Thursday, September 30, 2010

PRC Decision Only a Partial Win for Mailers

Postal executives today must feel as if they just lost a round of the old children’s game called "Mother May I?".

Putting it in simplistic terms, The U.S. Postal Service said to the Postal Regulatory Commission, “May we impose exigent (emergency) price increases to make up for the money we lost because of the recession?”

The PRC gave its unanimous answer today: “Well, the recession does qualify as an emergency that justifies special rate increases, but you can’t have the money because you didn’t ask properly.”

Another rate request?
The question now is whether the Postal Service will return to the PRC and ask, “Mother, may we impose emergency price increases to help pay for the recession.” That seems to be a more likely path than appealing the PRC’s decision to a federal appeals court.

After all, the PRC’s ruling was a partial victory for the USPS because the commission decided that “the recession and its impact on the Postal Service constitute an extraordinary or exceptional circumstance” that satisfies the legal requirements for an exigent rate increase.

The problem, however, is that the Postal Service didn’t show “how either the rate increases in general, or the specific rate increases proposed, relate to the extraordinary or exceptional circumstances that purportedly give rise to them,” the commission wrote. “Instead, the proposed rate increases are identified as part of a long-term plan designed to address, among other things, liquidity issues.”

Impending liquidity crisis
The ruling acknowledges that the Postal Service faces “an impending liquidity crisis.” But it said that crisis is caused primarily by the “overly optimistic” prefunding of retiree health benefits that is draining more than $5 billion annually from the Postal Service’s coffers.

“The Postal Service can not resolve severe shortcomings in its business model by resorting to the exigent rate provision,” the ruling states.

The PRC’s analysis of the pre-payments may help efforts to reform the payment structure. That's because the commission probably has more credibility right now than postal executives do with Congress, where some members have inaccurately described reform as a bailout.

As Dead Tree Edition has explained previously (See Postal Relief? How About No More Congressional Thievery? and How USPS Could Bypass Congress on Saturday Delivery), these prepayments are of no benefit to USPS retirees and are actually an accounting game that uses USPS money to make the federal deficit look smaller.

In a concurring opinion, Commissioner Dan G. Blair emphasized the benefits of inflation-based price caps: “Congress adopted a price cap system as a means of forcing the Postal Service to engage in more efficient behavior. Evidence of this more efficient behavior can be found in the Postal Service’s efforts to trim more than $6 billion in costs during 2009. Were it not for the discipline the price cap imposes, I doubt the Service would have achieved such significant cost reductions.”

Monday, September 27, 2010

U.S. Taxpayers' Black Liquor Tab Surpasses $30 Billion

The cost of "green" energy subsidies involving the pulp and paper industry shot well past $30 billion today -- with not a cent of it doing anything to help the environment.

President Obama today signed the Small Business Jobs Act of 2010, a package of goodies that is supposedly deficit neutral partly because of nearly $1.9 billion in "savings" from closing the non-existent "Grandson of Black Liquor" loophole. The alleged savings come from making crude tall oil, a highly corrosive pulp byproduct, ineligible for Cellulosic Biofuel Producer credits, which are intended for alternative motor fuels.

Because crude tall oil has never qualified for such credits and by all rights never could have, the law's provision is just a Congressional ruse to add to the federal deficit while pretending not to do so.

Regular readers of Dead Tree Edition know too well the sad story of how American taxpayers have been ripped off with black liquor tax credits, Son of Black Liquor, and Grandson of Black Liquor, but the story bears re-telling.

The idea of using pulp byproducts to fleece taxpayers first came to light early last year when some paper companies revealed they had hijacked another biofuel program. Alternative Fuel Mixture Credits were supposed to encourage greater use of biofuels, but the paper companies snagged billions in such credits for burning black liquor as a fuel source, which they had been doing for decades anyway.

Despite howls of protest from Congressional leaders, Congress did nothing to plug this loophole and simply let the law expire at the end of 2009. Aided by friendly rulings from the IRS, publicly traded pulp manufacturers received well over $6 billion in black liquor tax credits, and privately held companies probably received a couple of billion more.

A good whipping boy
But Congress didn't completely ignore the black liquor tax credits. Smart politicians know a good whipping boy when they see one, especially when they can whip up money for pet programs.

Riding public disgust with the original black liquor tax credits, Congressional Democrats proposed closing the "Son of Black Liquor" loophole. That is, they made black liquor ineligible for CBP credits starting this year. Never mind that even pulp makers didn't think black liquor would qualify for the credits.

A compliant Joint Committee on Taxation said that closing the non-existent loophole would save a bit more than $23 billion, and Congress then applied the "savings" toward "paying for" ObamaCare this past spring. The watchdogs of the press mostly chewed on and regurgitated Congressional press releases touting the resulting savings that supposedly helped make ObamaCare deficit-neutral.

The IRS got back into the act this summer with an odd ruling that made black liquor burned prior to this year eligible for CBP credits. It has already approved two pulp manufacturers for the credits, while others that have lined up at the trough are awaiting word on their applications. Preliminary indications are that the net value of the credits to paper companies will be "only" in the hundreds of millions -- unless Congressional bill writers decide to close this latest loophole and use the savings for another new project.

So let's recap the tab -- probably $8 billion-plus for the original black liquor credits (the only money in this story that actually went to the paper industry), $23.6 billion for Son of Black Liquor in ObamaCare, untold millions for pre-2010 Son of Black Liquor, and nearly $1.9 billion for Grandson of Black Liquor.

So when your daughter or granddaughter asks you in a few years why the U.S. didn't do more to wean itself from dirty energy sources and foreign oil imports, just tell her we were too busy adding to the federal deficit while pretending to be fiscally responsible.

For more details on the black liquor saga, please see:

Sunday, September 26, 2010

Don’t Blame ‘Overpaid Postal Workers' for Rising Periodicals Costs

The U.S. Postal Service’s cost to deliver a magazine or newspaper has been rising twice as fast as inflation for more than two decades, but don’t blame employee pay levels. The real culprit is declining productivity, the Postal Service’s own numbers indicate.

“The tendency of Periodicals costs to increase much faster than inflation . . . has continued with few interruptions since FY1986,” postal expert Halstein Stralberg wrote recently. As a result, the Postal Service has repeatedly hit the Periodicals class with rate increases that exceed both inflation and those for most other classes, as it is trying to do again in the exigent rate case being considered by the Postal Regulatory Commission.

Stralberg blames “the ingrained Postal Service culture” for the Periodicals mess. “The machines they use have become more powerful and sophisticated over time; but the way that operational decisions are made, and the lack of awareness of cost attribution issues among those who make the decisions, has changed very little,” Stralberg’s wrote in his testimony on behalf of Time Inc. for the exigent rate case.

Using the Postal Service’s own data, Stralberg’s showed that USPS’s cost of delivering a periodical increased by 200% from 1986 to 2009 even though inflation was a bit less than 100%. (See Stralberg's chart above.) The Postal Service’s wage rate – calculated as total USPS wages and benefits divided by total hours worked – increased 140%.

For most of the period studied, in fact, changes in the USPS wage rate closely tracked the Consumer Price Index. After all, the Postal Service’s labor contracts generally peg cost-of-living increases to CPI (which is a good reason to limit price increases to changes in CPI as well). Only in the past decade, presumably because of benefits costs (including, perhaps, pension and retiree-benefits overpayments) did the wage rate start to diverge from CPI.

Although some mailers have blamed employee compensation levels for rapid cost increases, Stralberg’s analysis shows that the larger problem is productivity: The Postal Service requires more work hours today to deliver a certain number of periodicals than it did in 1986.

The Postal Service, Stralberg wrote, has never really addressed these “unexplained and anomalous Periodicals cost increases” that occurred during a period in which it “deployed several generations of new technology that were supposed to automate and sharply reduce the costs of flats mail and Periodicals in particular.”

The USPS can’t blame publishers, who during that time have implemented a variety of measures that were supposed to reduce Postal Service costs, such as dropshipping, shifting mail from sacks to pallets, and putting a larger proportion of copies into efficient carrier-route bundles.

Here are excerpts from Stralberg’s explanation of the Postal Service’s skyrocketing Periodicals costs:

For more than a decade, various studies have shown that “as processing of other mail classes was automated, Periodicals continued to be processed in a more manual fashion. Employees freed up by the automation of other mailstreams were kept busy handling Periodicals, whose costs therefore skyrocketed. Additionally, portions of indirect costs that previously had been borne by other mail classes were shifted to Periodicals by the Postal Service’s cost attribution system.”

“In recent years, the Postal Service has acquired enough automated flats sorting capacity, particularly with the recent loss of volume, to sort practically all flats to carrier route on high speed automated equipment. However, many facilities, unable or unwilling to change their traditional ways, or perhaps simply to keep employees occupied, have continued to process Periodicals manually.”

“There evidently are postal clerks … whose costs must be attributed to something, and as long as postal managers continue to send them Periodicals flats to be sorted, their costs will be attributed to Periodicals flats.”

For further reading:

Saturday, September 25, 2010

An Affair Between a Printing Lobbyist and Rep. Boehner? Six Reasons Not to Believe It

The claim that a printing-industry lobbyist is having an affair with GOP Congressional leader John Boehner – and that the New York Times is preparing an expose on the supposed scandal – so far isn’t holding up to scrutiny. Here are six reasons to take this non-scandal with more than a grain of salt:
  1. Credibility problem: StarkReports, the liberal blog that first reported the alleged affair Thursday, referred to the woman as a lobbyist for the “American Printers Association.” It’s actually Printing Industries of America. If you’re going to write a piece about the nefarious dealings of a lobbyist, it’s kind of basic to get the name of her organization right. (Notice that I’m not using her name because she’s a private citizen against whom no credible allegation has been made.)
  2. Double credibility problem: By getting PIA's name wrong, StarkReports missed an opportunity to refer to Boehner as “PIA’s adorer”. That’s a crime against blogging. (“Boehner”, by the way, is supposedly pronounced “Baynor”. No woeh!)
  3. No expose: The Times is no-commenting, but a staffer has slipped word to New York magazine that the New York Post story about a Times expose in the works is “utter garbage”. The Post’s hyperventilations about the Times plan to release the expose when it will have maximum impact on Congressional elections looks like something penned by an editorial writer, or maybe someone named Murdoch, rather than a news reporter.
  4. Anonymous sources: StarkReports bases its claim solely on reports from “several sources” that started talking last month. Gee, just as it looks as if Boehner might become House Majority Leader or Speaker of the House, some political operatives decide to start spreading a rumor about him. That doesn’t make the rumor true. Nor does the lobbyist’s refusal to comment.
  5. The lobbyist’s title: The woman’s title at PIA is Vice President of Government Affairs. If she were really having a “government affair” she were trying to hide, wouldn't she have grown uncomfortable with the title and have it changed to something like “VP of Public Policy”.
  6. The printing industry? Come on: It’s not a huge surprise when a powerful Congressman ends up in bed with a lobbyist from the oil or banking industries. But PIA isn’t exactly a powerhouse in Congress whose members are getting big chunks of corporate welfare and handing out huge campaign contributions. Its members' main interest in federal laws these days has to do with the bankruptcy code.

Sunday, September 19, 2010

Quad/Graphics Is Trying to "Fix" Worldcolor's Publication Printing Business

Quad/Graphics bought Worldcolor partly because it thought it could repair the rival printer's "underperforming" catalog and magazine printing business, according to Quad's CEO.

Worldcolor's publication business was the worst performing part of the company, "had been underinvested in and needed fixing," Joel Quadracci said in an interview published Friday by printing-industry site WhatTheyThink. "We felt we could fix the magazine and catalog business with a combination of upgrading plants and closing plants."

Cary Sherburne's entire interview with Quadracci, whose company bought Worldcolor in July, is worth a read. But here are a few highlights:
  • The adjustment of former Worldcolor employees: "What is interesting is that Worldcolor as a corporation didn't really have a defined corporate culture. They had a good culture at the plant level, but not across the entire organization. Quad culture is very production-employee-centric. It has been easy for the Worldcolor folks to understand our culture; they were looking for something to tie them together and connect them."
  • Industry rightsizing: "When you look at the industry, you have to look at it from the perspective of good capacity and inefficient capacity, and the industry has way too much of the latter."Also: "You can't simply continue down the same path when an industry experiences a 20%-25% reduction in volume because of a deep recession.There has to be a rightsizing."
  • Downsized employees: "We have been doing internal recruiting at all of the plants that will be closed . . . because we have transfer opportunities at other Quad/Graphics locations for customer service reps, press operators, finishing operators and more. We have a pretty sizable list of people interested in other geographic locations."
  • Becoming a public company: "My family has the largest equity block with 33% of the company and 80% of the voting control. That voting control is important, because we don't want to be pushed to decisions that don't make sense for the company."
  • His work uniform: "It is pretty unusual to see a CEO wearing the same uniform as the production staff, which is what happens here at Quad. When I am here, I am wearing a blue uniform just like everyone on the floor."
For other recent articles about Quad/Graphics, please see:

Quad/Graphics’ Joel Quadracci Speaks about Worldcolor Acquisition: The entire WhatTheyThink interview with Quadracci

In Closing 5 Locations, Quad/Graphics Sticks With Its 'Mega-Plant' Strategy: A reminder that Quad's success has come mostly from innovation, not acquisitions

The New Quad/Graphics Still Has The Blues -- and Soul, Too: Quadracci's announcement, wearing a Quad uniform, of the Worldcolor acquisition

Does the Air in Printing Plants Make Employees Sick?: Another recent WhatTheyThink article about Quad -- this one on the printer's environmental innovations -- contained an interesting statement.

Saturday, September 18, 2010

Does the Air in Printing Plants Make Employees Sick?

A profile of Quad/Graphics’ environmental-improvement efforts that was published this week might have raised some eyebrows among Wisconsin’s legal community.

Here’s the statement about Quad’s Sussex, WI printing plant in a WhatTheyThink profile that probably had a few Quad lawyers spilling their coffee – and some local ambulance-chasing trial lawyers licking their chops: “Absenteeism has been halved in three years’ time. Improvements in indoor environmental quality were a significant contributing factor.”

So is Quad suggesting that indoor air pollution at the big heatset web offset plant caused employees’ illnesses?

I suspect the reduced absenteeism was more a matter of economics than environment. As the realization started spreading in the past couple of years that Quad was not immune from layoffs, many workers no doubt were on their best behavior. And when the cuts did come, those with attendance problems were probably among the first to go.

Still, it makes me wonder. Quad is known for its modern plants and stellar environmental record; WhatTheyThink’s profile, after all, focused on why the big printing company won an environmental innovation award. So if Sussex’s air was causing employees to get sick, what does that say about merely average printing plants?

Hmm, I’m due to tour a heatset web plant next week. Do you suppose they’d be willing to issue me a gas mask along with those little foam earplugs?

Thursday, September 16, 2010

Blame It On the (Black) Liquor, And Other Tales From A Strange Family of Tax Credits

In this week's saga of the Black Liquor Tax Credits, Dad got blamed for luring away a big customer, Son looks as if he'll really start paying off for some paper mills, and Congress decided to cash in on Grandson. Let's start with the oldest first:

Dad (AKA, the original black liquor tax credit): In advance of a hearing regarding whether his company illegally sold paper in the U.S. at below cost, an official of Asia Pulp & Paper noted today that his company's adversaries had been heavily subsidized by the U.S. government.

"Domestic producers gained market share between 2007 and 2009 and during that time we lost our largest U.S. customer, Unisource, to NewPage. NewPage lured them away with lower prices made possible by the enormous federal ‘black liquor’ subsidies they received," said Terry Hunley, acting president of APP Americas. "What we’re seeing here are hedge fund managers, who have taken over the American paper industry, looking for another government bailout."

Son of Black Liquor: A second pulp maker, Rock-Tenn, revealed this week that the IRS approved it as a Cellulosic Biofuel Producer last month, which means it can claim a lucrative tax credit for the black liquor (a pulp byproduct) it burned last year to produce power. The company estimates the after-tax value of these "Son of Black Liquor" credits to be $113 million, but it expects to net only $29 million because it will first have to return the original black liquor credits it earned last year. Kapstone, the first paper company to qualify for Son of Black Liquor, has similarly estimated it will net $22 million.

Grandson of Black Liquor: After many months of wrangling and revisions, the U.S. Senate gave a crucial thumbs up today to the Small Business Jobs Act of 2010, which includes a provision banning crude tall oil, another pulp byproduct, from receiving cellulosic biofuel credits. Most pulp makers had never dreamed of the acidic, corrosive liquid qualifying for a program intended for motor fuels, but that hasn't stopped Congress from claiming that closing this Grandson of Black Liquor loophole will save nearly $1.9 billion. (A friend of Dead Tree Edition has questioned my moniker for this bogus loophole, noting that movie monsters have sons but not grandsons. He suggested "Creature From the Black Liquor Lagoon" instead.)

For help in understanding the saga of the dysfunctional Black Liquor Tax Credits family, see:

Paper Makers Bring Out the Big Guns for Dumping Case

Nine senators, 10 House members, and one governor are slated to appear at today's U.S. International Trade Commission hearing on the anti-dumping case against Asian paper companies.

The agenda doesn't state whether the politicians will be speaking or which side they are on, but it's clear they will be there in support of the anti-dumping case. Almost all are from states like Minnesota, Wisconsin, and Maine where the three petitioning companies (NewPage, SAPPI, and Appleton Coated) have a presence.

Update: The United Steelworkers issued a news release today saying that the 20 politicians will be testifying on behalf of the U.S. paper makers.

The hearing is part of the final phase of the ITC's investigation into whether Chinese and Indonesian makers of coated paper for sheet-fed presses should have to pay penalties and tariffs. They are accused of selling such paper, both coated freesheet and coated groundwood, at below cost in the U.S.

Those opposing the penalties have no politicians appearing on their behalf -- mostly just officials of the Asian companies.

Related articles:

Tuesday, September 14, 2010

How Does the Postal Service Discourage Early Retirement? Let Me Count the Ways

At a time when the U.S. Postal Service should be trying to downsize by getting employees to retire early, it instead continues finding ways to discourage early retirements.

In recent pension estimates for employees considering early retirement, USPS has been leaving out information about a significant benefit, writes Don Cheney in a PostalReporter editorial called Does the Postal Service Really Want Early Retirements?

“The Postal Service issued FERS [Federal Employees Retirement System] annuity estimates that omitted the employee’s FERS annuity supplement” even though the supplement “is often nearly equal the basic annuity amount,” he says. Cheney is an APWU leader in Auburn, WA who has worked extensively on and written about early-retirement problems at the Postal Service for seven years.

“Most postal employees in FERS are eligible for the annuity supplement after age 55 with 30 years of service, but in a VERA [voluntary early retirement], RIF [reduction in force], or involuntary transfer over 50 miles that requirement is reduced to 20 years – a significant bonus.” Calculating the supplement isn’t rocket science; there’s a Web site that does it for free.

Poor communication and actual miscommunication from the Postal Service were major reasons that employee response was so low to some special early-retirement offers last year. The National Association of Letter Carriers filed a grievance (which is still active) last year because USPS failed to provide mandatory retirement counseling prior to the deadline for accepting one of the offers.

A commenter wrote on this site last month that long delays between retirement date and receipt of full retirement pay are also causing postal employees to delay retirement. "I can calculate my retirement in 30 minutes on my calculator, so why does it take 7 months for the USPS to do it?"

Cheney wonders whether the Postal Service is purposely discouraging early retirements “so they can justify weakening the no-layoff clause in upcoming contract negotiations.”

For an organization that admits to having too many employees and whose strategic plan says it will shrink the workforce through attrition, the Postal Service’s actions – and inactions – on early retirement do look fishy. Is it trying to exacerbate its financial problems in the short term so that it can win some kind of longer-term relief, such as reform of retiree healthcare payments or an end to Saturday delivery?

Or is it just plain old incompetence and bureaucratic indifference? In any case, how can postal executives claim they need exigent rate increases when they clearly have not done everything they can to reduce the Postal Service’s cost structure via early retirements?

For other articles on early-retirement issues at the Postal Service, please see:

Monday, September 13, 2010

Is Bankruptcy Inevitable for NewPage?

Despite growing market share and rising prices for its products, NewPage is having to fend off a leading analyst’s assessment that it is destined for bankruptcy court.

“Bankruptcy/restructuring is inevitable for the company, as it will never generate enough cash to meet its obligations,” Kevin Mason of Equity Research Associates wrote recently. “Many of NewPage’s existing debt holders have no hope of ever being repaid” because of the big paper maker’s “impossible debt load.”

North America’s top producer of coated paper responded by issuing earnings projections that forecast about $250 million in EBITDA (operating cash flow) for the second half of the year, versus only $25 million in the first half. NewPage’s EBITDA excludes nearly $175 million in quarterly expenses, mostly interest payments, so even the company’s projection calls for no profitable quarters this year.

“We currently expect that our levels of sales volume and pricing for the fourth quarter of 2010 will be indicative of the quarterly sales volume and pricing levels in 2011 after consideration of seasonal factors,” NewPage said in the SEC filing. After all, its machines are full, if not overbooked, and prices are still rising for its main products, coated and supercalendered papers.

By contrast, Mason projects 2010 EBITDA of less than $70 million and then about $260 million in 2011. He doesn’t foresee EBITDA surpassing $400 million in any year through 2014, which would mean actual earnings remain well under water for years to come.

He questions whether holders of NewPage’s senior secured debt, with a face value of $1.7 billion, will ever get all of their money back. Owners of other NewPage debt have even bleaker prospects.

And what about the owners? NewPage’s equity “is the financial equivalent of a dead man walking,” Mason wrote.

Mason, managing director of ERA, is not just any stock analyst. ERA specializes in the North American forest products industry, and Mason's company-by-company projections early last year about the value of black liquor credits turned out to be quite accurate. ERA’s research reports are generally available only to customers (See, but it has granted permission for Dead Tree Edition to quote from the NewPage report.

A few years ago, Mason noted, Wall Street was eagerly pushing the benefits of consolidation in pulp and paper markets. As a result, the Cerberus hedge fund had no trouble obtaining backing for a mountain of debt when it decided in 2007 to “double-down” on the coated paper business by having NewPage buy StoraEnso’s North American assets.

But the move occurred just after coated paper demand started experiencing “ongoing secular decline.”

“With NewPage being the largest producer, it took it upon itself to 'control' the market. However, the cost to NewPage of closures and market-related downtime has been substantial, and price control escaped NewPage anyway.”

NewPage also exacerbated the usual buyers’ wariness of price leaders by creating “a lot of negative customer sentiment over the years,” Mason said. “It will take years to heal this damaged reputation.” (Indeed, one paper buyer tells me he was congratulated by a colleague in the magazine industry for being “NewPage-free.”)

Noting that AbitibiBowater, which is in bankruptcy reorganization, is also the product of consolidation frenzy, Mason said, “The jury is still out on the benefits of consolidation for the industry, but there is no doubt it is a great win for the bankers and other advisors.”

There has been at least one other winner in the NewPage saga: Since 2005, NewPage has paid more than $3.7 million to a company owned by the son of recently departed chairman Mark Suwyn for “a training program and a process to improve communication skills, consensus building and problem solving abilities,” according to NewPage’s annual reports.

If Mason is on target, NewPage will get plenty of practice for those multimillion-dollar problem-solving skills.

For other recent articles about NewPage, please see:

Saturday, September 11, 2010

Steelworkers, Who Backed Black Liquor Credits, Now Attack Green Energy Subsidies

The United Steelworkers, which vociferously supported black liquor tax credits for U.S. pulp mills, suddenly seems to have decided that renewable-energy subsidies are not such a good idea.

In a case of One Person's (or Country's) Jobs and Energy Program Is Another's Unfair Subsidy, the union filed a complaint this week accusing China of "protectionist and predatory practices . . . to develop their green sector at the expense of production and job creation here in the U.S."

It was only last year that Canada and other countries accused the U.S. of violating free-trade rules by allowing pulp mills to hijack a renewable-energy program and get government subsidies for using black liquor, a pulp byproduct, as fuel. And it was only last year that the Steelworkers, the major union for U.S. pulp and paper industry workers, defended those black liquor tax credits for "saving thousands of Steelworker and other jobs.”

"The tax credit has turned out to be good for both jobs and for America's energy future," one Steelworkers leader said at the time.

Despite some politicians' criticism of the tax credits during the spring of 2009, Congress' failure to close the loophole enabled publicly traded pulp manufacturers to reap about $6.6 billion in federal money last year. A Steelworkers publication says privately held Georgia Pacific received an additional $5 billion in black liquor credits.

For all 40 Dead Tree Edition articles (40 to date) about the strange tale of black liquor tax credits, please click here.

Wednesday, September 8, 2010

A Decade of Postal Mismanagement Is Costing Publishers and Catalogs

Postal officials set out recently to justify big rate increases for catalogs and publications, but all they proved was that they have been mismanaging the handling of flat mail for more than a decade.

Arguing that Periodicals (magazines and newspapers) and Standard flats (mostly catalogs) are money-losing products, the U.S. Postal Service’s exigent rate request includes above-average hikes for Standard flats and Periodicals – 9% for some magazines.

But if those products are indeed losing money, an industry coalition responded recently, it’s only because of “the extraordinary inefficiency and lack of economy of the Postal Service’s handling flat-shaped mail” and its "failure to manage its workforce effectively and reduce its size sufficiently.”

The “Users of Flat-Shaped Mail” – a coalition of major publishing, catalog, and direct-marketing organizations – also noted that “in the last several years, even the Postal Service has conceded the presence of excess labor.” It pointed out that a postal official admitted to the Postal Regulatory Commission that 30% of flat mail was “processed in a non-optimal fashion by manual sort” -- even though there was apparently more than enough equipment to handle it all in a more efficient, automated manner.

Citing the Postal Service’s own numbers, the coalition chided postal officials for allowing the reported cost of handling Periodicals to increase at more than double the rate of inflation from 1996 to 2009.

“Holding increases in flats cost to inflation should have been easy,” it wrote, because:
  • During those 13 years, USPS transitioned to AFSM 100 machines, which can sort four times as many pieces per hour than the old FSM 881 machines.
  • “The percentage of Periodicals pieces sorted to the Carrier Route level [the least costly for USPS to handle] increased from 44.1% percent in FY 1996 to 57.9% in FY 2009.”
  • The proportion of Outside-County Periodicals that mailers dropshipped [resulting in lower transportation and handling costs for USPS] rose from 30% in 1996 to 65% in 2009.
  • “The number of sacks [which are expensive to handle] used to mail Outside County Periodicals dropped by 65.9% from FY 2004 to FY 2009.”
Periodicals postage rates have risen far faster than the rate of inflation in the past 13 years, the coalition noted, but those rate increases couldn’t keep up with the Postal Service’s ballooning costs. The story is similar for Standard flats.

“In short, handling flat-shaped Periodicals and Standard Mail has become the make-work of last resort for the Postal Service’s large and growing reserve army of underused workers,” the coalition wrote.“This busywork, not the needs of flat-shaped mail, is the reason that the attributable costs of flat-shaped mail reported by the Postal Service have risen so sharply.”

If the PRC grants the Postal Service’s request, it would remove USPS' incentive to bring its flats-handling costs into line, the coalition added.

“Why cut costs when you can recover unnecessary costs through rate increases?”

Related articles:

Monday, September 6, 2010

Magazine Publishers: Asleep on the Job?

With all of the stumbles the U.S. magazine industry has made the past few years, it's encouraging to hear that some publishers are looking for outside help on a major strategic issue.

I'm referring, of course, to employee naps.

A recent BusinessWeek story noted that the latest trend in employee perks is napping, with Google's corporate headquarters offering "futuristic napping pods." Some firms have opted for a napping chair that "looks like PacMan with a really long tongue." (Sounds like an English bulldog to me. But where are you supposed to put the tongue? And what if it starts licking you as you doze off/)

"Other companies have outsourced their daytime sleeping solutions," the article informs us. "Yelo, a napping spa in midtown Manhattan, has provided its services to Hearst, Newsweek, and Time Warner. It offers naps in a 'cocoon-like' treatment room in which clients can adjust aromatherapy, sound, and lighting" (but, alas, not advertising CPMs or newsstand sales).

What the article doesn't tell us is the name Yelo has given to its treatment rooms: YeloCabs. Somehow when I think about what relaxes me, a Yellow Cab in Manhattan doesn't come to mind.

Nor does the article tell us whether the snoozing at Newsweek will continue under new owner Sidney Harman. You might think a 92-year-old man would understand the need for an occasional 40 winks, but clearly Harman thinks the magazine's management has been asleep at the wheel: "Newsweek managed to insulate itself from all the opportunities to expand its mark. Newsweek should be in numbers of businesses it's not in now," he recently told The Wall Street Journal.

With Newsweek reportedly losing millions -- $28.1 million last year -- methinks Harman will want the staff (or what's left of it) to do more selling and less napping.

And as for Time Warner, it seems that someone in that company's accounting department has been dozing (or maybe smoking something) as well. How else could it conclude that Time magazine, which is as advertising-anemic as its archrival Newsweek, will "earn a profit of more than $50 million this year"?

Friday, September 3, 2010

Three Goofs: How USPS Undercut Its Case for Exigent Rate Increases

Thanks to its own witnesses, the Postal Service has blown its chances for getting exigent rate increases approved, a postal expert wrote this week.

“Lack of supporting information from the USPS” will make it difficult for the Postal Regulatory Commission to approve the Postal Service’s request for emergency rate hikes, Joe Schick, Quad/Graphics’ director of postal affairs, wrote in his blog this week. “Regardless of the PRC’s position, the Postal Service will not be able to use a bad economy as a reason for exigency any time in the future," wrote Schick, whose company is a major printer and mailer of catalogs and magazines.

Participants in the case filed multiple pages of comments this week pointing out where Postal Service witnesses didn’t know what they were talking about, contradicted the official USPS positions, or contradicted themselves. (Time Warner, for example, refers to "USPS’s operations and pricing witnesses' evident incomprehension of the major issues concerning Periodicals operations and pricing.”)

Schick’s article succinctly summarizes how USPS witnesses inadvertently refuted three claims that are crucial to the Postal Service’s case:

Claim #1: “Without this increase there would not be enough cash to get them through Fiscal Year 2011.” Reality: “Under questioning we found out that they did have enough cash to get through at least the next fiscal year.”

Claim #2: “The internet made them do it” – that is, the Postal Service lost business to electronic distribution. Reality: “Statements in speeches and annual reports from USPS executives confirm that they have been making that claim for the last decade or more. [This is] not a new phenomenon and should have been part of their long-term strategic planning.”

Claim #3: “They claimed this exigent case was needed to get them through the current financial crisis.” Reality: “Under questioning [Postal Service witnesses] admitted that it was part of their long term strategy and that without other drastic changes this year, they could end up right back at the PRC for another exigent filing next year.”

The PRC is supposed to decide on the case by Oct. 4.