We have initiated a poll (on the Dead Tree Edition website, in the right column, just below the first ad and above the "Popular Posts" listing), asking which, if any, of these four companies will end up in bankruptcy court during 2012. You may vote for more than one, or for "None of the above." In the early balloting, only 30% of the voters thought none of the four would face bankruptcy this year, while Verso and USPS were in a tight battle for the title of most likely to succumb.

Here's a quick rundown of the candidates:

USPS

In just a few years, declining mail volumes and Congress' inability to make decisions have turned what was the federal government's cash cow into a multi-billion-dollar money loser. Gene Del Polito president of the Association for Postal Commerce, summed up the situation this week:

"The one significant challenge that's facing the U.S. Postal Service is a very simple to discern: Its costs outstrip by a significant margin its ability to cover those costs with postage-paid revenue. Set aside for a moment all the rationalizing as to why this is so. No matter the reasoning, the result is still the same. Too many costs; not enough revenue."

The agency met with restructuring (AKA bankruptcy) advisors last year, and the word "bankruptcy" keeps popping up in news reports. (See Could Forever Stamps Become Worthless? What Bankruptcy Might Mean for USPS.)

But what exactly would "bankruptcy" mean for the Postal Service? Its dominant creditor, the federal government, is required by the Constitution to provide postal service. If the feds shuts down USPS, who will carry out this duty? (And don't do a George Will and tell me it will be FedEx and UPS.)

Barnes & Noble

The big bookstore chain was supposed to feast on the ruins of its rival, Borders, because it moved to the web much quicker and has the growing Nook line of e-readers (and a significant cut of the sales of any Nook editions of books and magazines). But a research organization recently put it on a list of the companies most likely to run into financial distress, and it does appear headed for another money-losing year.

The revelation that it might spin off the Nook business fueled speculation that the company is in trouble. One theory was that, after the spin-off, B&N itself would go Chapter 11. But why would the bondholders allow a spinoff that would weaken the parent company that much?

I think the possible spin-off is about tapping into the kind of deep pockets needed for the Nook division to keep pace with the likes of Amazon and Apple.

Quad/Graphics

Quad's relatively high profitability enabled it to swallow a much larger competitor, Worldcolor, 18 months ago. With its investments in training and new technology, high level of employee ownership, and a "drink the Koolaid" culture, Quad has been a favorite of management gurus over the years.

But Quad appeared right behind Barnes & Noble on that list of high-risk companies. The Worldcolor acquisition left it with lots of debt, lots of excess capacity, and lots of integration headaches.

With the continuing rise of digital media and growing uncertainty about the Postal Service's fate, being the #1 or #2 printer in such fields as magazines, books, telephone directories, and catalogs doesn't seem like a particularly inviting position. And despite numerous plant closures since the acquisition, Quad still finds itself facing overcapacity and declining prices in many of its market segments.

Verso Paper

Verso was spun off from the mighty International Paper and has been a force in the North American publication-papers business ever since. Like its chief rival, NewPage, it was taken over by hedge funds. But it avoided the excesses (arrogance, bad customer relations, debt) that dragged NewPage into Chapter 11 four months ago.

NewPage's failure isn't necessarily Verso's gain. NewPage is still in business and is left with only low-cost mills. As long as it's in bankruptcy proceedings, it will run those mills to maximize short-term cash flow while ignoring market discipline.

Paper industry analyst Verle Sutton, writing in The Reel Time Report, recently summed up Verso's predicament this way:

"Numerous reports indicate that Verso will have a very difficult time staying out of bankruptcy during the next couple of years. The company expresses much more optimism than I am suggesting here, and I wish the company well, but the odds are against avoiding bankruptcy. Shutting down capacity (permanently) in an attempt to balance supply and demand would be very costly for Verso, and . . . would likely drive the company into bankruptcy even sooner."

This article originally appeared at Dead Tree Edition (http://deadtreeedition.blogspot.com/), which is written by a magazine-industry manager who goes by the pseudonym D. Eadward Tree. Comments made in this blog are the opinion of the author and do not necessarily reflect that of RISI, Inc., its parent company or sponsors.

Now that the new year of 2012 has begun, has the situation improved? Unfortunately the answer is still negative.

Media campaigns

Public media campaigns play a part in consolidating people's perceptions. We often hear, watch or read public interest advertisements in different kinds of media, saying that to save paper means to save the forest.

Other channels are also influencing us. Our bank statements might say that: "you are encouraged to receive online statements rather than paper statements due to environmental concerns." At our work places, we are quite often told to do less printing.

A recent survey on paper use and Consumption conducted by the Confederation of European paper industries (CEPI) amongst 734 young Europeans between the ages of 16 and 26 shows that "the web is generally seen as more environmentally friendly than paper." This may well be because young people consider it to be ‘free' or at ‘no cost' - little or no cost to use and therefore little or no cost to the environment. There seems to be a gratuity element attached to the web that paper does not bear."

Of course, we know that electronic goods are not environmentally friendly at all compared with paper, which can be recyclable. It is not difficult to work that out, but aggressive marketing campaigns through different channels don't want to allow people to have a chance to think for themselves.

Some papermakers have already realized that it is important to talk directly to the public and to change people's opinions about the industry. For example, APP , a paper giant under close scrutiny regarding its forestry and plantation operations in Indonesia and China, started to publish the paper Contract with China in 2008, stating its commitment to environmental and social responsibility.

The company started to hold sustainability Forums in 2008, inviting industry specialists, officials, NGOs and media representatives to talk about environmental challenges facing the industry and possible solutions for sustainable growth.

Other companies, for example, China's Sun Paper, started open day programs for the public in 2008, showing the company's efforts in eliminating pollution and protecting the environment.

International players such as Stora Enso are talking directly with NGOs. the company's CEO Jouko Karvinen and Greenpeace forest campaigner Sini Harkki just had a conversation about responsibility and the video was posted on Facebook, which aroused a lot of attention.

Still a long way to go

Big companies have made some positive efforts already though there is still a long way to go. To find effective ways to build up positive images in the public is essential.

One of the most effective ways these days might be to take advantage of social media, such as Facebook, or Weibo (the Chinese equivalent of twitter). As an experiment, I just published a sentence on Weibo saying, "the paper industry can be clean, efficient, environmentally friendly and also recyclable." I received a few comments seconds after posting. As a new comer on Weibo, my words didn't receive much attention for now, but I am sure when more and more people are raising the topic, it might start to change people's opinions towards the industry.

The good thing is that most people understand that they can't live without paper. The survey by CEPI shows that "80.5% of young people cannot live without paper because they think it is useful (70.2%), necessary (over 50%), or they need it around (50%). Paper makes everything more emotional, official, trusted, confidential and secure."

To win good opinion from the public, paper producers have to stick to its "green practice". Only in doing so, our "green messages" with the public will be loud and proud.

It's true that many systems have been upgraded with new technology along the way but, in quite a few cases, the original 1980s or 1990s vintage scanners and sensors remain. As a result, the measurement and control capabilities of older paper machines often lag behind newer machines. Furthermore, the parts to keep them running become obsolete, and the cost of service goes up. Worse still, outright failures can cause costly production interruptions.

Leaps and bounds

During the interim, the capabilities of QCS systems have expanded by leaps and bounds. More precise and faster measurements, multi-variable controls, improved CD profilers and extensive process diagnostic capabilities raise the potential for ROI. And revolutionary new measurements like optical caliper, sheet structure and surface properties open up new ways to improve existing paper grades and move forward to new ones.

With recent paper machine closures there are some aftermarket spare parts available from used legacy systems. Admittedly, it is tempting to keep QCS systems going on for a few more years with borrowed parts, but that short-term solution is somewhat like holding back the sea with a finger in the dyke. Furthermore, there are only so many Dutch boys available to hold back the sea and fix the multiple problems that come with age. Many people with the expertise to repair this older technology have left the business or have retired.

Is it time?

Even if these older systems are maintained at a certain level of performance, they will never match the measurement precision, control stability and papermaking results available from a modern system. Few people will debate that. So, is it time to make the commitment to a new QCS? That's not a quick and easy question to answer since it does involve a significant investment which must compete with other capital expenditures.

To justify a new QCS, all the benefits must be added up. Reducing the present service costs is one factor, but not the only one. Future maintenance costs - a factor in the so-called total cost of ownership - has become an important point of evaluation. The future costs have been reduced considerably by intelligent diagnostics which foretell developing problems. These diagnostics, which can be done remotely by suppliers, plus modular plug-in components allow simple proactive maintenance by mill staff, sometimes avoiding on-site supplier service.

The most significant return on investment may come from a specific measurement, control, control actuator, or a combination of all. For instance, moisture profilers are now popular for their energy-saving potential but they work better with more precise on-line measurements and smarter, responsive controls. Multi-variable controls reduce waste after breaks, start-ups and grade changes, thereby adding to machine efficiency. If a mill plans to move to new, more profitable paper grades, new measurements and controls are very important if not essential for the success of the transition. The list of possibilities is compelling.

The bar is raised

Rather than previous investment strategies linking a QCS upgrade to a machine rebuild, the replacement decisions are now often made based on a solid ROI by the QCS alone. The bar measuring system performance has been raised and a significant investment opportunity awaits. If you haven't bought a new QCS in twenty years, prepare for an intriguing sales process. It's still just as fascinating.

Mark Williamson, Journalist Engineer, Thornhill, Ontario

Tel: +1 905 886 1848, mark_williamson@sympatico.ca

Our research on capacity expansion concentrates on the case study of a target country (China) as well as firm-level analysis of the capacity build-up. This approach provides some criteria for assessing capacity levels as well as explaining the underlying factors behind the round of capacity expansion.

Figure 1 illustrates the macroeconomic fundamentals supporting China's paperboard capacity expansions. It is clear to see that the actual capacity expansion for both containerboard and boxboard are in line with the fixed asset investment growth for the paper industry. More importantly, the advantage of scale is likely to be overestimated by investors when credit is easy and interest rates are low. We also find that the largest amount of containerboard capacity came online in 2011, two years after the money supply reached its maximum level in 2009. The peak in boxboard capacity expansion is expected to be in 2012, since the installation of coated boxboard machines are a bit more complex than containerboard. If the trend we are describing here carries on in the future, a slowdown in capacity growth is certainly likely. Indeed, capacity expansion in China is expected to moderate in the next two years, with the regional market gradually digesting the large capacity additions.

Our "actual/realized capacity" estimate and forecast are based on base number from RISI's China mill-by-mill capacity file, which includes adjustment factors that consider new capacity ramp-ups and machine upgrades, conversions and rebuilds/idles. We believe that those factors affect a machine's capacity level. For instance, if a machine starts up in the middle of the year, the machine's actual capacity for that year should be less than its full designed capacity.

Based on our updates of the announced designed capacity track for the industry, a total of 5.9 million tonnes of additional containerboard capacity and 1.4 million tonnes of new boxboard capacity came on stream in 2011. In addition, the nation's actual boxboard capacity growth is assumed to have spiked to a record high of 11.6% in 2011, and will reach its peak this year, although some expansion projects may be delayed or even cancelled due to subdued demand.

The results of this, including the detailed listing of mill-by-mill capacity expansions and an estimation of the scale of the government's mandated containerboard and boxboard closures for 2011, are provided in RISI's 5-Year Asian Paper Packaging Forecast.

This is an excerpt from a full story that is available in RISI's Pulp & Paper News Service. Sign in to view full story. Not a subscriber? Try it free!

Han Yao, Packaging Economist, Asian Paper Packaging, works out of RISI's Beijing office and can be reached at Tel: +86-010-5773-3992 or Email: hyao@risi.com.