting mailers or driving business away from the Postal Service – dropship discounts. Business mailers get 4.3 cents for dropshipping Standard letters to Sectional Center Facilities but nothing for First Class, even though dropshipping clearly saves the Postal Service money. Introduction of First Class dropship discounts (which would have to clear some legal barriers) could compensate mailers for the shrinkage of presort discounts and cause them to mail in ways that are more efficient for the Postal Service.
• For the record, I am not "speaking on behalf of the Far Right" (Burrus' description this week of those who defend business mailers) and have not made anti-union statements (just criticisms of a specific union official's proposals). If I were part of the Far Right, I never would have written articles like the recent one ridiculing Rush Limbaugh or have published the ghost-written piece, How sleepy is the giant?.
• Maybe “uncommonsense” should replace Burrus as the APWU’s spokesman.
Of the scores of comments submitted to this site and several postal-news sites, many stated that what the union president meant to say is that the U.S. Postal Service can sort un-presorted letters for 1 to 3 cents apiece (depending upon the commenter), while mailers get First Class presort discounts of up to 10.5 cents each. But that’s not even close to what Burrus actually said.
It’s also contrary to the Postal Service’s own data earlier this year estimating that the presorting of First Class letters saves it far more than 3 cents. But some of Burrus' defenders have raised legitimate questions regarding whether those cost estimates match current USPS practices.
One of the best what-he-really-meant-to-say defenses of Burrus came from “uncommonsense”, a commenter who acknowledged that Burrus’ challenge to Postmaster General Jack Potter is “a publicity stunt” with “no serious evaluation of costs/benefits”. (Rather damning praise, I’d say.) Here is uncommonsense’s valuable history lesson:
"In 1999 the OCR machines that the USPS was running had the ability to read about 20% of the letters ran through them. They had a throughput capacity of 30,000 letters per hour and required 2 trips through the machine to sort to the first breakdown and only allowed 94 different breakdowns. Most of the mail that ran through this machine had to have images of it sent to human keyers on terminals at one of 55 REC sites to provide the information to barcode the mail piece.
"Today, because of faster computers and more advanced software, the equipment that the USPS is running is able to read and apply barcodes to about 97% of the letters ran through it and sort the mail pieces to over 200 possible breakdowns, ALL on the first pass @ 40,000 letters per hour. An equivalent breakdown in 1999 would have required 3 passes through the OCR @ 30,000 pieces per hour and many human keyers. So in one hour with 2 operators and a keyer, the USPS can now process what used to take 4 hours 2-3 operators and many keyers. The new equipment is also much less expensive to maintain then the old MLOCR was.
"Now, 3% of letter images are sent to human keyers at one of 2 REC sites. Despite adding Flats and Parcel images to keyer duties, technology has allowed the USPS to eliminate 53 out of 55 REC sites.
Since USPS costs for bar coding and sorting letters has decreased so much since 1999 why have the work share discounts not also decreased?"
An anonymous commenter chimed in with this spot-on observation: “Presort mailers prepare the mail to the exacting specifications of the USPS Domestic Mail Manual in order to claim any worksharing discounts. If there is an issue with the mail handling once received - we are doing what the Postal Service told us to! If it needs to change, it's a Postal Service task.”
Another commenter added, “It's the silly Post Office rules that waste money. I have seen carrier-routed mail returned to the SCF in order to co-mingle it with other mail. Why can't the carrier just case it in? Think of the man-hours, and transportation costs that this takes. All of this is because management has the silly notion of having all the carrier's mail ready to deliver when they arrive in the morning.” (In defense of the Postal Service, using otherwise underutilized mail-sorting operations to do work that takes a burden off the delivery operations might actually make economic sense.)
The picture that emerges from these comments is that, while the size of presort discounts on letters might once have been justified, they are no longer consistent with the Postal Service’s costs. Put another way, the commenters are indicating that automation and excess mail-handling capacity have shrunk the cost difference between handling presorted and un-presorted letters.
I’m not saying they are correct. Some of their cost calculations are clearly wrong – for example, some included only salaries while ignoring benefits, facility costs, etc. But the arguments of “uncommonsense” and some of the other commenters have far more logic and plausibility than Burrus’ vague, ill-conceived proposal.
Burrus muddied the waters by proposing an obvious money loser for the Postal Service – remove First Class presort discounts that average 8.9 cents per letter and pay APWU members 10.4 cents instead to do the sorting. He tried to make his sloppy math more favorable to the Postal Service this week by throwing in a bonus – free sorting of parcels – along with his usual big-mailers-are-vermin bluster.
But the proposal is still too vague to be taken seriously. Among many flaws with the Burrus plan is that it would decrease the demand for First Class mail by raising prices. So with APWU members getting their 10.4 cents on fewer letters but still having to sort parcels for free, would they end up having to take a pay cut?
In an attempt to move the discussion away from character assassination and conspiracy theories, Dead Tree Edition offers these observations and ideas:
• Rather than trying to keep excess employees busy by incenting mailers to mail in a less efficient manner, which is in essence what Burrus is proposing, downsizing the workforce via meaningful early-retirement incentives would be more productive. (See What the Postal Service Left Out of the Early-Retirement Deal.) Presorting address data before a mailing occurs is inherently more efficient than sorting the actual mail pieces.
• Presorted letters are highly profitable for the Postal Service, as evidenced by its eagerness to offer the Summer Sale on Standard mail and the Fall Sale on First Class. USPS’ problem is not that it doesn’t charge enough for letters, it’s that it doesn’t have enough letters to charge for. Anything that would reduce the volume of letter mail, as would Burrus’ proposal, would be counterproductive for the Postal Service and its employees.
• Under current law, any significant reduction in First Class presort discounts would require decreasing the price of un-presorted letters (that is, the 44-cent First Class stamp). Otherwise, the inflation-based price cap on First Class would be violated.
• If indeed presort discounts on First Class letters are larger than justified, there might be a way to shrink them without hurting mailers or driving business away from the Postal Service – dropship discounts. Business mailers get 4.3 cents for dropshipping Standard letters to Sectional Center Facilities but nothing for First Class, even though dropshipping clearly saves the Postal Service money. Introduction of First Class dropship discounts (which would have to clear some legal barriers) could compensate mailers for the shrinkage of presort discounts and cause them to mail in ways that are more efficient for the Postal Service.
• For the record, I am not "speaking on behalf of the Far Right" (Burrus' description this week of those who defend business mailers) and have not made anti-union statements (just criticisms of a specific union official's proposals). If I were part of the Far Right, I never would have written articles like the recent one ridiculing Rush Limbaugh or have published the ghost-written piece, How sleepy is the giant?.
• Maybe “uncommonsense” should replace Burrus as the APWU’s spokesman.