Wednesday, February 22, 2017

Old Paper Mills: Monuments to a Strong Dollar

1909 postcard: 21 million logs at Millinocket, ME paper mill (from the author's collection)
1906 postcard: ME, Maine paper mill and hydroelectric dam (from the author's collection)
"Strong dollar."

Sounds good, doesn't it? The news that our currency continues to strengthen in comparison with those of almost every other country is like winning the Olympics, right? "U-S-A! U-S-A!"

Once-bustling paper-mill towns in Maine that are now turning to ghost towns tell another story. In a state where making paper was an iconic livelihood on par with Down East's famed lobstermen, half of the paper mills have closed in the past two years. Already this year, the site of the former Millinocket mega-mill (pictured above, nine years after it opened as the world's largest paper mill) was sold to a non-profit for $1, permission to demolish another mill was requested, and the Maine Pulp and Paper Association disbanded.

Donald Trump's tirades against foreign trade resonated in the paper-making regions of Maine, just as they did in the parts of  Pennsylvania, Ohio, Michigan, and Wisconsin that once thrived on steel, autos, coal and paper. Solid-blue counties that previously went for Obama voted instead for Trump, flipping the states' electoral votes to the GOP column.

But as even President Trump recently seemed to acknowledge, the "strong" dollar may be the real culprit behind the loss of American manufacturing jobs. Especially in the paper industry, and most especially in Maine.

The Madison mill -- pictured above 1906, the year it opened -- is a poster child for the inability of protectionist policies to overcome currency issues. Under questionable circumstances, the U.S. Department of Commerce in July 2015 imposed import duties on all four of its Canadian competitors in an obvious attempt to prop up the Madison mill.

That wasn't enough to save Madison. It couldn't overcome a 35%-plus "strengthening" of the U.S. dollar against the Canadian currency in just four years.

With most of their expenses in cheap Canadian dollars but their revenue in pricey American dollars, Canadian mills could still make a profit selling into the U.S. despite penalties of as much as 19%. Similarly, UPM, the world's largest and most profitable paper company, found it made more sense to supply supercalendered paper to the U.S. from its weak-euro European mills than to continue operating Madison.

The Madison mill made its final roll of paper in May 2016. It was sold to an industrial liquidator late last year.

The Digital Revolution and the strong dollar have been bad news for all U.S. makers of publication papers. Maine has the additional bad fortune of mills that were focused on lightweight papers like newsprint, directory, supercalendered, and lightweight coated that have borne the brunt of the shift to digital media. Plus, its out-of-the-way location gives it at best minimal freight advantages versus Canadian mills when shipping to the Midwest or versus European mills when shipping to must of the U.S. East Coast.

Protectionist policies are no match for declining demand and a rising dollar.

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Saturday, February 18, 2017

More Mail on Saturday? There's a Reason for That

If you think your mailbox is fuller on Saturdays than it used to be, it’s not your imagination.

During the past year, the U.S. Postal Service made operational challenges that cause some letters to be delivered on Saturday even though they don't have to be delivered until the following week.

“When feasible, based on local operating conditions, the Postal Service advances Standard Mail [letters] scheduled for Monday and Tuesday delivery into a processing window that enables delivery on Saturday, which is generally the lightest delivery day of the week,” the USPS told the Postal Regulatory Commission yesterday (PDF, page 5).

“This practice balances the processing and delivery workload for Monday, which is generally the heaviest delivery day of the week.” Postal officials were responding to a question about how they managed to improve on-time delivery for Standard Mail during FY2016.

Last year, the Postal Service delivered more than 55 billion Standard letters, which generally are mass solicitations sent by businesses and other organizations. (The growing category is often called junk mail --but not by the Postal Service.) Standard letters have lower postage rates than do First Class letters, partly because First Class enjoys more expedited delivery.

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Friday, January 13, 2017

Which of These Headlines Is Defamatory?

Takes one to know one.

After American Media Inc. complained that the original headline was "defamatory," Folio: magazine today tweaked the headline on an article about AMI's Star magazine publishing SlimFast ads that masqueraded as articles.

Folio: also published AMI's statement about the article, in which the publisher of National Enquirer and other scholarly journals huffed, "We are very concerned about the defamatory headline and implication in your article, [sic] that falsely states AMI 'pulled' SlimFast ads after a challenge from the Better Business Bureau."

You see, when Star headlined an article about the long friendship of John Travolta and Tom Cruise with "30 Year Gay Secret" even though the article had nothing more than vague references to "gay rumors," that's not defamatory. It's poetic license. (Citing the "bait-and-switch" cover, Gossip Cop gave the article a zero on its accuracy scale.)

Or when the Enquirer ran one hideously Photoshopped cover image after another during the Presidential campaign to "prove" that Hillary Clinton was about to die from brain cancer, that's free speech.

(As Politico's Jack Shafer wrote, "You don’t have to be a Hillary lover to be repulsed by the Enquirer’s coverage of her; the sicknesses the Enquirer has attached to Clinton would fill a medical encyclopedia—muscular dystrophy, multiple sclerosis, Alzheimer’s, endometriosis and brain damage from her concussion. She suffers from obesity (289 pounds), brain cancer and mental disorders, and has had two strokes, the Enquirer claims.)

But when Folio:, a magazine that covers the U.S. magazine industry, writes "Pulls" instead of "Discontinues," that's a DEFAMATION SHOCKER!, as the Enquirer's headline writers would say. Time to call the lawyers and shoot the messenger.

What Folio: didn't alter was its description and depiction of how AMI's round-heeled business ethics were on display in the SlimFast campaign -- including the factoid that "a number of dubious articles, purportedly written by editorial staffers but almost certainly part of a paid SlimFast campaign, proliferate throughout AMI's portfolio of websites."

But Folio: did add some comic relief to the updated version by publishing AMI's shoot-yourself-in-the-foot statement verbatim, including the comment that the company doesn't think it did anything wrong.

Wednesday, January 11, 2017

The FSS: A Hopeless Case

With FSS, things don't always go as planned.
Buried in two recent U.S. Postal Service reports are data and statements persuading me that the USPS's Flats Sequencing System will never end up saving money, much less recoup its $1.3-billion investment.

I explain why in an article that Publishing Executive published today, which also points out that the combination of the FSS fiasco and a Trump presidency could be yugely expensive for Periodicals publishers. To provide more depth to that discussion, here are the relevant excerpts from the two reports.

The first is the brief "FSS Scorecard" section of the agency's Annual Compliance Report. It reveals that the already slow and erratic FSS machines ran even slower and worse last year -- despite various "tiger teams," machine tweaks, and changes to mailing rules that were also focused on making FSS work:

FSS Scorecard
Chart from USPS FY2016 Annual Compliance Review

The Postal Service continues to measure critical aspects of FSS performance at each processing location. The resulting scorecard is utilized to develop a list of specific sites with the greatest opportunity for improvement. The table reflects the Postal Service’s performance on the key metrics utilized by the scorecard.

The DPS percentage metric represents the percentage of all flats destinating in FSS zones that was sorted to DPS using FSS for city carrier delivery. Flats volume outside of the FSS DPS percentage is either processed on the automated flat sorting machine (AFSM) or in manual operations.

The Mail Pieces At-Risk percentage identifies the percentage of mail that does not follow the prescribed path of sortation through a machine-based operation (e.g., on the FSS). These pieces, while not representative of service failures, require some additional handling in order to ensure they meet service expectations. At-Risk metrics enable the Postal Service to identify operational processes and machine elements that need to be reviewed for possible improvement. The metrics are broken down into three groups – Maintenance, Operator, and Shared (both Maintenance and Operator) – based on the ability of that group to affect the metric being tracked. Data supporting these metrics are gathered from machine End-of-Run (EOR) statistics. The Postal Service uses raw event indicators from the machine, such as the number of jams, and extrapolates the potential number of pieces that have fallen outside normal processing. Proper maintenance and adherence to operational guidelines minimizes the pieces at risk, hence decreasing the indicator.

Below are two excerpts from the "FSS Pricing and Passthrough" section of a USPS report on Periodicals pricing that include a couple of interesting revelations: 

1) After eight-plus years, postal officials are still trying to figure out how to make the "infant" FSS process work. In other words, not only is the system not working, the USPS doesn’t have a plan yet for getting it to work. 

2) The original idea was that FSS copies would cost the USPS no more than carrier-route copies, but now the vision is for the savings on non-carrier-route copies to make up for the “slightly” higher costs of carrier-route copies. With carrier-route copies now constituting more than 70% of non-FSS flat mail (and likely to rise because of better incentives in the rates that will take effect later this month), it’s difficult to see how a system with such long-term underperformance will ever make that work:

The Postal Service’s experience with the FSS is in its relative infancy, and the Postal Service is still learning about which operational flows will minimize the cost of FSS processing. Currently, the presumed efficient preparation for FSS sites is governed more by mailing rules than by pricing incentives. ... 

The premise of the FSS program is that increased mail processing costs (possibly substantial increases for pieces that previously qualified for Carrier Route rates) would be offset by reductions in delivery costs. The net reduction is intended to be systemic, meaning that while overall costs are reduced, some individual components may decrease substantially (mail previously prepared as 5-Digit, 3-Digit, ADC and MADC), while some individual components may increase slightly (Carrier Route). The dilemma is that there is not a practical way to set rates to reflect the fact that, in FSS zones, there is no cost distinction between mail previously paying Carrier Route rates and mail previously paying 5-Digit rates. This dilemma is further complicated by the fact that mailers previously paying predominantly Carrier Route rates do not want higher prices for their Carrier Route pieces.

I’m told that postal officials won’t even discuss the possibility of scrapping the FSS or radically repurposing the machines. (Could the machines be used to sort inefficient mail pieces into carrier-route bundles? Could machines located near major printing plants be turned into giant co-mail machines?)

One issue is that casing units (which carriers use to sort flats into delivery sequence) have been removed from so many delivery units served by the FSS. In other words, before waiting to see whether the FSS would work as planned, postal officials “burned the ships.” Now they’re saying, “Shit, we have no way to get out of this God-forsaken place. Who knew?”

The floor space once devoted to casing units often gets turned over to the growing parcel business. And the wave of recently hired carriers doesn’t have the experience or route knowledge to case efficiently. (With the FSS failing to sort nearly half of the flat mail assigned to it, by the way, there’s still plenty of casing going on. But it’s increasingly being done by inexperienced people using inadequate space.)

So I can understand the reluctance to ditch the FSS. But why are postal officials wanting to throw good money after bad by subjecting yet more areas of the country to FSS processing?

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