USPS Network Consolidation: A Tale of 3 Pictures

A lot of ink has been spilled discussing and cussing the U.S. Postal Service's plan to close 82 mail processing centers next year. But the three images below tell the story in a nutshell.

David Williams, USPS' vice president of networks, showed these slides in a recent presentation to mailers about the "Phase II" consolidations scheduled to begin in January.

The first slide demonstrates why: The volume of highly profitable single-piece First Class letters is barely half of what it was seven years ago.
 
















The reduced volume is a major reason the Postal Service needs fewer sortation centers -- and the $750 million annual savings it estimates the consolidations will generate. ("AMP" refers to Area Mail Processing studies, USPS's process for evaluating the expected impact and savings from potential plant consolidations.)

The second slide demonstrates that the plants to be closed are spread throughout the country and are primarily Processing & Distribution Centers. Williams said the closings will be part of another "methodical, measured transition" and that, as usual, affected employees will be offered "options for staying with the Postal Service" rather than being laid off.



















The third slide shows the end result: By next October, the Postal Service plans to have only 239 processing centers, down 64% since 2007.

Other articles about USPS plant closings:  

• Postal Service 'AMPs' Up Facility Consolidations
• Printer Praises Postal Plant Consolidations 
• USPS 'Honors' Sen. Byrd With Plant Consolidations
• Has USPS Targeted the Wrong Plants for Closure? 
• Is the APWU Eating Its Young?

Donahoe Signals Change of Heart on Weekend Deliveries

Postmaster General Patrick Donahoe made a statement this week demonstrating that postal executives’ views about weekend delivery of packages have changed significantly in the past four years.

"The future will be a seven-day package world and a five-day mail world," a USA Today article quoted Donahoe as saying.

In 2010, the U.S. Postal Service released its “action plan for the future” that called for elimination of Saturday delivery, with no exceptions. But, responding to concerns about delayed deliveries of prescriptions and other vital parcels, postal officials acquiesced and changed their plan to include Saturday delivery of packages.

No one – not even the most ardent advocates of postal service or even the postal unions – was talking about adding Sunday delivery of any kind.

But in recent months, weekend delivery of parcels has gone from obligation to opportunity. The Postal Service is delivering Amazon packages in a growing number of urban markets. In San Francisco, it is testing same-day, seven-days-a-week delivery for multiple retailers and today added early-morning grocery deliveries to its test offerings in that city.

Donahoe’s comment to the newspaper suggests that the long-term plan is for Sunday to become just another day of delivery as far as parcels are concerned.

Why the change of heart?
Why are postal executives who wanted to eliminate a day of parcel delivery barely four years ago now trying to add a day?

They are seeing huge potential in the e-commerce boom, which is fueling rapid growth in business-to-residence deliveries. And they are recognizing where the much-maligned USPS has competitive advantages over its private competitors.

United Parcel Service, for example, is seeing 60+% annual growth in UPS SurePost, its low-priced option that turns packages over to the Postal Service for final delivery. FedEx’s SmartPost similarly relies on the Postal Service to for “the last mile” delivery to residential customers. Neither company can deliver to residential customers as efficiently as USPS can.

In a move to cut out those middlemen and grab more of the e-commerce dollars, the Postal Service recently reduced Priority Mail parcel rates for big mailers by as much as 55%.

Changes in its workforce have also enabled USPS to reduce its delivery costs. The average hourly rate for the city-carrier force, for example, dropped 5% in the past year as the Postal Service increasingly relied on city carrier assistants (CCAs) and other non-career employees. The agency plans to have only CCAs delivering groceries in the San Francisco test.

What’s also changing is the Postal Service’s strategic focus. The same electronic media that are cutting into USPS’s traditional bread and butter – delivering letters – are also creating profitable growth opportunities in the package business. That’s why it wants to give short shrift to traditional mail while expanding service in the package realm.

Unlike letter delivery, USPS doesn’t have a monopoly in the parcel world. But its massive delivery network and unique ability to reach every address in the country every day of the week may give it a virtual monopoly in certain types of package delivery.

Related articles:

• Frenemies: The Love-Hate Relationship Between UPS and the Postal Service Blossoms
• Third Bush on the Right, Please: USPS Grocery Deliveries Would Need Lots of TLC from Carriers
• How USPS Could Bypass Congress on Saturday Delivery

 

NewPage and Verso Find a Catalyst For Their Merger

Update: The Justice Department announced on Dec. 31 that the Catalyst deal will satisfy its antitrust concerns about the Verso-NewPage deal. Both the Catalyst deal and the Verso-NewPage deal were completed on Jan. 7, 2015.

Today's announcement that Catalyst Paper will buy two NewPage coated-paper mills apparently means that the merger of NewPage and Verso Paper will move forward.

Catalyst revealed that it will purchase NewPage's Rumford, Maine and Biron, Wisconsin mills for $74 million -- more than quintupling the Canadian company's capacity for making coated paper. One condition of the sale is that Verso-NewPage deal be consummated.

That merger has been delayed by federal antitrust officials, who were apparently concerned that, by owning half of North America's capacity to make coated paper, a combined Verso-NewPage would have too much market power and be able to drive up prices. NewPage's sale of the two mills, coupled with Verso's decision to close its Bucksport, Maine mill, were presumably a condition of gaining the U.S. Justice Department's approval for the merger.

Catalyst would only pay about $85 per ton of capacity to make paper that typically sells for at least $850 per ton. That looks like a fire-sale price, except that the continent's demand for coated paper is half of what it was barely a decade ago. And except that we've seen this movie before, and the ending wasn't pretty.

Justice allowed the 2007 merger of newsprint giants Abitibi and Bowater to go forward only after Abitibi unloaded one of its gems, a 100%-recycled mill in Snowflake, Arizona, to Catalyst for a bargain price. But a few years later, Snowflake hit a perfect storm -- Chinese buyers driving up the price of West Coast recycled paper, black liquor tax credits subsidizing competitors using virgin pulp, and the collapse of the U.S. newspaper industry -- and was shut down.

Both AbitibiBowater (now called Resolute Forest Products) and Catalyst ended up going through bankruptcy reorganization and emerged as smaller but healthier companies.

Catalyst makes mostly newsprint and uncoated papers in western Canada, but does have a single machine making coated groundwood paper.With the purchase announced today, Catalyst would pick up four machines that make coated freesheet as well as coated groundwood paper, plus some market-pulp capacity.

Related articles:

• Verso-NewPage Deal Will Face Antitrust Hurdles, Analyst Predicts 
• Odd Verso-NewPage Structure Eyed Warily by Wall Street 
• Another Recycled Newsprint Mill Is on the Ropes

Postmaster General Wins Dubious Publishing Honor

In just two and a half years, Postmaster General Patrick Donahoe has gone from hero to villain in the eyes of a leading publishing-industry magazine.

Disruptor General

Folio: named the U.S. Postal Service’s CEO this week to its Folio: 100 list of the 100 most influential people in the magazine industry, in the “disruptor” category.

“Donahoe raised postal rates by 6 percent in December, making magazine delivery more expensive at a time publishers are carefully managing their print costs,” Folio: noted. Periodicals mail volume declined more than 6% in the first six months after the “exigent” rate increase was implemented.

Folio:’s slap at the PMG was a far cry from April 2012, when the magazine hailed Donahoe because “he has pledged to support the magazine industry.” He was awarded a place on that year's Folio: 40 list of the magazine industry’s “most innovative and distinguished professionals.”

Folio: quoted him back then as saying “You don’t hear me walking around saying we need an exigent price change — that will push you, bill presenters and standard mailers out of the mail.”

To be fair to Donahoe, almost everyone in 2012 thought Congress would have to do something to relieve the Postal Service’s financial burdens, after squeezing billions of dollars from the agency in the form of pension overpayments and prepaid retiree health benefits.

But in fact Congress has been unable to do anything more meaningful than name additional post offices, leaving Donahoe few options in his efforts to keep the agency solvent.

Related articles:

• Wanted: New Postmaster General; Must Be Able To Kiss 535 Backsides Simultaneously 
• Folio: Magazine Honors Donahoe As Innovator
• The Postmaster General's Scandalous(?) Salary 
• Potter Quitting the Worst CEO Job in America