Monday, November 26, 2007
Quebecor World's actions has led to speculation as to the value of the company's shares and the possibility that it may be purchased and taken private. Analysts have suggested valuations that range from zero to $6 per share. The current share price is is $2.44 Canadian.
Queborcor World is a significant producer of mail in both the United States and Canada printing advertising inserts and circulars, catalogs, direct mail products, magazines, books, and directories. In addition it provides services important to the production of mail including digital premedia, logistics, and mail list technologies. None of the financing and or ownership issues at Quebecor World should affect the service that the company provides its customers.
Saturday, November 24, 2007
Economists are increasingly acknowledging that the economy has slowed considerably. The number that now forecast a recession in the near term has doubled. (See: "More Economists See U.S. Recession Ahead, NABE Says" By Courtney Schlisserman published on Bloomberg November 19, 2007) For parcel and postal carriers in the
- The economic slowdown is not uniform. Not all customers, industries or geographic regions are slowing at the same rate or same time. This requires more careful attention to developing customer, industry and geographic forecasts to better plan manpower and transportation requirements. National forecasts, while useful for general trends can't help manage the costs in
or Phoenix . Poor local forecasts can result in over-staffing and lower margins. Detroit
- The network does not change. Unfortunately for all carriers, while volumes stagnate nationally and shrink in some regional markets, the geography of the
remains constant. Also while business customers may ship or receive less, they still demand service often on the same schedule as before. The challenge that carriers face is adjusting their transportation schedules between sortation centers, scheduling labor in sortation schedules and rescheduling pick-up and delivery routes to reflect lower volumes per stop. United States
- In shrinking markets, even labor can be a fixed expense. While all inputs can be adjusted in the long-run, carriers face the challenge of adjusting capital investment and contracting decisions that were made assuming stronger economic growth. To the extent that labor contracts restrict layoffs or re-assignments, labor becomes a fixed expense until those contracts can be changed or employees can be encouraged to retire. The Teamsters have indicated that UPS has agreed to pay the Central States Pension Fund an additional $1.5 billion to fund to allow UPS employees that participate in this plan to retire early after 30 years of employment. This could result in the retirement of as many as 3,000 of the 42,000 UPS full time employees that work in the Midwest, Great Plains and Southern States from Texas eastward and participate in this pension plan. This decision by UPS allows it to shed excess labor that would earn $28 per hour (plus benefits) under the new contract and amortize their extra retirement costs. To the extent that these employees need to be replaced now or when the economy picks up again, this decision allows UPS to reduce its operating costs as the new employees will earn $16.10 an hour.
- Contracted services require right-sizing to reflect operating realities. All carriers use contractors to provide transportation services between sortation facilities and transport mail, express, and parcels by air as well as the provision of non-core services. Carriers use both long and short-term contracts for these services. To the extent contracts for transportation and other services include payment, equipment or capacity guarantees these guarantees act as a fixed cost until the contracts expire or guarantees can be modified. Contract termination payment provisions may prevent carriers from adjusting contracted services as quickly as economic conditions require keeping excess capacity operating longer that is operationally justified.
- Slowing volumes require re-examining capital expenditures. When even common equipment such as a delivery vehicle can have a life span of twenty years, it is likely that carriers have built up excess capacity in facilities, sortation equipment, and transportation equipment. While some of the capital resources can be transferred to geographic markets that need them, others will have to sit until volumes pick up again. As such, carriers will likely delay purchases of vehicles or equipment and investments in new facilities unless the investment can have an impact in improving service, reducing costs, eliminating redundancy or replacing outmoded operating processes.
- Communication is critical. All carriers in this industry have developed strong long-term relationships with communities, employees, contractors, and customers. As slower economic activity often results in changing operations and changing networks, communication with all parties is critical to ensure that service continues to meet service standards and that employees, contractors, stakeholders and shareholders understand in a timely manner how changing economic conditions affect the firm. Communication is most critical for the Postal Service as its actions are still subject to substantial regulatory and legislative review that can slow its ability to react to changing economic conditions.
Thursday, November 22, 2007
Pension plans have been some of the largest investors in the alphabet soup of structured debt investments and are now facing the potential of one trillion dollars in losses. These investments were offered by the largest investment banks and the investment quality was often rated highly by debt rating agencies such as Moody's and Standard and Poors. Most importantly, many of the multiemployer plans, to which UPS and DHL contribute, may be forced to sell their structured debt at a substantial loss. If required, this will occur soon after the investment grades of the debt are reset to reflect the current perception of risk which many believe will be below investment guidelines set by federal regulation and/or plan trustees.
Now that the true risk associated with these investments are becoming known, questions are being raised about whether any of the parties that were involved in decisions to invest in structured debt failed in their responsibilities and should be held financially accountable for losses that pension funds have incurred. These parties include the plan trustees, investment managers, and the rating agencies that determined that the structured debt met the investment quality standards of the pension plan's investment charter. The board of Trustees of the Teamsters Local 282 pension fund has filed a class action lawsuit against Moody's for giving excessively high ratings to bonds backed by subprime mortgages. While this suit focuses on the impact that Moody's action had on the valuation of Moody's stock, other suits against Countrywide Financial, Citigroup's 401(k) plan, State Street Corp. , Bear Stearns, and AIG illustrate that the issuers of debt and the trustees of pension and 401(k) plans face the risk of legal action. Contributors to multiemployer plans including UPS and DHL need to monitor these law suits in order to monitor their future financial risks.