Thursday, August 25, 2011

Is USPS Underestimating the Number of Layoffs Its Downsizing Plan Would Require?

Note: An earlier version of this article contained an erroneous interpretation of federal severance benefits; they only apply to employees not yet eligible for retirement.

The U.S. Postal Service's estimate that its "workforce optimization" plan will require 120,000 layoffs in the next four years may be substantially understating the number of postal workers who would be forced out.

The recently released plan calls for shedding 220,000 career employees over the next four years. It estimates that attrition will take care of 100,000 employees, meaning the rest of the cuts would have to come from layoffs.

The estimate accurately reflects recent trends, when the number of career employees declined by just over 25,000 in a 12-month period. (See The Downsizing of the Postal Workforce Slows.)

But there's a big reason not to project recent trends into the future: the generous severance policy for USPS and federal employees. An employee with 20 years of service, for example, would get at least 30 weeks of severance pay and be eligible for unemployment insurance, according to Courier, Express, and Postal Observer.

Being laid off seems to be a much better deal for postal employees than just quitting or retiring. Those who think they are likely to be laid off in a year or two will be inclined to stay with the Postal Service, so they can collect severance and unemployment, rather than quitting. And even those able to retire, who are ineligible for severance benefits, may find the possibility of collecting unemployment benefits a sufficient incentive to stay with USPS.

Postal workers have a history of responding to retirement incentives. The Postal Service's attrition rate was about 40,000 annually a couple of years ago when many employees were offered early-retirement packages. And many employees have indicated they are ready to retire if another VERA (Voluntary Early Retirement) deal is offered.

So it's only logical to assume that postal workers would also respond to an incentive not to quit.

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Wednesday, August 24, 2011

NewPage Inc. 5000 Ranking Seems Like a Cruel Joke

This is not a joke: NewPage, the shrinking paper-making giant that is teetering on the brink of bankruptcy court, was named yesterday to the Inc. 5000 list of the USA’s fastest-growing private companies.

This bit of odd news came out just as the country’s largest maker of magazine-quality paper was announcing the indefinite idling of its two-machine Port Hawkesbury mill in Nova Scotia.

The company earned the #3062 ranking on the magazine’s list by growing revenue from $2.17 billion in 2007 to $3.6 billion in 2010. What the magazine doesn’t mention is that the growth came solely from NewPage’s purchase of Stora Enso’s North American assets (including Port Hawkesbury) in late 2007.

NewPage’s sales dropped by 17% from 2008 to 2010 and are still declining because it has shut one-fourth of its production capacity. What was a 12-mill company in December 2007 is to become an eight-mill operation next month if the company follows through on its announced idling of Port Hawkesbury.

Making the Inc. 5000 list is typically a notable milestone for a growing American company, but the recognition seems like a cruel joke given what NewPage has already been through just this month, when it:
  • Buried a reference to exploring “restructuring alternatives”, including a possible Chapter 11 bankrupt-protection filing, into a financial document, only to have some anonymous blogger spill the beans. (See NewPage Finally Says the B Word. ) The story has since been picked up by the the trade press as well as local news media covering the various NewPage mill towns. (Port Hawkesbury's mayor reportedly said last night that NewPage filed for Chapter 11 yesterday, but so far that claim cannot be verified.)
  • Had to pay $600,000 in a settlement with former CFO David J. Prystash, whom the company said “has made certain allegations and threatened claims relating to or arising out of his employment and the termination of his employment with NewPage.”
  • Ran into delays with asset sales that were supposed to generate much-needed cash.
  • Had its credit downgraded once again.
  • Announced the idling of Port Hawkesbury, which includes a world-class machine for making supercalendered paper. The move may be just an attempt to prevent an increase in the mill’s power rates, though every Canadian mill that sells primarily to the U.S. is on shaky ground these days because of currency rates. (For more about the mill's up-and-down fortunes, see Port Hawkesbury's Near-Death Experience.)

Monday, August 22, 2011

The Changing World of Print Buyers: An Interview with Margie Dana

I was a fan of Margie Dana years before adopting my alter ego of D. Eadward Tree, so it's a real honor to be able to interview her. And the honor is doubled because she also published an interview with me today on the excellent Web site for Print Buyers International, in which I reveal why I write under a pseudonym and what I would do if I owned a printing company.

Margie has been a friend and advisor to those of us on the "buy side" of printing since 1999, when she started her weekly Margie's Print Tips e-newsletter that is still going strong today. Her goal all along, as she says, is "to educate customers and manufacturers about each other . . . to build bridges and eliminate misconceptions."

She keeps finding new ways to build those bridges and eliminate misconceptions, such as by founding Print Buyers International, writing two books (Put It on Paper! The Newcomer's Guide to the Printing Industry and Print Buying Made Simple), and writing and blogging for the printing industry's top trade publication and web site, Printing Impressions. As if that weren't enough, she'll be hosting PBI's 2011 Print & Media Conference next month and will soon be publishing her third book.

Not print-centric
Dead Tree Edition: How has print buying changed since you switched from being a print buyer to being a writer and head of an organization?
Margie Dana: I guess the biggest difference has to be the impact of the Internet. It’s opened doors we never had in my print buying days. Think about what’s at our fingertips now – it’s all there, if you know where to look. More recently, the popularity of social media and social networking means there are more ways for print buyers to connect with one another. That’s big. And of course, since print volumes are down, it’s had a significant impact on the roles and future career paths of buyers. Most professional buyers are no longer print-centric. They are becoming media generalists bit by bit – which is good for their careers.

Dead Tree Edition: So do you see many people who were print buyers taking on more non-print roles?
Margie Dana: Absolutely. Many buyers if not most have seen their roles expand into newer media as well as marketing, design, web work, project management, mail/fulfillment management, and so on.

Multi-tasking experts
Dead Tree Edition: What exactly is a print buyer?
Margie Dana: The person in a company, agency or other organization who has primary responsibility for managing/handling the production of printed materials for his or her employer. It describes a function – not to be confused with a title. It is highly misunderstood and under-appreciated. The majority of print ‘buyers’ I know are much more than purchasers. They are their firms’ de facto printing experts, skilled in sourcing, negotiating, budget development, paper specification, design software, production scheduling, troubleshooting and so on. Many have editorial or design responsibilities. They help determine what print projects are appropriate for a particular campaign and are responsible for making them a reality. Multitasking experts, they are internal liaisons with editors, designers, IT units, and management – as well as liaisons with all vendors.

Dead Tree Edition: What inspired you to start Boston Print Buyers? (and how did you move from "Boston" to "international"?)
Margie Dana: I thought you’d never ask. I had been a corporate print buyer for over 15 years, first for Boston University and then for MFS Investment Management. I loved it! I left in the late ‘90s because our son was then school age, and I wanted to be there for him. But I also wanted to work and decided that since there were no resources for print buyers, I might as well start a group. Boston Print Buyers had bimonthly dinner meetings, always with an educational discussion led by a sponsoring firm. A few years later, a friend convinced me to produce a conference. By that time I’d traveled to both England and New Zealand to speak to print buyers and printers. It was clear that print buyer issues and trends were universal, so I decided to change the name to reflect that.

Dead Tree Edition: What exactly is PBI?
Margie Dana: A professional association that caters to those who work with printers and related graphic arts firms. We hold an annual 2-day conference as well as 1-day conferences. We’re a major resource for print customers as well as printers, actually. We offer education and information for these professionals. When I write or blog, I reflect the current mood and trends of professional print buyers and printers, too. Member benefits include serious discounts on all products, services and events, premium membership in, and a yet-to-be-announced Buying Power Program with a leading online print service provider. PBI members get first notices of job openings and free resume review by yours truly. In 2012 we plan to host a one-day PBI Conference in Boston and are discussing plans for the same in the Southeast and on the West Coast.

Extremely influential
Dead Tree Edition: What is the most important thing that printers should know, but generally don't know, about print buyers?
Margie Dana: They do a whole lot more than source print, and most print buyers are extremely influential in their organizations. Print buyers get short shrift by many sales professionals in this field, and it seriously bugs me. They’re believed to be gate keepers not decision makers, and I protest loudly. I dare your readers to attend our upcoming conference in Chicago on September 13–14 and take a look at who those “print buyers” are: senior-level career professionals with significant responsibility and clout in their organizations. They don’t have their heads in the sand when it comes to the future of print and communications.

Dead Tree Edition: What is the most important thing that print buyers should know, but generally don't know, about printers?
Margie Dana: They’re all different. Experienced print customers know this, but new buyers and designers don’t. They perceive printing as a commodity and don’t know how to begin sourcing print efficiently. I guess that’s why I’m in business.

Dead Tree Edition: Are most print buyers concerned about environmental issues? Do they just follow whatever sustainability policies their employers have (or don't have) or are many of them going beyond what is required of them?
Margie Dana: Sustainability in this field is a funny topic. It is currently not one of the hottest topics, if you follow discussion trends in blogs and LinkedIn Groups. Buyers who as individuals are green “activists” are more likely to make it a priority in their roles. It does remain a very critical issue in higher education (no surprise there). And as you pointed out, if there are corporate sustainability policies and guidelines, print buyers adhere to them.

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Thursday, August 18, 2011

Google Using Blatant Greenwash To Promote New Catalog App

Google launched its Google Catalogs app this week with a shiny coat of greenwash.

"A Greener Way to Shop" proclaims the new product's promotional page, providing no substantiation for the claim.

"With Google Catalogs, you can subscribe to paperless versions of all your favorite catalogs," the page states.

Oh, so switching to information that's stored in energy-sucking data centers and then transmitted over the coal-fired Internet to devices containing a variety of toxic materials is environmentally sustainable simply because it involves no paper -- a recyclable product made mostly from renewable materials? C'mon, Google, a sophisticated company that has put so much effort into real sustainability initiatives should know better than that.

"Environmental marketing claims that include a comparative statement should be presented in a manner that makes the basis for the comparison sufficiently clear to avoid consumer deception," states the Federal Trade Commission's voluntary anti-greenwash guidelines. "In addition, the advertiser should be able to substantiate the comparison."

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Wednesday, August 17, 2011

USPS Will Not Seek Exigent Rate Increase

The U.S. Postal Service will not seek an "exigent" (higher-than-inflation) rate increase this year, Postmaster General Pat Donahoe told the Mailers Technical Advisory Committee today.

USPS asked the Postal Regulatory Commission last month for special permission to raise most postal rates by more than 4%, in addition to the usual rate increases that are capped by changes in the Consumer Price Index.That proposal came in a court-ordered reconsideration of the financially strapped Postal Service's request for rate hikes to help it overcome the effects of the recession.

But Donahoe told the mailers group today that USPS would pursue that case only to get the PRC to clarify its position on when such exigent rate increases are allowed.

It will, however, implement CPI-capped rate increases in January, he said. Based on current inflation numbers, those increases will probably be a bit above 2%.

Monday, August 15, 2011

NewPage Finally Says the B Word

Update: It took less than a month for NewPage to go from mentioning Chapter 11 to actually filing for it. See NewPage Files Chapter 11, Seeks Buyer for Canadian Mill.

North America's largest manufacturer of coated paper acknowledged today that it may be forced to seek Chapter 11 bankruptcy reorganization because of its crushing debt load.

NewPage made was no reference to reorganization in the news release this morning announcing another quarter of losses. But the 10-Q quarterly financial report it filed with the U.S. Securities and Exchange Commission later in the day contained this statement:

"We have retained advisors to assist us in exploring various restructuring alternatives and are engaged in discussions with various stakeholders to address our ongoing capital needs. We cannot assure you that we will be able to refinance any of our indebtedness, or that we will be able to do so on commercially reasonable terms. If we are unable to refinance our debt or generate sufficient cash flow to service our obligations, we will be required to seek to restructure our existing debt or to voluntarily seek, or be forced to seek, protection under the Chapter 11 of the U.S. Bankruptcy Code and applicable Canadian laws."

The report noted that the company's current liabilities (payments due in the next 12 months) exceed current assets by $2.5 billion because of bonds that come due early next year.

Because of higher paper prices and a better mix of products, the news release said, NewPage's 2nd quarter of 2011 was better than last year. The quarterly loss decreased from $174 million to $132 million. But it also said that the information in the 10-Q would be "sufficient to answer questions, and no conference call is planned."

S&P lowered its credit ratings on NewPage and its debt issues today, citing the paper manufacturer's "constrained near-term liquidity after the company posted weaker-than-expected second-quarter results and decided to hold off on previously announced asset sales."

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Thursday, August 11, 2011

A Rough Day For Ink-on-Paper Companies

Two giants of the ink-on-paper business, NewPage and Quad/Graphics, were beaten up by financial markets on Wednesday.

A NewPage bond issue dropped 14% to only 12.1 cents on the dollar, down from 70 cents just five months ago, Bloomberg reported. Investors seem to have given up hope that North America's largest maker of coated paper will be able to pay off or refinance the bonds next year.

The word in the paper trade is that NewPage officials do not protesteth too much these days when the words "Chapter 11" are mentioned and are starting to acknowledge that reorganization is inevitable.

In what may be good news for NewPage, The Cape Breton Post reported Wednesday on persistent rumors that a sale of the company's Port Hawkesbury, Nova Scotia mill is imminent.

Quad/Graphics' stock price, meanwhile, dropped 25.9%, the New York Stock Exchange's second largest decrease for the day, after the company announced quarterly earnings. In less than two months, it has lost more than half of its value.

The numbers didn't seem so bad -- sales down less than 1% and adjusted EBITDA down 15% from the same quarter last year. The big printing company says those results were in line with its plans.

But Wall Street was disappointed by the 22-cent-per share loss; the consensus expectation was a 32-cent profit, wrote Rich Smith at The Motley Fool. And investors were spooked by most of Quad's cash flow going to capital expenditures rather than paying down debt, he said.

It probably didn't help that Quad said it "experienced net sales declines in our book segment and continuing headwinds from industry pricing pressures."

Wednesday, August 10, 2011

Postal Service Has Too Many Employees and Pays Them Too Much, Mailer Groups Say

The U.S. Postal Service has about 170,000 too many employees and pays them about 30% too much, according to four major mailers groups.

“The notion that the Postal Service operates at the frontier of efficiency—and can do nothing further to reduce costs—is refuted by the record,” they wrote in a joint filing with the Postal Regulatory Commission last week.

The Magazine Publishers of America, Direct Marketing Association, the Association for Postal Commerce, and the Alliance of Nonprofit Mailers are objecting to the Postal Service’s renewed attempt to get PRC approval for “exigent” (above-inflation) rate increases early next year. (See USPS Seeks Special January Rate Increases for more information about USPS's request.)

The four associations accused the Postal Service of “portraying itself as a pitiful, helpless giant, essentially powerless to reduce its non-exigent costs or deal with their causes.”

“The non-exigent circumstances that are the primary causes of the Postal Service’s recent losses,” the four told the PRC on July 25, “include (1) an oversized network of undersized and obsolete mail processing facilities; (2) a labor compensation premium of approximately 30 percent; (3) a workforce that is approximately 30 percent too large for the Postal Service’s workload; (4) the long-term migration of communications from mail to the internet; (5) the requirement imposed by PAEA § 803 [postal reform legislation] to prefund retiree health care obligations by over $5 billion per year; and (6) the overfunding of the Postal Service’s pension obligations.”

With more than 560,000 career employees, the Postal Service would have to cut about 170,000 to downsize by 30%. The mailers’ groups did not specify where the excess employees are, but in the past the industry has pointed out an overreliance on manual processing, the plethora of post offices and sorting facilities, and the many layers of supervisors and managers.

USPS management and postal unions agree with the mailers on points 5 and 6. But, unlike the postal people, the mailers also see a positive in the postal-reform law -- its inflation-based price cap that has spurred cost cutting the past few years.

“Regulated monopolies in the process of emerging from cost-of-service regulation typically claim (and often believe) that they are already at the cutting edge of efficiency. But they typically have not eliminated all avoidable [in]efficiencies, in ways that are hard for regulators to ferret out. That is precisely why index ratemaking has gained such appeal among regulators in recent years.”

They also quote PRC Commissioner Dan Blair’s statement last year that “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.”

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Saturday, August 6, 2011

The Downsizing of the Postal Workforce Slows

The dramatic downsizing of the U.S. Postal Service's workforce has slowed considerably in the past year, according to USPS documents.

The number of career employees decreased by only 25,409 in the 12 months leading up to June 2011, according to a USPS document released this week, versus 44,145 in the previous 12 months and 36,326 in the year before that. That means the annual net attrition rate declined from 7.0% to 4.3% in the course of a year.

Much of the slowing attrition rate occurred in the 151,385-employee “Clerks/Nurses” category, which lost 7,839 workers in the past year versus 23,368 the previous year. Attrition also slowed for mail handlers, whose ranks decreased by only 1,871 versus 4,576 in the previous period.

More than 20,000 USPS employees, mostly clerks and mail handlers, accepted a $15,000 early-retirement incentive in late 2009. Many postal employees have left comments on Dead Tree Edition and other Web sites indicating they are ready to retire if they are offered a package.

But as the Inspector General recently pointed out, the Postal Service's "current financial state" prevents it from offering such buyouts despite the long-term savings that would result. (See Postal Service Can No Longer Afford Money-Saving Tactics, Study Says.)

The ranks of city carriers declined 4.5% and of rural carriers declined 1.8% in the past 12 months; both decreases were in line with the previous year.

But the number of headquarters employees took a big hit because of a recent early-retirement incentive for administrative employees, decreasing 11.7% after increasing 5.8% the previous year. The ranks of supervisors and managers thinned by 8.5%, more than the 5.9% decline the previous year.

The use of casual employees has come back into favor. Their numbers rose 38% in the past 12 months after a 58% drop from mid-2008 to mid-2009.

With about 80% of the Postal Service’s costs going toward salaries and benefits, most USPS efficiency moves are focused on reducing the size of the workforce. In just three years, the number of career employees has declined by nearly 106,000, to a total of 563,492 in June.

Union contracts inhibit layoffs, and employees tend to make a career of the Postal Service – as evidenced by half of the workforce being 50 or older. That means attrition through retirements has been the largest source of employee downsizing.

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