Thursday, June 30, 2011

Are Competitors Putting the Squeeze on New Page and White Birch?

When it comes to setting prices, North American paper companies have exhibited some strange behavior lately that is helping customers but making life even more uncomfortable for their most cash-strapped competitors.

Manufacturers' failure to follow through on July 1 price increases announced for newsprint and coated paper is making it harder for White Birch to exit bankruptcy protection and is pushing NewPage closer to the brink of insolvency. As noted two weeks ago in An Ominous Week for NewPage, investors have been in a dither lately over whether NewPage would be able to make a $100 million coupon payment that is due today on one of its bond issues. (It made the payment.)

The usual pattern in publication paper markets is that when one large manufacturer announces a price increase, the other mills in the same market quickly follow suit with similar increases. But that didn't happen this time around for either coated paper or newsprint.

On May 18, NewPage announced July 1 price increases of $60 per ton for everything from supercalendered paper to coated freesheet (CFS). The move by the continent's #1 maker of magazine-grade papers seemed a bit aggressive but not completely out of line considering recent capacity shutdowns and rising costs for fiber, pulp, and energy.

But Verso, #2 in the market, took some wind out of NewPage's sails a week later by announcing increases of only $30 on those types of products. NewPage had to dial back its price increases when most other manufacturers went along with Verso's pricing.

Other manufacturers except SAPPI, that is. That company, a major producer of CFS, never issued a July price announcement. As a result, even the $30 increase that most buyers had resigned themselves to was rolled back.

A similar scenario played out for newsprint. White Birch, Kruger, and Catalyst all announced a $35-per-ton increase for July, but that fell apart when giant AbitbiBowater didn’t follow suit. White Birch subsequently announced some market-related downtime at its Canadian mills, an indication that they are barely meeting their cash costs at current prices.

“If AbitibiBowater had decided to support the July price increase announcement, and had been willing to remove some supply (as needed), newsprint prices would have moved higher,” industry analyst Verle Sutton wrote in the most recent issue of his The Reel Time Report newsletter (available only by subscription). But with its low debt load, efficient mills, and greater access to relatively cheap Southern U.S. fiber, Abitibi didn’t need the price increase to go through to meet its current bills.

"What AbitibiBowater really needs is to drive out the least-efficient White Birch and Kruger newsprint capacity,” Sutton wrote.

Similarly, SAPPI is better able to forego a price increase than the heavily leveraged NewPage, which has more daunting bills due later this year than today's coupon payment.

And Verso’s majority owner, Apollo Management, has an extra incentive to kick the legs out from under NewPage: It has snatched up much of NewPage’s debt in a way that would give it significant leverage over the company if (many people say “when”, not “if”) NewPage defaults.

For more information, please read:

Monday, June 27, 2011

Special Mail Processing of 'Hot' Publications To End Friday

The U.S. Postal Service announced today that it will end preferential treatment for time-sensitive Periodicals mail this Friday, a move that could delay delivery of some daily and weekly publications by a day.

"All Periodicals will be processed efficiently on automated or mechanized equipment where postal facilities have this type of equipment," says a letter USPS officials sent today to "Periodicals mailers" and members of the Mailers Technical Advisory Committee. "Since all Periodicals (daily, weekly, quarterly, and monthly) have the same processing expectations and service standards, they will be processed based upon arrival times and service standards, not publication titles."

The new procedures are supposed to create a set of national deadlines that dropshipped Periodicals must meet to receive next-day delivery. They are also supposed to put an end to "Hot 2C" processing, as discussed in An End to the Postal Service's Wall Street Journal Subsidy?, and the practice of "squeaky wheel" mail handling that provides the best service to the most frequent complainers.

It's not clear, however, to what extent the Postal Service has prepared mail-handling operations for the new rules and whether it is adjusting reward systems to encourage efficiency rather than the avoidance of complaints.

The standardized deadlines (called Critical Entry Times) will "ensure Periodicals are processed on automated equipment to the maximum extent possible. Maximizing the automation of Periodicals will increase efficiency and reduce the cost to process this mail," says the letter from USPS vice presidents David E. Williams and Susan M. LaChance.

The new CETs will seemingly make on-time delivery of daily newspapers nearly impossible. Even the latest CET -- for carrier-route and 5-digit bundles going to processing centers that don't have Flats Sequencing System (FSS) machines -- will be 5 p.m. I have never heard of a morning newspaper starting up its presses that early for the next day's paper.

The CETs will be six to eight hours earlier for copies going to FSS facilities, which "have a longer processing window" and start sorting as early as noon. As FSS continues to ramp up, a significant number of ZIP codes will be shifted to FSS, and the earlier CETs, in the coming months, the letter said.

Tuesday, June 21, 2011

Censor Me: The Magazine Slogans That Were Too Hot for Publishing Executive

Inspired by Bon Appetit’s “Bite me” advertising campaign, I asked my readers a few months ago to do their part for the magazine industry and offer suggestive slogans for other titles. The response was overwhelming.

Publishing Executive posted some of those slogans today in an article that appears in the publication’s May-June issue. But, referring to my readers as “perverts”, the good folks at PubExec decided some of the suggestions were a little too suggestive for a respected B2B magazine.

But they’re not too hot for a disreputable blog that relies on AdSense for most of its limited income. So here are the best of the proposed slogans that Publishing Executive decided not to publish:

  • Road and Track: Grab my stick shift
  • Food & Wine: Eat me, drink me
  • National Geographic: Go around the world with me
  • Southern Living: Inbreed with me
  • Sailing: Play with my man in the boat
  • AOPA Pilot: Mile high me
  • The Priest: Be my altar boy
  • National Hog Farmer: Pork me
  • Modern Steel Construction: Erect me
  • Lubes’n’Greases: Lubricate me
  • Soft Drinks International: Mountain Dew me
  • Elevator World: Shaft me
  • The Carpenter Magazine: Nail me
  • Tea & Coffee Journal: Teabag me
  • Sport Diver: Go down with me
  • Psychotherapy: Go crazy on me
  • Journal of Neurosurgery: Drill my brains
  • The American Journal of Orthopedics: Bone me

Oh, and what about the slogans for Cat Fancy and Dog Fancy that Publishing Executive saw fit to tone down? Let’s just say that the North American Publishing Company does not generally use the words “pussy” and “doggie” in its magazines.

Thanks to all the postal workers, publishers, printers, mailers, and other folks of twisted mind who submitted entries. And a special thanks to Patrick G. of Newport News, Virginia, who submitted slogans that were so naughty he should be spanked – except that wouldn’t exactly be punishment for him.

Now if we can just come up with a “Bite me” style slogan for Publishing Executive . . .

Related articles:

An End to the Postal Service's Wall Street Journal Subsidy?

Mail delivery of many newspapers and magazines could soon be delayed a day because of a new Postal Service program to streamline processing of flat mail.

Postal officials believe the changes will significantly reduce the costs attributed to the Periodicals class, which the U.S. Postal Service has targeted for rate increases because the class is supposedly not profitable.

Included in the plan is the end of “Hot 2C” processing that provides expedited – and expensive – manual handling of such time-sensitive publications as The Wall Street Journal and other daily and weekly publications. Another aspect of the plan is nationwide Critical Entry Times (CETs) -- deadlines for drop-shipped copies to receive next-day delivery -- that will supposedly supersede local agreements between publishers and individual postal facilities.

Last month, Dead Tree Edition noted, in How the Postal Service Subsidizes The Wall Street Journal -- and Why It Should Stop, that Hot 2C handling is in essence an indirect subsidy of certain publications.

"Within the Postal Service, the Journal is famous for complaining vociferously if any of its newspapers are delivered a day late, even if the Journal misses the deadline for getting the papers to a postal facility," the article said. "Postal managers generally acquiesce, creating special (and labor-intensive) procedures to expedite handling of the Journal."

Several postal employees submitted comments agreeing with that assessment, including this one: "The mail doesn't leave my plant 'til the WSJ arrives. Spent many nights waiting to tie out and get the trucks on the road, waiting on the WSJ three digit sorts."

One recent Postal Service presentation to publishers indicated that implementation of new standardized Periodicals operating procedures and nationwide CETs would begin July 1. But it's not clear whether that plan is on schedule because little of the outreach to publishers that was supposed to precede implementation has occurred.

The presentation said the CETs would range from 8 a.m. for publications requiring bundle sortation at a Flats Sequencing System facility to 5 p.m. for those entered at non-FSS processing centers and requiring no bundle sorting. All Periodicals mail received in a processing plant by its CET is supposed to undergo automated processing in preparation for delivery the next day.

Postal officials have indicated that eliminating Hot 2C will cut USPS's losses on the Periodicals class by one-third -- if the Postal Service sticks to its guns.

After all, old habits die hard. If a daily newspaper with a history of complaining shows up in a processing plant at 2 a.m., will the new procedures be followed? Will USPS stand behind supervisors who keep costs down by following the procedures, or will it chastise them because of customer complaints?

And will the Postal Service change its mind when publishers threaten to pull their business, or will it realize that it is better off losing a few unprofitable customers?

Friday, June 17, 2011

An Ominous Week for NewPage

If you like gambling, forget blackjack, horses, or the lottery. The debt of NewPage Corp. is the hot item these days at that grand casino known as Wall Street, as speculators wager on whether the big paper manufacturer will be able to make its bond payments and stay out of bankruptcy court.

On several days recently, the company’s bonds have been the most heavily traded debt instruments in the U.S.

The betting turned sour this week as the company’s bond prices hit their lowest level in more than two years “on concern that the junk-rated coated-paper maker owned by Cerberus Capital Management LP will be unable to make an upcoming coupon payment and will restructure its debt,” according to Bloomberg. NewPage’s second-lien notes were trading at only 29 cents on the dollar Wednesday, down from 40 cents only four weeks ago.

Perhaps the drop occurred because word spread that the company is backing down on its announced $30-per-ton July price increase for coated freesheet paper. Or perhaps investors saw bad omens in last week’s announcement of a new CFO at North America’s largest coated manufacturer.

It’s not that Jay A. Epstein isn’t qualified for the job. But there are two troubling entries on his resume, Enron and White Birch Paper. White Birch and its affiliated companies in the newsprint business entered bankruptcy protection 16 months ago and don’t show much sign of getting out.

To be fair, Epstein apparently didn’t have anything to do with the famed collapse of Enron. He worked in what contacts tell me was an innovative and legitimate business – trying to create a futures market based on pulp and paper prices – that failed because the parent company went down the drain before many people in the tradition-bound paper-making and paper-buying industries had grasped the benefits of hedging.

And the White Birch/Brant empire seemed to be an accident waiting to happen. It is saddled with high-cost mills, rapidly declining demand, and an owner who’s been distracted by a messy and very public divorce from ex-supermodel Stephanie Seymour. (See White Birch: Weaker Than I Realized.)

If not for its crushing debt load, NewPage might actually look like a viable business – certainly more viable than Enron in its last days or White Birch today. The North American coated paper industry has been unusually disciplined lately in managing capacity, which has helped drive up prices in the face of tepid demand.

The weak dollar makes NewPage’s main market, the U.S., relatively unattractive for offshore suppliers. The company’s massive downsizing has apparently left it with relatively low manufacturing costs. And efforts to restart competing supercalendered paper mills in Ontario and Maine keep sputtering out.

Here’s some advice for speculators who are trying to handicap NewPage and project its cash flows: Follow the pulp. Market prices for kraft pulp are at record highs. Rarely has it been more profitable for U.S. mills to sell their pulp rather than turning it in to freesheet paper. And rarely has it been less profitable for them to make paper with purchased pulp.

So the questions to ask are:
  • Is NewPage “pulp long” or “pulp short”? The company’s 2010 annual report says it supplied 94% of its pulp requirements but also sold some excess hardwood pulp last year. But recent mill shutdowns may have shifted the pulp-paper balance significantly.
  • How well suited are NewPage’s pulp operations to the sale of market pulp, especially for export? Just because you can make pulp on site for your own paper machines doesn’t mean you have a way to prepare and transport it to customers half way around the world. NewPage’s concentration of mills in the U.S. Midwest may be a disadvantage here.
  • What about Verso? NewPage would benefit if its largest competitor can divert a fair amount of its pulp to export markets. That would make Verso inclined to idle paper machines and sell the excess pulp rather than driving paper prices down by making excess rolls.
And speaking of Verso, here’s one more question many of us have been asking for months: Why exactly has Apollo Management, Verso’s primary owner, bought up so much of NewPage’s second-lien notes, potentially giving it significant leverage over NewPage?

For more information on NewPage’s travails, see:

Wednesday, June 15, 2011

An Explanation of Postal Service Lobbying

The recent article about what firms and associations spend to lobby the Postal Service (See Lobbying the Postal Service Is a Multimillion-Dollar Business) has spurred several questions.

Most people think of lobbying as an effort to sway legislators, but it also includes trying to influence the decisions of government agencies. After all, changes in postal regulations or procedures, which are generally not subject to Congressional approval, can benefit or hurt major mailers to the tune of many millions of dollars.

The Lobbying Disclosure Act of 1995 says lobbying can include communication with executive-branch officials that is made on behalf of a client regarding rules, regulations, programs, policies, and the awarding of contracts. It also includes "research and other background work that is intended . . . for use in contacts" with federal officials. It does not include donations to political campaigns or other causes.

Details are sketchy, but much of the money for lobbying the Postal Service apparently went to lawyers. Pitney Bowes, for example, paid high-powered law firm K&L Gates more than $1 million last year for its dealing with the Postal Service (plus another $1 million to lobby the Postal Regulatory Commission).

Tuesday, June 14, 2011

Anti-Greenwash Group To Challenge E-Billing Claims in the U.S.

U.S. companies now might want to think twice about promoting paperless billing by sending those "go green, go paperless" messages to their customers.

Two Sides, the industry-backed organization that has successfully challenged the truthfulness of such claims in the U.K. and Europe, announced the opening of a U.S. branch today.

The mission of Two Sides U.S. will be "to promote the sustainability of paper and print in the U.S. market," said Kevin Gammonley, CEO of NPTA Alliance, a trade association of paper merchants that is helping the U.S. branch get off the ground. "In our first phase of fundraising, we have received commitments from over 30 paper distributors who have decided to become early adopters of Two Sides in the U.S."

Before Two Sides revved up in the U.K., the Two Sides announcement said, "Research ... revealed that "43% of the major banks, 70% of telecoms and 30% of utilities were using misleading environmental statements to support their marketing messages, thereby conflicting with current advertising regulations which are in place in most countries."

"In 2010, Two Sides launched a campaign to target companies who claim that switching to online communication is better for the environment without verifiable supporting evidence," said Two Sides founder Martyn Eustace. "As a result, Two Sides has so far convinced 27 out of 33 major corporations to change their environmental claims or use wording that doesn’t include misleading or incorrect statements related to e-billing."

"We will be tailoring the campaign to the U.S. paper and print media market to ensure people understand that the responsible use of print and paper is a sustainable and effective way of communicating, said Phil Riebel, an environmental consultant and columnist who helped organize the U.S. branch. "A number of major pulp and paper producers and a large U.S. brand-name retailer" have joined the U.S. campaign.

For more information about how dead-tree (paper-based) communication stacks up environmentally against dead-dinosaur (electronic) methods, please see:

Sunday, June 12, 2011

Lobbying the Postal Service Is a Multimillion-Dollar Business

Note: Additional information is provided in the June 15 follow-up article, An Explanation of Postal Service Lobbying.

Corporations and associations spent more than $20 million last year to lobby the U.S. Postal Service, according to a government database.

During the past decade, organizations shelled out $283 million to influence the USPS.

But even the lobbying business has hit hard times. The amount spent on lobbying the Postal Service has declined every year since 2005, when the combined tab surpassed $40 million, the Senate's Lobbying Database shows.

Three organizations accounted for more than half the $20.3 million spent on influencing the Postal Service last year. The top spenders were:

1)  American Bankers Association: $5.5 million
2)  American Express Company: $2.89 million
3)  Pitney Bowes: $1.99 million
4)  Lorillard Tobacco Company: $1.86 million
5)  Retail Industry Leaders Association: $1.23 million
6)  (tie) Direct Marketing Association and Newspaper Association of America: $1 million each
8)  Disabled American Veterans: $810,000
9)  Medco Health Solutions: $470,000
10) National Newspaper Association: $460,000

Other major spenders of note included Printing Industries of America ($394,745), Appleton Inc. ($190,000), American Business Media ($150,000), Greeting Card Association ($120,000), and the National League of Postmasters ($100,000).

Nearly $5.6 million was spent lobbying the Postal Service during the 1st Quarter of this year. Leading the way were Medco Health Solutions ($1.08 million), International Paper ($1 million), and the Air Transport Association of America ($960,000).

Suggestions for AbitibiBowater's New Name

Why didn't they ask us?

After costing creditors $6 billion and its stockholders another $2 billion, newsprint giant AbitibiBowater wants to shed its past by changing its name to one selected by employees.

The company expects to announce its new moniker in the fall after culling through more than 1,400 recent suggestions from employees, according to ForestTalk. Too bad it didn't ask its customers, former employees, investors, or creditors. We could have offered some colorful suggestions that don't entirely leave the past behind.

Dead Tree Edition's nickname for the company, "AbitibiUnderwater" doesn't work now that it has emerged from bankruptcy protection nearly debt-free and perhaps even profitable. In honor of that magical transformation AbiBow could be renamed Abracadabrawater.

Creditors and ex-employees left holding the bag when the company went Chapter 11 might prefer the name AbitweelNeverpayoo.

James Bond fans who see some kind of evil specter in Abitibi's dominance of the newsprint market might prefer AbitibiBlofeld.

Wall Street would go for AbitibiBiorefinery because "biorefinery" sounds like a much sexier investment than "pulp and paper mill".

CEO Richard Garneau (nicknamed "Rain Man" by employees of a previous company because of his uncanny knack for remembering numbers) revealed Thursday that the company's wood costs are 91% higher in Quebec than in the U.S, according to ForestTalk. So how about AhbuttobeOutofQuebec?

Those who are pessimistic about the company's outlook might select AbitibiTreadingwater. Or, with a Too Big To Fail twist, AbranchoftheCanadiangovernment.

And if you expect a return to bankruptcy court, there's always Chapter 22.

Related articles:

Sunday, June 5, 2011

It's Official: Postal Service Has More Older Workers Than Any Fortune 500 Company

Almost half of the U.S. Postal Service's employees are over 50, a far higher number than that of any Fortune 500 company.

The Postal Service's proportion of over-50 employees is 10 percentage points higher than any Fortune 500 company and nearly double the average, according to a recent study.

In USPS Workforce Has More Gray Hairs Than the Fortune 500, I contrasted the study's results to some Postal Service numbers without being aware that USPS publishes exact data on the age of its workforce. (Thanks to Brian Sheehan of for pointing out that page 4 of the "HAT" report has the numbers.)

The report shows that more than 49% of USPS employees are over 50. Fifty-something postal workers outnumber the 40-and-under crowd by more than 2 to 1. More than 1 in 10 Postal Service employees is over 60.

Some have questioned whether yesterday's article was an attack on the Postal Service or its employees. Nope. I'm just presenting facts that are crucial to understanding the U.S. Postal Service and that have significant implications for such matters as its future retirement rates and health-insurance costs.

Saturday, June 4, 2011

USPS Workforce Has More Gray Hairs Than the Fortune 500

Please note the June 5 update to this article, It's Official: Postal Service Has More Older Workers Than Any Fortune 500 Company.

The U.S. Postal Service apparently has a larger share of employees who are over 50 than any Fortune 500 company, a new study indicates.

American Airlines leads the big companies, with a workforce that is 39.1% over 50, estimates the study, based on public records.

The number of postal workers over 50 does not seem to be publicly available, but the data that are available suggests USPS has the private sector beat in the older-worker category.

"The average age of postal employees is 53," Patrick Donahoe, who is now the Postmaster General, told Bloomberg Businessweek last year.

That doesn't mean that 50% of USPS employees are 53 or older. A more meaningful statistic would be the median age (brush off your high school math textbooks, folks), but the Postal Service doesn't seem to have released that number.

Another clue to the age of postal workers is this statement from the Postal Service's 2010 Action Plan for the Future: "Over the next 10 years, over 300,000 employees — more than half the current workforce — will be eligible to retire." That indicates that well over 50% of USPS employees are over 45.

And the numbers certainly show that the postal workforce has far more older workers than the Fortune 500 as a whole, where the average of over-50 employees is 25.6%.

"It is important to remember that at this point we do not have information on whether or not these employers have committed to hiring older workers, we simply know that they do or do not tend to already employ older workers — either through new hires or retaining existing employees as they age," says.

Many of the companies that rank high on the list, according to U.S. News & World Report, have "a strong union presence" and have gone through significant downsizing -- just like the Postal Service. "When they have had layoffs and they use seniority as the basis for that, it will appear that they have a preference for older workers," said Barry Bluestone, a Northeastern University political economy professor, in the article.

Downsizing through attrition -- mostly from retirements -- is a major part of the Postal Service's strategy to reduce costs in light of declining mail volumes.

Related articles:

Wednesday, June 1, 2011

Black Liquor Makes the Top Ten

A USA TODAY editorial yesterday ranked black liquor tax credits #6 on the list of “10 terrible tax breaks” that should be eliminated or scaled back.

"'Black liquor' = much green," the unsigned editorial said. "Paper companies make a mockery of tax law by claiming a credit meant to promote biofuels. They take a flammable byproduct of the pulping process known as black liquor, mix it with diesel fuel and — presto! — they are promoting alternative fuels and eligible for massive tax breaks. (Cost: $6.6 billion.)"

After many months of crusading to bring to light this boondoggle for a pulp byproduct, I'm happy that in less than a month a second major newspaper has taken notice -- especially because it cited the $6.6 billion figure that was first reported by Dead Tree Edition.

But it's too bad the USA TODAY editorial got only half the story. The $6.6 billion number (originally reported as $6.5 billion, but then the IRS kicked in a sweetener) represents only what publicly traded pulp manufacturers earned from alternative fuel mixture tax credits.

It doesn't include money paid to privately held pulp makers, which the United Steelworkers claims was $5 billion for Georgia-Pacific alone. And it doesn't include another biofuel boondoggle nicknamed Son of Black Liquor, which will end up costing taxpayers at least $1 billion and perhaps far more.

The editorial doesn't mention that it's too late to do anything about the fuel-mixture credits. That money has already been paid out to pulp companies before black liquor was declared ineligible for the program. But the Son of Black Liquor credits are likely to be claimed for several more years.

The other newspaper that has come out recently against black liquor tax credits was The Washington Post, which referred to Son of Black Liquor as "a paper subsidy that must be stopped". It noted that "tax credits for black liquor . . . served no energy policy purposes and increased the federal debt to boot."

Related articles: