North America’s two coated-paper giants have decided to stop fighting about who has the right to make high-bulk coated-groundwood papers.
Verso Paper revealed today that NewPage had granted it the right to use a NewPage patent for making high-bulk lightweight-coated (LWC) paper. The legal brouhaha started last summer when NewPage sent Verso a cease-and-desist letter claiming patent infringement and demanding that Verso stop selling its entire line of coated #5 papers.
Verso responded with a lawsuit asking a federal court to declare that it was not breaching the eight-year-old patent that had been issued to a predecessor of NewPage, Consolidated Paper. Verso and NewPage settled out of court in January.
“As part of the settlement, NewPage granted the Company an irrevocable, perpetual, nonexclusive, worldwide, royalty-free, and fully paid-up right and license for any and all purposes under the NewPage patent and any continuation, division, reissue or non-U.S. counterpart of the patent,” Verso stated in a filing today with the Securities and Exchange Commission.
The patent addressed the issue of how to bulk up offset LWC without sacrificing too much gloss (at least 40 on the TAPPI scale). For the most part, the patented method relied on tactics that are widely used among paper mills to bulk up paper – e.g. lower pressure in the supercalenders, use of a gap former, more groundwood pulp, and less coating. A more unusual feature of the patent’s recipe is the use of expensive plastic pigments in the coating “to provide increased stiffness and good gloss."
The patent apparently grew out of requests from publishers of weekly magazines, especially Time Inc., to help them save money on postage by supplying lighter paper without sacrificing bulk or quality. During the past decade, Time Inc., a major customer of both NewPage and Verso, has switched most of its weekly magazines from 32# LWC to 30#, to 28#, back to 30#, and recently to 29# -- at times roiling the entire North American LWC market because of its huge position.
With the settlement, Verso can go about its business as usual, and NewPage has no immediate worries about its patent being declared invalid. But that leaves them two other problems: customers and technology.
Ratebase cuts, shifts to supercalendered paper, and reductions in ad pages have resulted in weekly magazines buying far less high-bulk LWC than they did a few years ago.
And the combination of film coating with online "hot/soft" calendering has proven to be the easiest way to make high-bulk LWC with moderate gloss. Film-coated papers from such mills as Kruger, Catalyst, and SAPPI are often bulkier than the high-bulk sheets coming from companies like NewPage and Verso, which rely on an older, more expensive technology -- blade coating followed by offline supercalendering.
Thursday, May 7, 2009
Wednesday, May 6, 2009
USPS: Ve Haf Vays of Making You Use Our Barcode
The Postal Service's Intelligent Mail program might fail because it is not sufficiently attractive to mailers, the Government Accountability Office warned today.
Not to worry, the Postal Service responded. If the tiny Intelligent Mail barcode (IMb) discounts scheduled for later this year are not enough to entice mailers, it said, two years from now the huge penalties for not using IMbs will force mailers to change their ways. Starting in May 2011, mail without IMbs will be ineligible for automation discounts, which typically are at least several cents per mail piece.
"Some mailers have said they find the pricing incentives insufficient to recover their investment in the program," said the GAO report. "For example, some large mailers said they invested millions of dollars to update and purchase hardware and software, while some smaller mailers expected to invest tens of thousands of dollars."
Other highlights of the report and the Postal Service's response:
Not to worry, the Postal Service responded. If the tiny Intelligent Mail barcode (IMb) discounts scheduled for later this year are not enough to entice mailers, it said, two years from now the huge penalties for not using IMbs will force mailers to change their ways. Starting in May 2011, mail without IMbs will be ineligible for automation discounts, which typically are at least several cents per mail piece.
"Some mailers have said they find the pricing incentives insufficient to recover their investment in the program," said the GAO report. "For example, some large mailers said they invested millions of dollars to update and purchase hardware and software, while some smaller mailers expected to invest tens of thousands of dollars."
Other highlights of the report and the Postal Service's response:
- The Intelligent Mail program "lacks a comprehensive strategy" that includes a detailed plan or "goals and measures of success", the GAO said. The Postal Service agreed to beef up its planning but said the approach recommended by the GAO would drag out implementation too long.
- "USPS and mailers may not be ready for implementation given USPS's short-time period in which to simultaneously design, develop, test, and implement the Intelligent Mail program," the report said. Amen to that!
- An odd statement from the Postal Service: "Despite an extremely compressed schedule, the successful implementation of the Operating System environment on May 11 and the Test Environment for Mailers on May 18 demonstrates how well this effort works." May 11 and 18 haven't occurred yet, and mailers are reporting that the Postal Service is not ready for those key dates. See "Another Delay for Intelligent Mail?"
- USPS "lacks information on costs and savings attributable to the Intelligent Mail program," the GAO said. USPS responded that the program will give it valuable information enabling it to become more efficient but that "there is no sound financial method to specifically attribute these reductions to Intelligent Mail."
- "According to USPS, Intelligent Mail is the most complex project it has undertaken," the GAO report said.
Saturday, May 2, 2009
Boozing It Up on Black Liquor: One Company's High Is Another's Hangover
If you need proof that the power to tax is the power to destroy, or to enrich, look no further than announcements from two paper companies yesterday.
International Paper revealed that it expects to receive $413 million in "black liquor" credits from the U.S. government for the first quarter of 2009. The estimated credits for its printing-papers segment will total $170 per ton, which was 89% of the segment's EBITDA. In other words, without the credits the segment would have barely covered its cash costs but with the credits it had a rather profitable quarter.
Fraser Papers blamed those same credits, which are being lavished on kraft pulp mills in the U.S., Friday for its decision to shut indefinitely a coated-paper machine at its Madawaska, Maine mill. That mill on the Canadian border is itself a vestige of tax policy -- the former practice of placing tariffs on imported paper but not on imported pulp.
But what worked in the pre-NAFTA era is now backfiring on Fraser. Its pulp mills that supply Madawaska are not eligible for the black liquor credits because they are in Canada. The ideal set-up today would be just the opposite of Fraser's: kraft pulping in the U.S. to get the tax credits, paper making in Canada because its weak currency makes costs there so low.
"We are calling on the U.S. Government to close this outrageous tax loophole that unfairly benefits a select group of paper companies in the country,” Jeff Dutton, president and COO of Fraser, said in a statement yesterday. He said the credits "are providing an enormous incentive to certain of our competitors to produce at full capacity when they may not otherwise do so."
Even with tax credits distorting the paper market, the future of Madawaska's PM6 would have been shaky because of the economies of scale and newer technology on competitors' larger machines. Fraser also blamed the weak market for coated paper. The tax credits were merely the final straw.
The credits are a mixed blessing for one closely watched paper company -- giant AbitibiBowater, which filed for bankruptcy organization last month. It should qualify for millions in black-liquor credits for its U.S. pulp operations, but its Canadian pulp mills will struggle to compete against what are essentially heavily subsidized U.S. competitors.
And one of the company's strengths -- making groundwood papers that are a low-cost substitute for kraft-containing freesheet papers -- will be undermined if the tax credits enable competitors to make freesheet papers less expensively than the groundwood substitutes.
There isn't much confidence in AbitibiBowater these days. Half the voters in a recent Dead Tree Edition on-line poll predicted the company would be broken up. Only 16% thought it would emerge from Chapter 11 stronger than ever; 19% said it would emerge from Chapter 11 but still be weak. And 12% voted for "Put some butter on it; it's toast."
The credits will also cut both ways for NewPage, the largest maker of coated paper in North America. The tax credits will enrich it but will also undermine its argument that punitive tariffs should be placed on allegedly subsidized coated papers from China.
International Paper revealed that it expects to receive $413 million in "black liquor" credits from the U.S. government for the first quarter of 2009. The estimated credits for its printing-papers segment will total $170 per ton, which was 89% of the segment's EBITDA. In other words, without the credits the segment would have barely covered its cash costs but with the credits it had a rather profitable quarter.
Fraser Papers blamed those same credits, which are being lavished on kraft pulp mills in the U.S., Friday for its decision to shut indefinitely a coated-paper machine at its Madawaska, Maine mill. That mill on the Canadian border is itself a vestige of tax policy -- the former practice of placing tariffs on imported paper but not on imported pulp.
But what worked in the pre-NAFTA era is now backfiring on Fraser. Its pulp mills that supply Madawaska are not eligible for the black liquor credits because they are in Canada. The ideal set-up today would be just the opposite of Fraser's: kraft pulping in the U.S. to get the tax credits, paper making in Canada because its weak currency makes costs there so low.
"We are calling on the U.S. Government to close this outrageous tax loophole that unfairly benefits a select group of paper companies in the country,” Jeff Dutton, president and COO of Fraser, said in a statement yesterday. He said the credits "are providing an enormous incentive to certain of our competitors to produce at full capacity when they may not otherwise do so."
Even with tax credits distorting the paper market, the future of Madawaska's PM6 would have been shaky because of the economies of scale and newer technology on competitors' larger machines. Fraser also blamed the weak market for coated paper. The tax credits were merely the final straw.
The credits are a mixed blessing for one closely watched paper company -- giant AbitibiBowater, which filed for bankruptcy organization last month. It should qualify for millions in black-liquor credits for its U.S. pulp operations, but its Canadian pulp mills will struggle to compete against what are essentially heavily subsidized U.S. competitors.
And one of the company's strengths -- making groundwood papers that are a low-cost substitute for kraft-containing freesheet papers -- will be undermined if the tax credits enable competitors to make freesheet papers less expensively than the groundwood substitutes.
There isn't much confidence in AbitibiBowater these days. Half the voters in a recent Dead Tree Edition on-line poll predicted the company would be broken up. Only 16% thought it would emerge from Chapter 11 stronger than ever; 19% said it would emerge from Chapter 11 but still be weak. And 12% voted for "Put some butter on it; it's toast."
The credits will also cut both ways for NewPage, the largest maker of coated paper in North America. The tax credits will enrich it but will also undermine its argument that punitive tariffs should be placed on allegedly subsidized coated papers from China.
Friday, May 1, 2009
It's Official: Postal Service Proposing "Summer Sale"
The U.S. Postal Service late today released its long-rumored proposal for a "Summer Sale" that would provide postage rebates of up to 30% on certain direct mail and catalogs.
USPS filed the proposal for the "Standard Mail Volume Incentive Pricing Program" with the Postal Regulatory Commission, which says it will rule on the proposal by June 4. The Rural Letter Carriers Association has already indicated it will oppose the proposal because it claims its members will not be appropriately compensated for the additional work the sale will cause.
Dead Tree Edition revealed plans for the Summer Sale three weeks ago, and some details of it were subsequently released through such organizations as Postcom.org.
The sale would run in July, August, and September of this year, "which is typically a low-volume period for the Postal Service and its customers," the proposal said. The timing is meant to "take advantage of the Postal Service’s current excess capacity to deliver additional volume at relatively low cost during the summer months."
To qualify, a mailer must have sent at least 1 million Standard-class flats (generally catalogs, but also includes some free newspapers and magazines) between October 2007 and March 2008. If the mail was sent on the account of a mail service provider, mailers will have to prove they actually owned the mail. Mail service providers, such as letter shops and presort bureaus, are not eligible for the discount.
The Postal Service is estimating incremental revenue of $38 million to $95 million from the program, which it says will "easily cover" the costs. It notes that few customers have signed up for another recently announced pricing offer, the Saturation Mail incentive program and that some will be eligible for both programs.
The proposal is silent on the Periodicals class, not offering the discount for ride-alongs and not banning qualifying mailers from shifting mail that would normally be Periodicals to Standard during the sale. There are instances where the discounted Standard postage would be significantly lower than Periodicals, especially for relatively light, non-dropshipped publications.
USPS filed the proposal for the "Standard Mail Volume Incentive Pricing Program" with the Postal Regulatory Commission, which says it will rule on the proposal by June 4. The Rural Letter Carriers Association has already indicated it will oppose the proposal because it claims its members will not be appropriately compensated for the additional work the sale will cause.
Dead Tree Edition revealed plans for the Summer Sale three weeks ago, and some details of it were subsequently released through such organizations as Postcom.org.
The sale would run in July, August, and September of this year, "which is typically a low-volume period for the Postal Service and its customers," the proposal said. The timing is meant to "take advantage of the Postal Service’s current excess capacity to deliver additional volume at relatively low cost during the summer months."
To qualify, a mailer must have sent at least 1 million Standard-class flats (generally catalogs, but also includes some free newspapers and magazines) between October 2007 and March 2008. If the mail was sent on the account of a mail service provider, mailers will have to prove they actually owned the mail. Mail service providers, such as letter shops and presort bureaus, are not eligible for the discount.
The Postal Service is estimating incremental revenue of $38 million to $95 million from the program, which it says will "easily cover" the costs. It notes that few customers have signed up for another recently announced pricing offer, the Saturation Mail incentive program and that some will be eligible for both programs.
The proposal is silent on the Periodicals class, not offering the discount for ride-alongs and not banning qualifying mailers from shifting mail that would normally be Periodicals to Standard during the sale. There are instances where the discounted Standard postage would be significantly lower than Periodicals, especially for relatively light, non-dropshipped publications.
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