Saturday, November 26, 2011

On USPS Privatization, George Will Strikes Out

George Will is a Pulitzer Prize-winning political commentator who has penned some of the most beautiful prose ever written about baseball. But yesterday, in opining about the U.S. Postal Service, he whiffed when it came to basic fact checking.

After a fascinating history lesson about how Sunday mail delivery was discontinued a century ago, Will threw this clunker into his commentary for the The Washington Post:

"Surely the government could cede this function to the private sector, which probably could have a satisfactory substitute system functioning quicker than you can say 'FedEx,' 'UPS' and 'Wal-Mart.' The first two are good at delivering things; the third, supplemented by other ubiquitous retailers, could house post offices."

Question for Mr. Will: When was the last time you sent or received anything via FedEx or UPS that cost only 34 cents? Or even anywhere close to 34 cents? The average price USPS charged last fiscal year for First Class and other monopoly classes of mail was 34.1 cents.

More questions: When was the last time FedEx or UPS begged for the chance to take over the Postal Service's business? When was the last time you heard an executive from one of those companies say, "Gee, we'd really like to deliver mail to every address in the country, regardless of profitability and without price discrimination; we can't wait to drive snowmobiles in Alaska and to take mule trains into the Grand Canyon so that we can complete our appointed rounds"?

Yes, FedEx and UPS are "good at delivering things." So are moving companies and obstetricians. But none are set up to do what the Postal Service does on the scale that the Postal Service does it.

Both FedEx and UPS are happy to serve businesses five days a week (or to charge premiums for weekend delivery). But going to private homes is another matter. Their favorite method of getting low-value shipments to residences is to pay the Postal Service for making the actual deliveries.

Perhaps privatization of some or all U.S. postal services makes can or should lie in the future. But it won't simply be a matter of turning over mail delivery to the private sector, especially when no one in the private sector seems to be clamoring to take over the U.S. Postal Service and all the requirements and restrictions imposed on it.

OK, Johnny, Now Greenwash Your Hands

One of the "joys" of traveling long distances on a busy holiday weekend is seeing how highway rest stops try to greenwash their way out of providing paper towels.

Shown here are two examples of hand dryers from my recent travels. The second one, in case you have trouble reading it, says "Save trees, eliminate paper towel waste, and maintain cleaner facilities with World Warm-Air Dryers."

Part of Dead Tree Edition's plan for reviving the paper industry is handing out little stickers saying "Wipe hands on pants". They could be placed under the hand dryer's instructions, right below "Rub hands vigorously under dryer."

Or how about one reading "This dryer powered by coal-fired electricity"?

Somehow, I don't think the state highway department (no, I'm not telling you which one) did a thorough environmental analysis before approving the message on the first example above: "We encourage the use of our high efficiency electric hand dryers as alternatives to disposable paper towels. By doing so, we reduce our carbon footprint and our impact on landfill capacity."

I'm not saying paper towels are more environmentally friendly than electric dryers. But I object to simplistic assumptions that all substitutes for paper are greener than using paper. (Dead Tree Edition has addressed this issue in such previous articles as Google Using Blatant Greenwash To Promote New Catalog App and Smackdown: Printed Editions vs. Digital Editions.)

Whether using an electric dryer has a lower carbon footprint and less impact on forests and landfills than paper towels depends greatly on a variety of variables, such as:
  • The energy sources of the dryer's electricity and of the paper mill. (In North America, coal is the most likely source of the dryer's electricity, while relatively benign energy sources like hydroelectric are fairly common at paper mills.)
  • The forestry practices used to obtain the towels' virgin fiber.
  • The proportion of recycled content in the paper towels.
  • The amount of deforestation caused by obtaining fuel for those power sources, such as via mountaintop removal for coal mining.
  • The energy efficiency of the hand dryer and the paper mill.
  • The proportion of people using hand dryers who end up saying, "Screw it" and finish drying their hands with toilet paper.
  • The carbon footprint of the bathroom's TP.
  • The disposal methods used for the bathroom's waste -- and the power plants' fly ash.
Speaking of not overlooking the environmental impact of electricity generation, I couldn't resist republishing these apocryphal coal-industry advertisements:

Home Solar Power Discounts - One Block Off the Grid

Monday, November 21, 2011

Are Quad/Graphics and Barnes & Noble Really on the Ropes?

Not again!

Those of us in the ink-on-paper side of the publishing world have become accustomed to our vendors and sellers going through bankruptcy reorganization. But seeing Quad/Graphics and Barnes & Noble listed recently by Business Insider among The Next 11 Big Companies That Could Go Bankrupt was a bit of a jolt.

When a big printer (Quebecor World) went Chapter 11 in 2008, it was no big surprise. Nor was the demise earlier this year of the big Borders bookstore chain. One was burdened by out-of-date plants, the other by an out-of-date business plan.

But Quad and B&N are supposed to be the strong survivors who benefit from the demise of their less nimble and innovative competitors.

BI’s list is based on research from GovernanceMetrics International that identifies companies with “an elevated financial distress probability and which have experienced high risk events that increase the likelihood of bankruptcy."

B&N is #5 on the list, with a "financial distress probability" of 6.32% and what BI calls a business model that is “only slightly more viable” than Borders’. Amazon’s new Kindle Fire and low-price black-and-white Kindles will “put pressure” on Borders and its competing Nook e-readers, BI says.

Quad is ranked #6, with a 6.25% probability of distress (during what period of time? BI doesn’t say.) It noted the big printer’s high debt and tight profit margins. BI also cited a recent analysis from The Street showing that Quad had a “quick ratio” (current assets to current liabilities) of only 0.77, which suggests questionable ability to cover its short-term cash needs.

A profile of Quad in the Milwaukee Journal Sentinel over the weekend pointed out that Quad has “lowered its full-year earnings outlook for the third time in as many quarters.” Also spooking Wall Street are declining sales in the book division, which represents only 7% of the company’s revenue, according to JS reporter John Schmid.

Seeing the stock lose more than two-thirds of its value in barely a year hasn’t helped either.

Other articles about Quad and B&N include:

Saturday, November 19, 2011

Could Forever Stamps Become Worthless? What Bankruptcy Might Mean for USPS

With news reports of the U.S. Postal Service talking to restructuring advisors and being close to bankruptcy, it’s time to ask what might seem like a silly question: Are Forever Stamps really forever?

In the past two weeks, Reuters described USPS as “on the brink of bankruptcy”, the Associated Press explored what happens “in the event of a shutdown”, and the San Francisco Chronicle says postal executives are meeting with corporate “restructuring” (AKA bankruptcy) advisors.

Canceling the $2.5 billion worth of unredeemed Forever Stamps held by tens of millions of Americans is a political non-starter. The same goes for the couple of billion dollars worth of other USPS liabilities held by postal customers, such as money orders, non-Forever Stamps, and box rent.

The Postal Service would never propose walking away from those obligations, and Congress would never approve it.

But they might not be given the choice.

When a private business goes through bankruptcy reorganization, it cedes to the court control over which liabilities get paid. Unsecured creditors (like owners of Forever Stamps) are in line behind secured creditors and often end up with nothing, as you might know if you’ve ever owned a gift card for a retailer that went Chapter 11.

No one has spelled out what a “bankruptcy” or “reorganization” would mean for the Postal Service, though clearly there are thoughts in some quarters about how to void the Postal Service's labor contracts and selected financial obligations.

The point is that, whether liberal or conservative, you should be wary of any effort to present bankruptcy court as the answer to the Postal Service’s mounting debts and financial losses.

Wednesday, November 16, 2011

Print Is Dead? Not For This Growing Publication Niche

Here’s a factoid that defies the conventional wisdom about printed magazines being passé and the U.S. newsstand system having one foot in the grave: Sales of bookazines are up nearly 20% this year, according to industry consortium MagNet.

“These results seem to contradict what the industry press has long decided, that digital is killing print,” MagNet, which reports on retail sales of magazines, wrote recently in its client newsletter. "Even in these tough economic times, consumers are willing to purchase high quality publications that provide subject matter that appeals to them, even at higher cover prices.”

Pique Their Interest, Take Their Money
The lesson: “If you produce high quality titles that peek [sic] consumers' interest, even with higher cover prices, you can make money selling them almost exclusively from the newsstand, even with limited advertising revenues.”

MagNet defines a “book-a-zine” as “an issue that was not part of a title's normal frequency schedule and has a cover price between $9.95 - $19.99.” It calculates 2010 sales at just over $400 million, with some individual books bringing in well over $1 million. First-half 2011 sales were $236 million, according to MagNet, putting the niche on track to reach $500 million for the full year

Dead Tree Edition’s definition of bookazines (AKA mooks, SIPs, one-shots, specials; See Invasion of the Bookazines, Featuring the Return of the Living Dead) is broader, encompassing any non-periodical that retailers display in their magazine sections for a limited period of time. That includes products sold for less than $9.95 and those published by non-periodical brands like Pillsbury, Life, and The Old Farmer’s Almanac.

The number of bookazine titles is increasing, apparently because the products are profitable for publishers, wholesalers, and retailers, according to MagNet. After all, the price points are much higher than for typical monthly or weekly issues, the products have a longer shelf life, and no blow-in card falls out of them saying, “You idiot. For what you just spent for this magazine, we would have gladly sold you a six-month subscription. (Allow 6-8 weeks for delivery.)”

More Share of Shelf?
MagNet doesn’t comment on whether mooks are gaining “share of shelf” on the newsstand, but with their growth and profitability it seems likely that the “invasion of the bookazines” is contributing to declining sales for regular magazine issues.

There’s also no commentary on what kind of content is selling well. Dead Tree Edition's unscientific analysis finds that many mooks play to at least one of print’s strengths – such as beautiful photography, collectability, recipes (ever spilled Alfredo sauce on an iPad?), or content that lends itself to being highlighted or Post-It Noted.

MagNet thinks publishers have not tapped the advertising potential of bookazines. The challenge, industry insiders tell me, is that bookazine sales are notoriously difficult to predict; print advertisers are used to a guaranteed ratebase. Perhaps the problem could be solved by selling bookazine ads like web ads – on a CPM basis, where the exact number of impressions (books sold) doesn’t have to be known or guaranteed up front.

Or maybe they could be sold like ads in apps: “This is cool. This is cutting edge. You gotta advertise in this. Audience metrics? Fuhgeddaboudit."

Related article: Mooks and Canucks: The Bookazine Invasion Crosses the Border.

Tuesday, November 15, 2011

7 Reasons the Jury Is Still Out on Flats Sequencing

It's still not clear whether the U.S. Postal Service's $1.4 billion investment in the Flats Sequencing System will pay off, according to the chairman of the Postal Regulatory Commission says.

"The full batch of 100 FSS machines has been deployed, but it still remains to be seen whether FSS will produce economic benefits," Ruth Goldway told Multichannel Merchant recently in a wide-ranging interview about USPS's future. She indicated that postal officials had provided extensive information to the PRC about "its experiences and challenges in the deployment and operation of the FSS equipment."

"These extremely complex machines have experienced many problems. Mailers have expressed frustration with mail preparation changes necessary to accommodate FSS requirements, changes in Critical Entry Times, and service degradation," she told the publication.

Mailers had hoped FSS would reduce the Postal Service's costs of handling catalogs, magazines and other flat mail. But, more than ever, USPS claims it is losing money on the two main sources of mail sorted by FSS -- Periodicals and Standard flats.

The football-field-sized machines have helped USPS reduce costs by reducing the manual handling of mail by letter carriers, clerks, and other postal workers. But for at least seven reasons, it may be many months or even years before postal officials will know whether the investment will pay off:
  1. Declining Volume: The FSS system was designed for a relatively fixed volume of mail, but the machines are already serving larger-than-optimal territories because of decreases in the number of catalogs and publications being mailed. Further significant volume declines would hurt efficiency even more.
  2. Start-Up Woes: Reports from the field indicate recurring problems with shredded mail and machine breakdowns, but some of these problems may dissipate after USPS gets more experience with the complex machines.
  3. Wear and Tear: FSS is supposed to eliminate manual casing of flat mail, thereby enabling letter carriers to serve more addresses. But what will increases in "street time" do to maintenance costs of USPS's aging delivery fleet -- not to mention the healthcare and workers compensation costs for the carriers?
  4. Peaks and Valleys: One challenge is having machines that can sort all of the mail for their designated ZIP codes during peak periods but can also operate efficiently during slow months. Many of the machines have not been through a Christmas mailing season yet.
  5. Packaging: The rules governing how customers bundle and palletize flat mail were not written with FSS in mind. Implementing a different set of rules for FSS facilities could enable those operations to run more efficiently, but testing of alternative bundle and pallet standards has been limited.
  6. Consolidation: The Postal Service's ambitious plan to close more than half of its 400-plus mail-processing facilities would apparently result in a higher percentage of flat mail being served by FSS, as explained in USPS Consolidation Plan Means Moving or Closing Some FSS Machines. But it's not clear whether the plan will run into Congressional delays or other roadblocks.
  7. Shifting Equipment: When an FSS machine completes its shakedown, some other mail-processing equipment is freed up to be used in non-FSS facilities. But with the consolidation plans on the books, it may take years for the Postal Service to see the full benefit of moving such equipment around.

Related articles:

Thursday, November 10, 2011

USPS Going Ape Over Missing Pallets

Millions of dollars worth of pallets and trays are being stolen from the U.S. Postal Service every year, but the agency can't afford to implement systems for tracking the equipment.

Mail-transport equipment (MTE) is in such short supply in parts of the country that some businesses report that they have not been able to send out scheduled mailings. USPS has responded by approving emergency purchases of such equipment, announcing a two-week amnesty program for the return of equipment, and by stepping up enforcement regarding stolen and misused items.

The USPS Office of Inspector General is trying to spread the word that MTEs "may be used only to transport mail, and borrowers of MTE (such as private mailers) are responsible for its proper use and return."

"Over the past few years Postal Service has experienced a significant loss of plastic and wooden pallets. Since fiscal year 2005 the Postal Service has spent over $240 million on close to 19 million plastic and wooden pallets, many of which can no longer be accounted for internally or externally," the OIG wrote this week.

"Realizing the significant cost of leakage of MTE from its inventory, the Postal Service has studied both the movement of MTE as well as ways to reduce leakage. As a result of its precarious financial condition and a freeze on all information technology initiatives, two technological initiatives to better track MTE have been shelved."

This isn't the first time the OIG has pointed out how the Postal Service's cash shortage is preventing it from implementing cost-saving investments. Postal Service Can No Longer Afford Money-Saving Tactics, Study Says discusses the same problem in regards to early-retirement incentives and increased automation.

Nor is this the first time the Postal Service has publicized the issue of MTE "leakage". It released the orangutan photo above two and a half years ago as a reminder to mailers that misuse of the equipment, no matter how creative, is illegal. (See Monkeying Around with Postal Pallets, which has a first sentence with a strange resemblance to the headline on this week's OIG article. Its comments also revealed what happens to some of the equipment: It's given to customers.)

For further reading: 35 Creative Ways to Recycle Wooden Pallets (none of which, by the way, involve orangutans or the misuse of government property)

Wednesday, November 2, 2011

Mine's Bigger Than Yours: Quad and Donnelley Squabble Over Co-Mail

The country's two largest publication printers sparred this week over who has the biggest, baddest programs for helping customers save money on postage.

Quad/Graphics fired the first salvo yesterday when it announced that "it is now breaking company and industry records for co-mail pool sizes, aggregated volume and customer postage savings."

“We now have more volume, co-mail equipment and capacity than any of our competitors," said Dave Riebe, Quad's President of Logistics & Distribution."But the key isn’t just size, it’s our unique co-mail optimization software that analyzes multiple cost components of the process – manufacturing, inline/offline co-mail, distribution and postage – to produce the maximum savings.”

It took only a day for North America's largest printing company to respond.

"We're operating the most full co-mail production lines in the industry," Thomas J. Quinlan, R.R. Donnelley's CEO, said today during the company's quarterly earnings call. "Our offer is unmatched distribution that includes co-mailing of Standard, Periodicals, and tabloid products and a co-pallet program that has the largest number of participants and the highest volume. For standard letter-size mailers, we offer tray co-palletization."

Co-mail and co-palletization are methods of combining catalogs, magazines, and letters from various customers in ways that help them take advantage of postage discounts.

When an analyst goaded Quinlan to talk about how Quad is integrating its acquisition of Worldcolor, he declined, saying "we don't talk about people outside the family." But he couldn't avoid comparing Donnelley's status to the Wisconsin-based upstart.

"We're building brand loyalty and we're driving growth. And this is done across technology immediate for print, web, mobile and social networks around the globe. No one else has that. No one else has that platform, and it's going to take them years and a heck of lot of money to try to build what we've built," Quinlan crowed.

One point on which the two companies agree is the strategic importance of mailing their customers' products in the most efficient manner possible.

“Mailing and distribution represents more than half the cost of typical catalog and magazine programs, so our ability to save money for customers in this area is a critical value,” said Joel Quadracci, Quinlan's counterpart at Quad. “Given the potential for more changes in postage rates and services in the near future, that advantage will become even more important for our customers.”

Related articles: