Would A Lottery Bail Out the Postal Service?

Running a national lottery could help the U.S. Postal Service close its multibillion-dollar budget gap, according to a Postal Regulatory Commission official.

A Postal Service-run lottery “could offer the potential for substantial profits for the Postal Service and utilize its current retail infrastructure with its 36,000 retail outlets, claimed to be the largest retail network in the world,” Kenneth E. Richardson, a public representative on the PRC’s staff, wrote last month.

“Sales could be encouraged if winners were tied, for instance, to sales slip identification numbers or other postal purchases or mail tracking numbers. The national scope of the Postal Service could exceed that of current multi-state lotteries in scale which generate hundreds of millions of dollars, annually, if not billions, for their sponsoring states,” Richardson added.

The lottery idea was just a footnote in a motion Richardson filed asking that the USPS “provide estimates of rate adjustments necessary to maintain financial stability” during the next two years “with or without required retiree health benefit payments.” (As Dead Tree Edition and others have pointed out, the billions of dollars in such payments have little to do with retirees and essentially are interest-free loans to the federal government.)

“The estimates will likely include annual increases of several pennies” for a First Class stamp, wrote Richardson, without addressing the issue of how rate increases would affect mail volumes.

Richardson's motion asked that the Postal Service provide the estimates in its annual compliance report. The USPS responded that Richardson was asking it in two weeks to present what amounts to an old-fashioned postal rate case, which would take months to prepare.

The annual compliance report mentions neither the requested estimates nor the lottery idea, but that might not be the end of the story.

The PRC initiated a review of the compliance report this week that postal commentator Alan Robinson notes "could become the equivalent of a 'rate case light,'" with a special emphasis on mail that doesn't cover its costs. And it appointed Richardson as the public representative on the case.

Although the Postal Service is on track to become insolvent within a couple of years, Congress has shown no appetite for wrestling with the problems that vex the USPS. The Postal Service's requests to stem the financial tide -- by eliminating Saturday delivery and eliminating the prepaid retiree-benefit requirement, for example -- will inevitably lead to a Congressional discussion of whether postal rates should be raised. So it makes sense for the PRC to air the issue and allow it to be hashed out before it gets to Congress.

The lottery idea might appeal to Congress because it could improve the Postal Service's finances without increasing the federal deficit or reducing service. Most proposals to let the U.S. Postal Service enter new lines of business run up against Americans' distaste for letting government entities compete with private enterprise. But allowing  the USPS to compete with state governments is another story, especially because the states don't have powerful lobbying operations.

Related articles:

• How USPS Could Bypass Congress on Saturday Delivery, which explains how the Postal Service's pre-funding of retiree health benefits is an accounting shell game that makes the federal deficit seem smaller.
• Postal Accounting Snafus Might Be Bad News for Publishers, which questions the compliance report's calculations regarding the Periodicals class.

2 Major Magazine Publishers Reportedly Join Forces To Buy Paper

Two of America's largest magazine publishers, Time Inc. and Meredith, have reportedly joined forces to buy paper.

The two companies issued joint requests for proposals to potential paper suppliers late last year, according to several sources.

Together, the two probably buy several hundred thousand tons of paper annually -- enough to keep at least a couple of good-sized paper machines busy. The majority is probably coated groundwood (mechanical), but supercalendered, coated freesheet, and reply card are also in the mix. It's not clear how much of their paper the two publishers are planning to buy via the joint arrangement, but it seems to cover at least a major portion of their North American needs.
 
The two companies -- along with Conde Nast, Hearst, and News Corp. -- are part of a much ballyhooed joint venture to develop a publisher-friendly digital-publishing platform.

With such weekly magazines as People and Sports Illustrated, Time is a major buyer of lightweight coated (LWC) for offset printing, much of it apparently in the range of 29# to 32# (43 to 48 gsm). Meredith's focus on such high-circulation monthlies as Family Circle and Better Homes and Gardens means it is more geared to rotogravure papers and higher basis weights.

An executive from another magazine publisher said his firm has discussed the formation of a paper-buying consortium from time to time but held off because of anti-trust concerns. Another industry veteran, however, said that wasn't the major problem with joint buying efforts.

"We looked into this years ago and found that there were no anti-trust problems as long as we were talking about buying things together rather than, say, selling ads. We had some brief discussions with another publisher, but we both decided it wouldn't work because many potential suppliers were a good fit for one of the partners but not for both," the source said.

"Newspaper companies have had buying co-ops for years. The concept works well for newsprint, which is a commodity where more volume means lower pricing. But with coated paper, so many other factors can influence pricing, and the biggest buyers don't necessarily get the best deals."

Magazine publishers for years have debated whether others in the industry should be viewed primarily as competitors or collaborators. But with the toughest competition coming increasingly from other media, often powered by such goliaths as Google and Amazon, the pendulum is definitely swinging toward collaboration.

Related articles:

• The 10 Most Common Paper-Purchasing Mistakes 
• Coated Paper Market: Been Down So Long This Looks Like Up

A Bad Move for Small Mailers: Postal Expert Questions Move Update Surcharge

Despite price caps and promises of a rate freeze, the U.S. Postal Service is about to implement a new form of price gouging that will hit small organizations especially hard.

As guest columnist Robert W. Mitchell (pictured at right) explains below, Standard-class mailings that are not Move Update-compliant are slated to pay a surcharge of 7 cents for something that costs the USPS barely a penny.

Large mailers will presumably have the expertise to avoid the surcharge, which takes effect tomorrow, by complying with Move Update – though a PostCom podcast indicates that even sophisticated mailers may unwittingly run afoul of the new regulations.  (The USPS also has a Web site explaining Move Update.)

The main victims are likely to be small businesses, local non-profit groups, churches, and the like, who in many cases won’t learn of the surcharges until after their mailings have been printed and prepared.  Mitchell points out that the surcharge is immense relative to costs and is out of line with the principles of efficient rate setting.

Mitchell knows whereof he speaks.  First as a Postal Service employee, then as Special Assistant to the Postal Rate Commission, and now as a consultant on postal-rate issues, he has played a major role in such innovations as Standard-class workshare discounts and the move toward cost-based rates for Periodicals. He can be reached at robertwmitchell@comcast.net.

By Robert W. Mitchell

For a number of decades, mailers wishing to send at Standard rates have engaged in preparation activities. In the spirit of worksharing and cost recognition, many of these have been optional, which, without causing harm to the Postal Service, has allowed mailers to choose what is best for them. Observers, including the Postal Service, have pointed often to increases in efficiency thus brought about. Examples have included ZIP + 4 coding, presorting, prebarcoding, walk sequencing, and dropshipping. Cost differences among letters, flats, and parcels have been recognized in the rate structure as well.

When Move Update services became available, another workshare option could have been arranged. That is, based on lower costs to the Postal Service, a discount for Move Updating could have been offered. Then mailers could have weighed the costs and the benefits, as they saw them, and Move Updated whenever advantageous. That would have allowed mailers the option of purchasing UAA (Undeliverable As Addressed) services at an appropriate price. And UAA services, which the Postal Service has spent years developing, would be put on par with its other services, which include sorting, transporting, and delivering.

However, the Postal Service did not take that course. It chose instead to make Move Updating a requirement for all Standard mailings, no alternatives allowed. Its justification appears to be its analysis that its costs will be lower and that the most advantageous course for each mailer is to finance and follow through with Move Updating. It is inefficient, however, for the Postal Service to substitute its judgment, by regulation, for that of mailers, and it is a mystery why the Postal Service should be opposed to offering its UAA services, as an option, at a fair price.

For Standard mailings that are not Move Updated, if such mailings could still be called “Standard mailings,” the Postal Service took the position that the only rates available would be the rates for Single-piece First-Class, now 44 cents for the first ounce, if letters. The attendant rate increases would be quite large, and particularly so for nonprofit mailers. For example, a 1-ounce nonprofit letter, sorted to 5 digits and entered at a destination SCF, would see an increase of 394.4%. Even higher increases would exist for heavier pieces and flats. When a Federal Register process drew comments that the mailers bearing the increases could well be “small local businesses and nonprofit organizations,” the Postal Service brushed off the possibility of a burden by saying that it “feels that there are many methods mailers can use in order to qualify and make this fit any business model.” [Federal Register, Vol. 72, No. 188 (Friday September 28, 2007), p. 55056].

The Postal Regulatory Commission made it clear in November that noncompliant mailings can remain Standard mailings and that the applicable rates are the reigning Standard rates plus a surcharge. The order also approved a proposal to set the surcharge at 7 cents, which is a smaller penalty than the Postal Service had in mind. But that does not make the rates efficient or fair.

The cost justification behind the surcharge, as provided by the Postal Service, is that a Standard piece intercepted as UAA (and then discarded) costs the Postal Service, on average, 5.2 cents more than a Standard piece that receives ordinary delivery. That gives rise to several important questions:

1. Why is the 7-cent surcharge so much higher than the 5.2-cent cost? A surcharge may at times be more than 100% of the cost underlying it, but not often when it is first introduced.
2. Why should each piece in a mailing pay the surcharge, when only a few pieces would be expected to require UAA treatment? If, on average, 20 percent of the pieces in noncompliant mailings receive UAA treatment, and the markup to 7 cents were taken as appropriate, common ratesetting practice would set the each-piece surcharge at 1.4 cents (0.20 times 7 cents).
   
3. Why should letters and flats pay the same surcharge, when the UAA cost for letters is undoubtedly lower than the UAA cost for flats? When rate differences are not based on corresponding cost differences, inefficient signals are sent to mailers and inefficient behavior can be expected.
4. Is the 5.2-cent cost net of any costs avoided by not have to complete delivery on pieces that are intercepted? It is not apparent that the cost study nets these costs out. If it does not, mailers would be in the position of being double charged.

For all of these reasons, the surcharge of 7 cents would seem to be an immense overcharge. Aside from suggesting that the Postal Service does not want to make its UAA services available on reasonable terms, it will drive some mailers to leave the Postal Service, perhaps finding that email will work just fine. These mailers will not come back.

Dead Tree Edition's Best of 2009

I've been in the magazine business long enough to know that I was supposed to publish this piece at least two weeks ago.

But I also remember when Time for Kids went to press in mid-December with a list of prominent people who died during 2006, missing out on the passing of Saddam Hussein, Gerald Ford, and the Hardest Working Man in Show Business.

"Look at this: They left out James Brown!" my little nephew huffed at me, as if I were responsible for the entire magazine industry.

So I decided to wait until 2009 was dead and gone (and quickly buried, unlike the Godfather of Soul) before providing a recap. Yeah, it was kind of a miserable year, but here at Dead Tree Edition it did have its moments:

• Most Popular Article: The Unofficial Guide to Flats Sequencing, with 23,837 page views.
• Best Headline: Boozing It Up on Black Liquor: One Company's High Is Another's Hangover, which describes how tax credits for a pulp byproduct enriched International Paper by a couple of billion dollars but helped drive Fraser Papers into bankruptcy protection. The tax credits also led to such headlines as Canadians Belly Up to the Black-Liquor Bar and International Paper Drowns Its Sorrows in Black Liquor. 
• Best Joke: That last International Paper article included this quip:"The good news is that, at the next paper-industry convention, liquor will be half-priced because the bar is taking advantage of special government incentives. The bad news is that, to qualify for the program, bartenders will have to add a dash of diesel to the drinks." Some people preferred this non sequitur about President Obama from OMG! I Was Only Kidding, Not Psychic: Twitter as Person of the Year?: "The latest word . . .  is that after blowing up balloons for one of his daughter’s birthday parties, he’s being nominated for the Nobel Prize in Physics."
  
• Best Imaginary Headline: "Virgin Hot for Playboy" in Playboy and Virgin Fail to Hook Up, which lamented news that Richard Branson was not interested in buying Playboy Enterprises after all.
• Best Imaginary Tweet: From Poe-Tweet for Twitter Quitters, about news that most people who join Twitter stop using it within a month. Limited to 140 characters, I ran out of letters at the end:
        Join Twitter, some urged.I pondered it.
        OMG, they pleaded,get w/it.
        But most tweeters, I read,abandon it,
        Finding most tweets 2b just pure s
  
• Most Commented Upon Article: Flats Sequencing Hits Some Bumps, with 31 comments.
• Top Keywords: Other than variants of "dead tree edition", the search term that brought the most people (248) to the site was "usps saturday delivery", which linked to How USPS Could Bypass Congress on Saturday Delivery.
• Dead Tree Moment: I finally got something published in an actual ink-on-paper magazine -- the December 2009 issue of Publishing Executive. It's an abridged version of Green Publishing Quiz. PubExec also ran a nice interview of me in its dead-dinosaur (aka Web) edition.
• Biggest Scoops: Unlike most bloggers, I try to do some original reporting rather than just commenting on already published news. Dead Tree Edition was the first to predict no postage rate increases in 2010 and to reveal that the Postal Service was planning a Summer Sale. We also broke the news that the black liquor credits were larger than predicted, that AbitibiBowater would not emerge quickly from bankruptcy protection, and that NewPage would shut no more paper machines. Keep those tips coming, folks.