The De-Automation of Periodicals Mail

Jim O’Brien of Time Inc., who is in his third decade studying the Postal Service’s “automation refugees,” makes a startling statement in a guest article for the blog run by the Postal Service’s Office of Inspector General:

“More Periodicals mail is manually processed than ever, and manual productivity continues to decline,” wrote O’Brien, widely recognized as a leading expert on the U.S. Postal Service's handling of Periodicals mail.

Magazine publishers have put lots of energy and resources into making our publications more suited to the Postal Service’s sorting equipment. We’ve participated in co-mail to create more carrier-route bundles, moved mail from sacks to pallets, turned our addresses upside down in preparation for the Flats Sequencing System, and are converting our tabloids to other formats to comply with the “droop” test.

But more than ever, according to O’Brien, postal facilities are letting the machines sit idle while employees handle newspapers and magazines (and, presumably, catalogs) manually. These employees are "automation refugees" – whom O'Brien describes as “mail processing employees who were assigned to manual operations when automation eliminated the work they had been doing.” So much for using automation to decrease the Postal Service's costs.

Rather than addressing the problem, postal officials complain that they're losing so much money on Periodicals that they need to jack up our rates. How about acknowledging that there are too many mail-processing employees and offering them a decent incentive to retire early?

“How can the Postal Service continue to imply that Periodicals mailers are responsible for the cost coverage problem when mailers have substantially and consistently increased Periodicals worksharing?” O’Brien wrote in the blog published yesterday. “The Postal Service should NOT be permitted to continue using Periodicals class mail processing as a dumping ground for its excess labor and the associated costs.”

The Postal Regulatory Commission also indicated yesterday that it might finally realize something is fishy about the Postal Service’s cost accounting for Periodicals. Rather than ruling on whether Periodicals rates are out of compliance with a law that requires each class of mail to break even, it held off doing anything until it receives the in-progress "Joint Report" on Periodicals cost coverage. (But it also hinted that major increases in Periodicals bundle and container rates are in order.)

For further information on the matter of automation refugees and how the USPS’s flawed accounting methods might lead to big rate increases for magazines, newspapers (and perhaps catalogs), please see:

•  Audience Development's excellent interview with Jim O'Brien about automation refugees. He also left an interesting comment on this article.
•  Increased Efficiency Led to Higher Periodicals and Catalog Costs, Goldway Says
•  Postal Service Preparing Double Whammy for Publishers
•  Postal Service Inefficiency Drives Up Periodicals Costs 
•  For Periodicals, The Postal Service’s Math Doesn’t Add Up

Republican Senators Defend Bogus Black-Liquor Accounting

The news media are finally realizing that ObamaCare's supposed savings from ending a black liquor tax credit are a mirage. It's making for some interesting reading.

Todd Zwillich, Washington correspondent for The Takeaway radio show, had an enlightening and amusing piece yesterday basically confirming that Congress knew that there was no black-liquor loophole even though the healthcare-reform legislation claims savings of more than $23 billion from closing the loophole. Especially interesting is that he found two Republican senators who oppose the bill but said the Democrats's black-liquor shell game is nothing new on Capitol Hill.

"Republicans and Democrats have both put together bills like this," said South Carolina Sen. Lindsey Graham.

Zwillich said Iowa Sen. Charles Grassley was unfazed by the claim that the black liquor loophole was worth billions even though no paper companies are exploiting it.

"This is the way it works. They may not use it, but they could use it, okay?" Grassley said. "Even though somebody tells you it wouldn't happen, it could happen, and it could cost the Treasury."

Sorry, Charlie, it couldn't happen. Even without the healthcare legislation, a substance has to get EPA approval as a motor fuel or fuel additive to qualify for cellulosic biofuel producer credits. Black liquor, "a gooey wood pulp byproduct" in the words of BNET's Kirsten Korosec, doesn't belong in a gas tank.

Korosec gets credit for being the first on the black liquor story (other than a couple of obscure blogs) with last week's article Paying For Healthcare: How Democrats Closed an Energy Tax Loophole That Doesn't Exist.

Olga Pierce of ProPublica wins the honesty award for her item at the On The Hill blog today admitting that she previously got the black liquor story wrong. This time she nailed it: "Closing a tax loophole no one was planning to use doesn’t actually save the government any money."

So far, no one in the news media has reported another Congressional goof: If indeed black liquor could qualify for cellulosic biofuel producer credits, the loophole would be worth $60 billion, not $24 billion. Even when it generates imaginary revenue, Congress can't get the math right!

For more information on how a once-obscure pulp byproduct became such a political football, please see:

• ObamaCare's Black Liquor Tab: $23.6 Billion 
• How Google Could Help the Democrats By Buying a Pulp Mill  
• News Media and Congress Are Confused About Black Liquor Subsidies

Washington Post's New Magazine Will Bypass USPS

In what may be a troubling precedent for the U.S. Postal Service, The Washington Post is about to launch a paid subscription magazine that will bypass the USPS delivery network.

Capital Business will be delivered each week to paying ($49 per year) subscribers along with their Monday copy of the Post, according to the Post’s announcement. The move suggests that the country’s newspaper industry may be ready to try a new twist on a strategy that failed in the 1990s -- competing with the Postal Service to provide home delivery of magazines.

Two networks of daily newspapers delivered a variety of consumer magazines in their home markets during the early and mid-1990s. At the time, the delivery systems for most daily newspapers (kids on bicycles using marked-up address lists) were not suited to delivering a specific package to a specific customer, so the magazines were rarely delivered along with the newspaper, a former insider tells me.

The struggling efforts collapsed when the Postal Service restructured Periodicals postal rates to encourage worksharing (such as dropshipping), which led to lower postage costs for many publishers.

But times have changed. Postal officials want to return to the practice of increasing Periodicals postage prices much faster than the rate of inflation. Newspapers have learned to deliver several products through their daily carrier network -- already capturing a significant portion of The Wall Street Journal delivery business from the USPS. And customers have become accustomed to having publications delivered to their driveway rather than their doorstep.

With major newspaper companies like Hearst and the Washington Post Company (which owns Newsweek) also publishing magazines, finding a critical mass of newspapers and magazines willing to follow the Post’s lead would not be difficult.

Getting heavily into magazine delivery would require further enhancements to newspapers’ delivery systems, but the Postal Service seems unlikely to undercut them this time around. Postal officials believe they are losing money on Periodicals, though in reality the Postal Service would be even more unprofitable without them -- especially without the large consumer magazines that tend to mail most efficiently.

Another unusual feature of Capital Business, which will focus on the Washington area, is that it “will be available only to subscribers of The Washington Post,” according to the magazine’s Web site. And its content will apparently be available on the Web only to the magazine’s subscribers.

For more information about Periodicals postage rates, please see:

• Postal Service Preparing Double Whammy for Publishers: The USPS is planning to hit magazine and newspaper publishers with big rate increases starting next year.
• Can the Postal Service Still Afford Periodicals?  The Postal Service's own numbers show that it is better off with than without Periodicals, even though it thinks the class is unprofitable.
• Increased Efficiency Led to Higher Periodicals and Catalog Costs, Goldway Says The USPS's convoluted accounting logic on Periodicals seems to have taken in the chair of the Postal Regulatory Commission.

ObamaCare's Black Liquor Tab: $23.6 Billion

Despite a Democratic Congressman almost ruining the scheme by committing a cardinal political sin – He told the truth! – the historic healthcare legislation President Obama signed today assumes $23.6 billion in savings from eliminating a mythical black liquor tax credit.

Congressman Scott Murphy, whose district in the Adirondack Mountains of New York includes two operating paper mills (and several closed ones) almost spilled the beans on the bogus savings a few days ago. In an interview with the local newspaper about his support of the healthcare legislation, he made the following statement:

"We worked with IP (International Paper Co.) and Finch. And the language that's in here about the black liquor credit is not something that's going to impact their business. They're not going to be impacted by this in terms of what they were planning to do and what they're doing going forward."

In a similar statement last week crying out for explanation, Bloomberg BusinessWeek said that the loophole closure “would prohibit paper makers such as International Paper Co. from claiming a $1.01 tax credit for producing fuel from a type of pulp-making byproduct called black liquor. While International Paper and other forest product companies said they weren’t seeking the credit, the IRS determined they might be eligible.”

The payouts from the real black liquor tax credit, which expired last year, indicate that International Paper accounts for more than 20% of the country’s black liquor production. (See Black Liquor Scorecard: 21 Companies Earned $6.5 Billion in 2009.) If indeed the healthcare legislation plugged a “Son of Black Liquor” loophole worth $23.6 billion, then IP’s share would certainly be in the billions.

Question: Why would IP and “other forest product companies” not be interested in pursuing such generous tax credits? (After all, skyrocketing pulp prices could lead to hefty profits, and a hefty tax bill, for some of the companies this year.)

Answer: Because they knew they could never collect Cellulosic Biofuel Producer Credits, even before passage of healthcare reform. Those credits are only for EPA-approved motor fuels and additives. Executives at pulp-making companies understand that no one's going to put black liquor into their gas tank.

(News Media and Congress Are Confused About Black Liquor Subsidies explains further why, despite the IRS memo, black liquor would not qualify for the credits. How Google Could Help the Democrats By Buying a Pulp Mill explored black liquor's role in the healthcare debate.)

By the way, I’m sympathetic to some other aspects of the ObamaCare legislation, such as government help for the uninsured. But seeing how part of the program is allegedly being paid for with these bogus black-liquor savings make me wonder what other surprises are lurking in the law.