L.L. Bean Says Ye$ to Summer Sale

L.L. Bean expects to mail "at least ten million additional catalogs" this summer if the U.S. Postal Service's proposed "Summer Sale" is approved, a company official says.

"With more advance notice, this number would have certainly been higher," Steve Fuller, Chief Marketing Officer for Bean, wrote Tuesday in a letter to Dan Blair, chairman of the Postal Regulatory Commission. The letter was one of several that catalog and direct-mail companies have submitted to the PRC in support of the Summer Sale, with some agreeing that their participation would be limited by the short time frame to plan and execute the additional mailings.

"I want to assure you that L.L. Bean will do everything possible to maximize our mail volume during this period," Fuller wrote in praise of what he called a novel program. "Final volumes will depend on program details and L.L. Bean's inventory position."

The sale would provide postage rebates of 30% for Standard mail (such as direct mail, catalogs, and retail flyers) sent this summer by large mailers after their mail volume reaches a certain threshold. Each mailer's threshold is based on the amount of mail it sent in previous quarters and is calculated in a way to encourage companies to mail more pieces than usual during the Postal Service's slow summer period. The PRC has indicated it would rule on the proposal by June 4.

USPS officials hope to issue the rebates to mailers' postal accounts by Dec. 1. They have also indicated that the program is an experiment from which they hope to gain valuable information about how to implement other profitable incentive-pricing programs.

The Postal Service's incremental costs for the additional Standard mail would be even lower than the discounted postage, USPS told the PRC in a document filed last week. The Postal Service's delivery network, buildings, vehicles, and equipment will have significant excess capacity this summer, meaning the cost of handling additional mail pieces during that period will be unusually low, it said.

For example, the cost of an additional catalog would be 32% to 67% lower than normal, depending upon the sortation level, calculations presented by the Postal Service show. A discounted catalog with high-density sortation would cost USPS only 2 cents but bring in 11.5 cents in revenue, according to the USPS data.

The United States Postal Service & Power Company?

Switching to electric delivery vehicles would enable the U.S. Postal Service to make millions by selling electricity and to reduce delivery costs by millions as well, a postal expert says.

Batteries for the electric vehicles could be charged during off-peak hours and kept connected to the grid, writes Michael Ravnitzky, Special Assistant to Commissioner Ruth Goldway of the Postal Regulatory Commission, in a paper published today on the PRC’s Web site. When not being used in delivery vehicles, stored power in the batteries could be sold back into the grid at times of peak or unexpected surges in demand.

(A presentation Ravnitzky did recently on the concept can be found here. The paper grew out of an op-ed piece Ms. Goldway wrote for The New York Times.)

USPS’s fleet of 142,000 right-hand drive delivery trucks is nearing the end of its useful life. The vast majority could be replaced by electric vehicles using today’s battery technology, Ravnitzky writes.

“Most daily mail delivery routes are short, repetitive and well-defined, and include many stops, making the postal delivery fleet a prime application for electric drive vehicles. The electrification of the postal fleet could significantly reduce gasoline and maintenance expenses while reducing the fleet’s carbon footprint,” he says.

“Historical experience with electric drive vehicles suggests maintenance cost reductions of at least 30 percent to 50 percent,” he writes. That, and an electricity cost that is equivalent to 80-cents-per-gallon gasoline, suggests annual savings for the Postal Service could be in the hundreds of millions of dollars.

On the revenue side, Ravnitzky sees more opportunity from storing electricity and having it available to the grid on a contingency reserve basis than from actually selling electricity. As such unreliable sources as wind and solar power became more of a factor in the grid, he notes, the needs to store electricity and have it available on a rapid-response basis will grow, he says. He estimates $2000 to $2500 annually in revenue per vehicle from various “V2G” (vehicle to grid) services – which would mean several hundred million dollars if most of the fleet went electric.

“The operators of the electrical grid are essentially running a massive just-in-time delivery system and it can be tricky to keep this system balanced."

Electric vehicles cost more upfront than gasoline-powered ones, and some investment in battery-charging operations would also be needed, according to Ravnitzky. Mass production of the expensive batteries would reduce the cost and presumably give a leg up to manufacturers developing similar products for the consumer market. Further study is needed to provide detailed information on capital costs, operational savings, revenue potential, and environmental impact, Ravnitzky says.

Perhaps his vision could be employed to provide a simultaneous bailout for three needy recipients – American car companies, the U.S. Postal Service, and the environment.

NewPage Turning Over a New Page: No More Shutdowns

NewPage sent a message to its competitors in the North American coated paper business this week: Your turn.

NewPage has closed five paper machines in the past year and temporarily idled others, shouldering much of the burden for adjusting supply to a weak market. Those efforts to prevent prices from crashing resulted in the company selling 43% fewer tons of coated paper in the first quarter than it sold a year earlier, NewPage reported Wednesday.

But with a quarterly loss of $114 million and a gross profit margin of only 0.3%, the company has grown weary of giving up market share while competitors keep their machines running -- and markets loose.

"We don't have any high-cost operations remaining that could be candidates for closure," president and CEO Rick Willett said during the company's quarterly earnings conference call. "The more prudent thing for us to do is manage our downtime as cost effectively as we can and really get ready for the recovery in volume."

Downtime is a way to deal with temporarily weak demand but doesn’t address the North American coated-paper industry’s more chronic problem -- more than a million annual tons of excess capacity. NewPage is leaving the task of further shutdowns to Verso, Kruger, et al.

NewPage’s quarterly earnings announcement also had several significant omissions:

• “Black liquor” revenue: NewPage was a relative latecomer to the black liquor party, not qualifying for the federal-government credits until last month. The $45 million it recently received for using black liquor/diesel mixtures during the first quarter were not booked in the quarter.

• Unisource deal: The company announced this week that it will supply more than 100,000 tons per year of coated sheets for Unisource’s private-label program, which was formerly supplied by a Chinese manufacturer.

• The “S” and “D” words: The earnings announcement noted that imports of coated paper, especially from Asia, are increasing. But there was none of the usual bluster about efforts to prevent subsidized Asian mills from unfairly dumping their product in the United States. (OK, class, today’s language lesson: When a foreign pulp mill that fuels its operation with black liquor gets help from its government, that’s called a “subsidy”. When a U.S. mill receives money from the federal government for fueling its operation with black liquor, that’s called an “alternative-energy credit”.)

• Verso settlement: Verso’s earnings report last week noted the settlement of a patent dispute with NewPage about a process for making high-bulk coated-groundwood paper. NewPage’s report was silent on the litigation and its settlement.
  

• Other products: The report did not break out results by category for NewPage’s other products, such as supercalendered paper, newsprint, and market pulp. Revenue for those other products in the aggregate was down “only “ 26%.

Postal Rate Hikes Unlikely Next Year

Inflation numbers released today made it increasingly clear that postal rates are unlikely to increase for two more years.

The Consumer Price Index rose only 0.25% from March to April, the U.S. Labor Department reported today, putting the index 0.7% below the level of April 2008. That means consumer prices would have to rise at an annualized rate above 4.5% for the rest of the year for the U.S. Postal Service to raise rates in May 2010 for the “market-dominant” classes – such as First Class, Standard, and Periodicals.

With the recession tamping down inflation this month and probably next month as well, prices would probably have to rise at an annualized rate of more than 6% in the second half for postal rates to increase at all in 2010.

The Postal Service would still apparently have the ability to adjust rates – such as a new pricing structure for mail going to the Flats Sequencing System – as long as average rates for a class do not increase. And with the money-losing USPS apparently on course to run out of funds within a year, there’s always the danger of it getting special permission to implement price increases that violate the CPI-based price cap.

There's also the question of when mailers will ever receive promised discounts from using the full-service Intelligent Mail barcode (IMb). Some large publishers have spent months testing the program so that they would be ready for free address-correction services on Monday. Now USPS has essentially thrown out that testing and started over, with a new round of testing to start Monday and implementation being at least weeks away.

Some of those publishers are asking for free address correction anyway, even though the Postal Service is not ready to automate the process. But postal officials involved in IMb are too busy issuing statements falsely claiming success to worry about yet another missed deadline.