Why is it that the price of virtually everything keeps rising-without long periods of decline-except for pulp and paper?

Airlines are back to sticking fuel surcharges on fares. Why not raise prices and be done with it? Surcharges aren't fooling anybody. “Why, I can go to an in-person meeting at Hinkel's office every week for a special airfare of only $200…plus $1 million in fuel surcharges.”

It's not like fuel costs are going to plummet in a few days and surcharges will disappear into our national hippocampuses.

Isn't adding a fuel surcharge to airfares like adding a fiber surcharge to pulp? They say fuel is the top cost component in commercial air travel. Well, fiber's still the No. 1 expense in producing a ton of pulp. Maybe we should surcharge-out all of the other big factors while we're at it-$50/ton…plus fiber, maintenance, energy, labor, and transportation surcharges.

Airlines aren't the only business hurt by ridiculous fuel prices. Even veterinarians, dentists, and lawyers have to drive to work, and fly off to conventions and vacations now and then. The U.S. Postal Service is being devastated by rising fuel prices, as are FedEx, Big Brown, taxis, busses, and pizza deliverers everywhere.

Penny Power
The Postal Service claims that every penny rise in the price of a gallon of gasoline puts it an additional $8 million in the hole, apparently on an annual basis. That means the Service is consuming some 800 million gallons of fuel per year. Say at an average of 15 mpg with those little vehicles, considering all of the stop and go, that equals to about 53 million miles of mail delivery per year, or about 177,665 miles per day (300 days per year), or about 3,533 miles per state per day on the average. Maybe.

In the past few months, gasoline prices have increased 50 - 65 cents a gallon, or more in some places. That's a half billion dollars or so in additional costs for the Postal Service, just during the past few months. The Service reports that it expects to end this fiscal year some $2 billion in the red. Is that all?

But the Service has an ingenious plan. Raise the price of a first class stamp by another three cents. It just increased the price from 37 cents to 39 cents in January, so it will have to wait another year before going to 42 cents. It expects to break even in 2008.

How can three cents times anything erase a $2 billion deficit? To do that, we're talking some 67 billion first class letters per year, or about 223 per man, woman, and child per year, or 18-19 per month per person, without gasoline prices increasing further. That seems to be a stretch. But there's still a lot of junk mail arriving first class these days, and businesses do originate most of the first class mail anyway, in the form of bills. So maybe.

The Postal Service has also introduced a “forever” stamp, that would be whatever price at the time (say 42 cents when the prices go up next year), but would cover an ounce of first class postage from now on, no matter how much postage prices increase. Not a bad idea. It could inject a lot of money into the Postal Service's coffers if consumers bought into it in a big way.

The downside would be that the Postal Service is delivering first class letters for 42 cents in years hence (long after associated forever revenues have been spent), with gasoline for its scooter trucks costing $5 or more a gallon. They would have to keep extending forever, forever.

Taking a chapter from Price Hedging 101, maybe pulp and paper companies should offer forever pulp and paper. Buy and pay for it now at this price, and we'll make and deliver it whenever you need it. The problem with price hedging pulp and paper products, however, is that prices never increase that much over the long haul. They just seem to get a little better from time to time, between cycles.

Newsprint prices, for example, entering 1986 were somewhere around $650/adjusted metric ton. Twenty years later, in 2006, prices for standard 30-lb newsprint were also hovering around $650/metric ton after several increases from a low of $475/metric ton in 2002 (see Market Grade report on page 00). Adjusted on a real dollar basis, newsprint prices have actually slipped a good bit in the past 20 years. Comparisons are similar for uncoated free sheet.

Hey buddy, wanna buy some forever saturating pulp? Pay now, buy later….same low price.

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