The first phase of the Flats Sequencing System (FSS) will save the U.S. Postal Service hundreds of millions of dollars annually and result in thousands of job eliminations, a recent Postal Service presentation indicates.
Based on the presentation, Dead Tree Edition estimates the Postal Service is targeting delivery savings of more than 5 cents for every catalog, magazine, newspaper, and other flat handled by FSS. Most of the savings would come from eliminating roughly 6,000 letter-carrier and other employee positions as all 100 Phase I FSS machines go into operation during the next two years. By automating the sequencing of flats rather than having letter carriers do it by hand, FSS is supposed to enable a letter carrier to handle more deliveries.
Still under wraps is how the machines will affect costs and employment levels at processing and distribution centers, where flats are sorted for the delivery units. But postal officials have said that FSS will result in consolidation of some P&DCs.
In just the two ZIP codes served by the Reston Annex in Virginia, the move to FSS resulted in nine employee positions being eliminated, seven delivery vehicles being reallocated to other locations, and 960 square feet of space becoming available. Those results are typical of what to expect from FSS, Jordan Small, USPS's Vice President, Delivery Operations, told the Mailers Technical Advisory Commitee (MTAC) recently. (A summary of the FSS-related changes at the Reston Annex is on the last slide of Small's "FY 2009 Cost Containment Strategies" presentation.)
Reston Annex, serving ZIP codes 20191 and 20194, is one of seven "sort schemes" being handled by USPS's first fully operational FSS machine in Dulles, Virginia. If the Reston Annex results are indeed typical, its results would be replicated about 700 times (7 sort schemes multiplied by 100 machines) in Phase I of FSS.
With letter carriers typically making about $50,000 in annual salary, not to mention benefits, Dead Tree Edition conservatively estimates USPS's Reston Annex savings as $600,000 annually. Replicated 700 times, that would be $420 million. Each FSS machine is to operate six days per week with a capacity of 280,500 flats per day, suggesting that Phase I will eventually sequence about 8 billion flats annually.
The Postal Service may never reveal exactly how many positions it eliminates as a result of FSS because it is undertaking other strategies to reduce the number of letter carriers as well. The number of city delivery carriers declined by more than 10,000 (almost 5%) in the fiscal year that ended on Sept. 30, and the Postal Service is targeting another 9,200 positions in the current fiscal year.
FSS is best suited to areas with high densities of residential and commercial deliveries where the Postal Service has buildings large enough to house the enormous FSS machines. It's not clear how many additional phases FSS will have, especially in light of declining volumes of flat mail. Just a few days ago, in fact, the Postal Service revealed that it is reconsidering the idea of sequencing letters and flat mail together, an approach that was abandoned as too costly a few years ago.
Saturday, November 29, 2008
Say Farewell to Miramichi
Any hopes that the weak Canadian dollar and low energy costs would revive the Miramichi, NB coated-paper mill have been dashed. The owner, Finnish paper giant UPM, has reportedly disabled the two machines so that they can never be used again to make paper.
A UPM spokesperson has confirmed that the machines were disabled in September in prepartion for selling the mill property, the Miramichi Leader reported yesterday. A union official claims that the disabling process involved drilling three-inch holes into rolls on the machines, which were relatively large and modern by North American standards.
UPM purchased the mill in 2000 but claims it never made a profit at the mill, which had the capacity to produce 450,000 tons per year of coated groundwood. It idled the mill in the summer of 2007 and closed it permanently a few months later.
The former owner, Repap, relied almost exclusively on brokers to sell its paper, but UPM had a reputation of being anti-broker. In the months between the sale to UPM being announced and actually closing, the mill reportedly lost half its business as brokers shifted their clients to other mills.
The mill was also plagued by labor strife, high freight costs, an inability to make acceptable rotogravure paper, an inefficient pulp operation, and an unfavorable currency market (most of its paper was priced in U.S. dollars)
A UPM spokesperson has confirmed that the machines were disabled in September in prepartion for selling the mill property, the Miramichi Leader reported yesterday. A union official claims that the disabling process involved drilling three-inch holes into rolls on the machines, which were relatively large and modern by North American standards.
UPM purchased the mill in 2000 but claims it never made a profit at the mill, which had the capacity to produce 450,000 tons per year of coated groundwood. It idled the mill in the summer of 2007 and closed it permanently a few months later.
The former owner, Repap, relied almost exclusively on brokers to sell its paper, but UPM had a reputation of being anti-broker. In the months between the sale to UPM being announced and actually closing, the mill reportedly lost half its business as brokers shifted their clients to other mills.
The mill was also plagued by labor strife, high freight costs, an inability to make acceptable rotogravure paper, an inefficient pulp operation, and an unfavorable currency market (most of its paper was priced in U.S. dollars)
Sunday, November 23, 2008
Is Quebecor back from the dead?
Is Quebecor World ready for a "return to greatness," as Printing Impressions suggests in the glowing cover story of its latest issue?
At first blush, it's hard to see an exciting future for a company that has already lost $1 billion this year after going Chapter 11. After all, the giant printing company acknowledged in a financial filing recently that it faced "challenging market conditions, resulting in price erosion and decreased volume in most of the Company's markets."
But dig a little deeper and you will find some signs of strength. Most of the $1 billion loss was a writedown of the albatross that almost brought QW to ruin, the European division that it sold in June. QW World has not used much of its debtor-in-possession financing since filing for Chapter 11 in January and experienced positive cash flow, though barely, in the third quarter.
An apparent blessing of the Chapter 11 filing, at least so far, is that counterparties canceled all currency-hedging contracts with QW, which has Canadian plants that produce items for the U.S. market. The U.S. dollar has gained more than 20% on the Canadian dollar since then.
Another blessing came from the U.S. Postal Service last year when it overhauled rates for Periodicals and Standard flats mail in ways that enhanced the incentives for co-mailing. Only R.R. Donnelley and Quad/Graphics are in the same league as Quebecor when it comes to large co-mail and dropship pools for mailed flats, and in this case size does matter.
Of the three, Quebecor's efforts have been more focused on the small mailers (with circulation of, say, less than 100,000) that have flocked to co-mailing in the past year or so and that gain such huge postal savings when participating in QW's large co-mail pools.
I was at an industry function recently where several executives talked of there being only three printers -- QW, RRD, and Quad. Certainly there are others, some of them sizeable companies with stronger credit histories than QW. But without rotogravure presses (rumored to be more profitable than offset), huge co-mail pools, and extensive dropship networks, it's hard to see how they can compete with the Big Three for most medium- and large-circulation publications.
Printing Impressions quotes company executives as saying the new QW is more streamlined and has fewer silos, doing innovative things like using available magazine press capacity (which no doubt there is a lot of these days) "to meet peak four-color educational textbook demand." And QW has definitely been more aggressive in recent months about reaching out to customers and potential customers -- for example, sponsoring and participating in webinars held by Folio: and Multichannel Merchant.
The big question is whether QW is now strong enough to ride out the turbulence of a severe recession and lean enough to thrive as many customers permanently reduce or even eliminate their demand for printing.
At first blush, it's hard to see an exciting future for a company that has already lost $1 billion this year after going Chapter 11. After all, the giant printing company acknowledged in a financial filing recently that it faced "challenging market conditions, resulting in price erosion and decreased volume in most of the Company's markets."
But dig a little deeper and you will find some signs of strength. Most of the $1 billion loss was a writedown of the albatross that almost brought QW to ruin, the European division that it sold in June. QW World has not used much of its debtor-in-possession financing since filing for Chapter 11 in January and experienced positive cash flow, though barely, in the third quarter.
An apparent blessing of the Chapter 11 filing, at least so far, is that counterparties canceled all currency-hedging contracts with QW, which has Canadian plants that produce items for the U.S. market. The U.S. dollar has gained more than 20% on the Canadian dollar since then.
Another blessing came from the U.S. Postal Service last year when it overhauled rates for Periodicals and Standard flats mail in ways that enhanced the incentives for co-mailing. Only R.R. Donnelley and Quad/Graphics are in the same league as Quebecor when it comes to large co-mail and dropship pools for mailed flats, and in this case size does matter.
Of the three, Quebecor's efforts have been more focused on the small mailers (with circulation of, say, less than 100,000) that have flocked to co-mailing in the past year or so and that gain such huge postal savings when participating in QW's large co-mail pools.
I was at an industry function recently where several executives talked of there being only three printers -- QW, RRD, and Quad. Certainly there are others, some of them sizeable companies with stronger credit histories than QW. But without rotogravure presses (rumored to be more profitable than offset), huge co-mail pools, and extensive dropship networks, it's hard to see how they can compete with the Big Three for most medium- and large-circulation publications.
Printing Impressions quotes company executives as saying the new QW is more streamlined and has fewer silos, doing innovative things like using available magazine press capacity (which no doubt there is a lot of these days) "to meet peak four-color educational textbook demand." And QW has definitely been more aggressive in recent months about reaching out to customers and potential customers -- for example, sponsoring and participating in webinars held by Folio: and Multichannel Merchant.
The big question is whether QW is now strong enough to ride out the turbulence of a severe recession and lean enough to thrive as many customers permanently reduce or even eliminate their demand for printing.
Thursday, November 20, 2008
A Second Look at Postal Hikes
After further study of the issue, I will amend yesterday's prediction regarding next year's postal rates -- and point out a quirk in postal regulations.
I still think next year's rate increase will be below the 5% recently predicted by the chairman of the Postal Regulatory Commission, but I was wrong on one count: If prices remain flat in November and December, the increase would be about 4.3%, not the 3.1% increase I stated yesterday. But I still think the increase will be less than 4% because consumer prices are decreasing.
The amount of the increase in most postal rates will be determined by the change in the average monthly Consumer Price Index for 2008 versus 2007. (I mistakenly understood the increase to be based on the change in CPI from December 2007 to December 2008.)
The CPI has decreased in each of the last three months, including a record 1.0% percent decrease in October. But you ain't seen nothin' yet. With most other prices basically being flat, virtually all of the October decrease was related to energy -- especially the 15% drop in gasoline prices. Gasoline prices have dropped even more precipitously in November -- down 35% from Oct 13 to Nov. 17, according to the Department of Energy -- and are apparently heading even lower. November seems likely to break October's record for a CPI decrease, and the December CPI may be lower still.
A 2.0% drop in November followed by a 1.5% decline in November would yield a rate cap of 3.8% for next year's increases in prices for such classes of mail as Periodicals, Standard, and First Class. It would also make any 2010 increases unlikely: Even if those big drops were followed in 2009 by annualized monthly increases of 5% in the CPI, the average monthly CPI in 2009 would be lower than in 2008 because of the energy-related spikes in CPI this past spring and summer. (Remember a few months ago when the big economic concern was inflation?)
That brings me to the quirk: Although the Postal Service can raise rates each year in accordance with changes to the CPI, there doesn't seem to be anything in the regulations requiring it to decrease prices when the change in CPI is negative. The PRC regulations refer to an "inflation-based" limitation on price adjustments but not to any required deflation-related adjustment to prices.
I still think next year's rate increase will be below the 5% recently predicted by the chairman of the Postal Regulatory Commission, but I was wrong on one count: If prices remain flat in November and December, the increase would be about 4.3%, not the 3.1% increase I stated yesterday. But I still think the increase will be less than 4% because consumer prices are decreasing.
The amount of the increase in most postal rates will be determined by the change in the average monthly Consumer Price Index for 2008 versus 2007. (I mistakenly understood the increase to be based on the change in CPI from December 2007 to December 2008.)
The CPI has decreased in each of the last three months, including a record 1.0% percent decrease in October. But you ain't seen nothin' yet. With most other prices basically being flat, virtually all of the October decrease was related to energy -- especially the 15% drop in gasoline prices. Gasoline prices have dropped even more precipitously in November -- down 35% from Oct 13 to Nov. 17, according to the Department of Energy -- and are apparently heading even lower. November seems likely to break October's record for a CPI decrease, and the December CPI may be lower still.
A 2.0% drop in November followed by a 1.5% decline in November would yield a rate cap of 3.8% for next year's increases in prices for such classes of mail as Periodicals, Standard, and First Class. It would also make any 2010 increases unlikely: Even if those big drops were followed in 2009 by annualized monthly increases of 5% in the CPI, the average monthly CPI in 2009 would be lower than in 2008 because of the energy-related spikes in CPI this past spring and summer. (Remember a few months ago when the big economic concern was inflation?)
That brings me to the quirk: Although the Postal Service can raise rates each year in accordance with changes to the CPI, there doesn't seem to be anything in the regulations requiring it to decrease prices when the change in CPI is negative. The PRC regulations refer to an "inflation-based" limitation on price adjustments but not to any required deflation-related adjustment to prices.
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