Monday, May 13, 2019

Study Refutes Trump's Claim That USPS Loses Money on Amazon

An independent government watchdog today seemingly refuted President Trump’s claims that the U.S. Postal Service loses “a fortune” on a sweetheart deal with Amazon.

The USPS Office of Inspector General released a study indicating that the Postal Service’s growing practice of entering into customized contracts with package shippers is paying off.

“The number of these 'Negotiated Service Agreements' (NSAs) has increased from 66 in fiscal year (FY) 2012 to more than 1,000 in FY 2018,” the report says. “In FY 2017, only five contracts lost money, down from 14 the previous year.”

“The Postal Service’s largest NSAs contribute the most financially.” The few money-losing contracts have been “mostly low-volume NSAs,” the report says, and the USPS and Postal Regulatory Commission typically take action to fix or terminate those deals.

NSAs are “solidly profitable” and “perform strongly for the Postal Service,” the Inspector General’s report states. The watchdog agency has often criticized the Postal Service severely on other matters.

The report was heavily redacted – enough to put even Attorney General William Barr to shame – to avoid any public mention of specific customers or any revelations that would help the USPS’s private-sector competitors.

But it clearly suggests that the Postal Service is making a profit on such major “Parcel Select” customers as Amazon, FedEx, and UPS.

Though there are only 24 Parcel Select NSAs, the report indicates that they have as much volume and generate more revenue and profit than any of the other four types of domestic-shipping NSAs.

“Parcel Select is generally used by consolidators and large shippers who can presort packages and drop them off by the truckload at postal facilities that are close to the final destination, paying a lower rate based on how close they get the packages to their delivery point. The Postal Service takes the packages the ‘last mile’ and delivers them to their ultimate destination,” the report explains.

In other words, because these shippers handle everything except for the last mile, they are profitable for the Postal Service even though they pay less than does someone who drops off packages at her local post office for delivery in another state.

Parts of the report were heavily redacted.
“NSAs are a tool to better meet customer needs when some aspect of the Postal Service’s off-the-shelf offerings does not,” the report says. Private-sector competitors have similar practices:

“Most carriers offer discounts to certain classes of clients, such as new customers or high-volume shippers. As a result, carriers can charge very different prices for delivering the same package to the same destination.”

“Many NSAs bring in new customers that were previously shipping with another carrier,” the report says. “So long as those deals cover their costs, any product-level profits they generate would improve the Postal Service’s bottom line because the profit is based on new volume.”

But when a customer already does most of its shipping with the Postal Service, an NSA may reduce prices in a way that makes the customer less profitable, the report notes.

The report doesn't address whether the Postal Service's cost-accounting practices are keeping pace with the rapid growth in package delivery or are accurately measuring the cost of such deliveries.

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Tuesday, May 7, 2019

Justice Department Seems "Open-Minded" on Quad-LSC Deal

A printing-industry expert believes the federal officials who questioned him about the proposed merger of printing giants Quad and LSC Communications are unlikely to “rubberstamp” the deal.

“They were pretty open-minded,” said the expert, who was recently interviewed by a team from the U.S. Justice’s antitrust division. Although they kept their cards close to the vest, he says, they seemed genuinely interested in understanding claims that the two companies would have several monopolies or near-monopolies in what at first blush looks like a highly fragmented industry.

The printing expert, whom I know to be a reliable and knowledgeable source, spoke to Dead Tree Edition on condition of anonymity.

Silent publishers
Justice’s apparent open-mindedness comes despite no public opposition from publishers or other printing customers.

A publishing company executive tells me that a paper company contacted him in March as part of an effort to get publishers to object to the deal. It found that publishers were reluctant to speak up for fear of angering two key suppliers, he was told. (Also, it’s hard to get senior executives at magazine-media companies these days to even think about printing or anything else that’s not new and shiny.)

The printing expert mentioned to the Justice team the case of Verso and NewPage, two paper giants that Justice allowed to merge in 2015 on condition that NewPage first divest two mills.

At least one member of the Justice team was familiar with that case and indicated the same tactic had not been ruled out in the Quad-LSC case, the expert said.

The expert’s observations are in contrast to recent speculation from Peter Schaefer, a veteran of printing-industry mergers and acquisitions.

“My best estimate is I don’t think there’s going to be an antitrust issue” because the regulators tend to see printing as a single market, he told Printing Impressions last month. “Combined, they [Quad and LSC] are still going to be a small percentage” of the entire U.S. printing industry.

The only formal, public objection to the merger has come from a coalition of two authors’ organizations and an anti-monopoly advocacy group that pointed out how Quad (known until recently as Quad/Graphics) and LSC already dominate the long-run publication market.

The two companies reportedly have 100% share of the U.S. market for the printing of best sellers and certain other types of books. They also own all of the country's rotogravure presses that are typically used to produce catalogs, magazines, and free-standing inserts that have print orders of 1 million or more.

In addition, the two companies dominate the transport of magazines, do the vast majority of co-mailing of magazines and catalogs (to gain hefty postal discounts), and probably own a sizable majority of the large publication presses in the U.S. that are best suited for print orders in the hundreds of thousands.

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