Marketplace - American Public Media

How one Tennessee county kept unemployment so low

Tue, 2014-04-22 09:57

There are parts of the South that continue to battle high unemployment, but Lincoln County, Tenn. is not one. It’s one of just two counties in the state that’s had the jobless rate dip below 5 percent in recent months.

This county of rolling farmland dotted with rusty silos and wooden barns has just 33,000 residents. Fewer than 900 are considered jobless. In some months, the county has had the lowest unemployment in Tennessee.

“Most everybody I know that wants a job has got a job,” says Jonathan Smith, who works at Goodman Manufacturing alongside his sister and parents.

Most who work in Lincoln County turn screws for a living, or something close to it. A handful of factories drive the local economy. Goodman is – by far – is the largest. In all, 1,500 employees build heating,ventilation, air-conditioning (HVAC) units from the ground up.

“We make plastic parts, we make wires, we make sheet metal,” says longtime plant manager Bill Miller.

Keeping Jobs In House

Instead of importing components from China, Miller says they’re made in house so the plant can respond to market demands. Sheets of metal are stamped and crimped into cooling coils as needed.

And looking around the factory floor, one can count on one hand the number of robots. Miller says there’s too much variability between small air-conditioning units for homes and monster machines meant for hotels.

“Robots are very difficult to program for that kind of complexity,” he says. “Human beings are very trainable for that kind of complexity.”

And that’s why there’s still a hiring sign out front. Goodman Manufacturing needs people. It’s hard work, but it pays pretty well compared to other jobs around. Average wages are $17 an hour – much better than some hospitality jobs.

“You can only clean so many toilets, and stuff, make beds,” says Louise Alaweneh, who left the local hospital to take a welding job at Goodman.  "Then you come out here and you get a taste of really working.”

Lincoln County has lost some factories as companies found it more profitable to move overseas. But the area has also recruited new employers to replace them, like a big Frito-Lay plant.

Who Gets Credit?

“We’re lucky, I guess,” says John Ed Underwood, mayor of Fayetteville, the county seat.

Considering he’s a politician, Underwood doesn’t take much credit for the economic good fortune. He tries to bring new companies to town, but he finds corporate recruiting to be a game of chance.

One executive recently showed up on a Lear Jet.

“We talked with him, would have thought we done a good job selling Lincoln County and Fayetteville to him. He got on his plane, and we ain’t heard from him since,” Underwood says. 

Really, Lincoln County has held it’s own against the odds. It has no Interstate. A rail spur was recently shutdown. And it’s not like there’s been a construction boom of subdivisions or a surge in any particular industry.

Underwood figures there’s just been a good balance of people and jobs in Lincoln County, at least until now. Several local factories are expanding.

“Four of them are going to hire are going to hire as many as 600 new employees,” he says. “Where are they coming from?”

One More Thing

There’s no bite-sized explanation for why Lincoln County has such low unemployment. But it certainly hasn’t hurt to be 30 miles from Huntsville, Ala.

“I work in Huntsville,” says Didre Smith. “I know several people who do.”

In fact, local officials estimate hundreds of people make that commute across state lines to Alabama. Many work at Redstone Arsenal.

Smith has an administrative job in a doctor’s office – something she couldn’t find in her home county. She used to work in a nearby pants factory.

“I chose that that would not be my profession always,” she says.

But outside of being a teacher, there aren’t many non-factory jobs here that pay a decent wage, hence the number who drive to Alabama every morning.

Lincoln’s lack of white-collar work is a problem, but most counties this size would trade places in a heartbeat. Other rural areas – even just a few counties over – are battling double-digit unemployment.

CVS looks for a slice of the healthcare pie

Tue, 2014-04-22 08:54

CVS is trying to cash in on the Affordable Care Act.  Customers will soon be able to pay their premiums at their local CVS store

The pharmacy is hoping the additional foot traffic will lead to more sales, analysts say. But there are pitfalls. For example, if there are problems with the payment processing, it might not be all CVS's fault. "But it will be CVS where the patient is standing, frustrated," says George Hill, healthcare services analyst at Deutsche Bank. 

CVS says it'll start accepting the premium payments later this spring.

Potato salad, checked tablecloth, cute hat ...

Tue, 2014-04-22 07:40

From the Marketplace Datebook, here's a look at what's coming up April 23:

In Washington, the Commerce Department reports on sales of new homes in March.

Ebertfest gets underway in Champaign, Illinois. The annual event "celebrates films that haven't received the recognition they deserved during their original runs." Like "Young Adult."

William Shakespeare is believed to have been born 450 years ago on April 23rd.

Domestic flights got a little less cloudy on April 23rd, 1988 when a smoking ban on trips under two hours went into effect. Does anyone actually tamper with those bathroom smoke detectors?

And for fresher air why not pack up some lunch and go outside. It's National Picnic Day.

PODCAST: Activist investors

Tue, 2014-04-22 07:06

Activist investor William Ackman has set his eyes on a new target: Allergan. Ackman has joined forces with Valeant Pharmaceuticals to purchase the Botox-maker for an undisclosed amount -- $50 billion is one educated guess. Ackman along with other so-called corporate raiders Carl Icahn and Nelson Peltz, have become famous, and sometimes infamous, for shaking up the companies they invest in. Do they do more harm than good?

Netflix stock saw a jump after its quarterly profits report beat forecasts. The streaming video company also said it's raising prices for new subscribers by $1 to $2 a month. Existing members won't see their subscription fees go up any time soon, though, and new members still have some time to get the cheaper price; the increase won't happen until the end of June.

Earth day, at 44, may be a little tired. The United Nations continues to report that the urgency of fighting climate change, for instance, should be red hot. But polling from Gallup shows that fewer people say they worry about it "a great deal" than at any time since 1998, when Gallup started asking the question.

Netflix to raise prices for new members

Tue, 2014-04-22 06:40

Netflix stock saw a jump after its quarterly profits report beat forecasts. The streaming video company also said it's raising prices for new subscribers by $1 to $2 a month.

Existing members won't see their subscription fees go up any time soon, though, and new members still have some time to get the cheaper price; the increase won't happen until the end of June.

The slower rollout of the price hike contrasts with Netflix's abortive attempts several years ago to split its DVD rental and streaming services to charge separately for each, which lost them subscribers and hurt their stock price.

James McQuivey, an analyst with Forrester Research, says as Netflix has grown its user base and built up its streaming video library, consumers may find the content worth the fee increase.

A brief history of the credit score

Tue, 2014-04-22 03:42

Numbers are fundamentally utilitarian. They tell us about the economic world around us; both the big, broad economic world, and our own little slices of it.

Sure, the unemployment rate and GDP are important. But on a personal level, few numbers are as significant as the credit score. It’s one of the building blocks of the consumer economy.  “It’s immensely important,” says John Ulzheimer, a credit expert from creditsesame.com, “it controls everything from the terms and interest rates on loans, your access to mainstream loans, what you pay for insurance premiums.”

It’s not overblown, he says, to call the credit score the most important financial metric that we live with.

Some employers look at credit scores to decide between job candidates.  Some potential partners look at credit scores to decide between dates.  

There's even a dating service that offers to match you up based on credit scores.  

800-850 is "MARRIAGE POTENTIAL DING DING DING"750-800 is "take him/her home to Mom"700-750 is a "fixer-upper"650-700 is "fun for a night out, maybe, but bring cash"600-650 is "keep lookin'!"anything below 500 is "RUN because they won't even get a car loan, probably, and how embarrassing will that be at the PTA meetings?"200 is "this person is just pulling your leg and is really royalty"

 But it wasn’t that long ago that the credit score we know today, the FICO score, didn’t exist.   The first general-purpose FICO score came along in 1989, only 25 years ago. 

Highlights from the history of the FICO credit score

  • 1958: FICO sends letter to the 50 biggest American credit grantors, asking for the opportunity to explain a new concept: credit scoring. Only one replies.
  • 1970: Congress passes the Fair Credit Reporting Act, encouraging privacy and accuracy in credit reporting
  • 1975: FICO develops first behavior scoring system to predict credit risk of existing customers, for Wells Fargo.
  • 1989: First general-purpose FICO score debuts.
  • 2003: Congress enacts the  "Fair and Accurate Credit Transactions Act of 2003", which includes the right to free credit reports every year.
  • 2014: FICO claims its scores are used in more than 90% of lending decisions.

Before the FICO score came along, lenders did what they could to determine credit worthiness.  Not all of it good.  According to Frontline:

Credit reporting was born more than 100 ago, when small retail merchants banded together to trade financial information about their customers. The merchant associations then turned into small credit bureaus, which later consolidated into larger ones with the advent of computerization.

By the 1960s, controversy surfaced over the CRAs, according to Chris Hoofnagle of the Electronic Privacy Information Center, a public interest research center. Hoofnagle says the credit reports were being used to deny services and opportunities, and individuals had no right to see what was in their files. In addition, CRAs back then reported only negative financial information as well as "lifestyle" information culled from newspapers and other sources -- information such as sexual orientation, drinking habits, and cleanliness.

Many times, getting a loan was about having the right personal relationships. “You almost always did business with a banker who was a friend of the family, or someone with whom you'd golfed, or someone with whom your parents worked, or you went to church with, or were in rotary club with,” said Ulzheimer. “They would make a decision largely on a gut feel.”

It was a system of credit that left a lot of people out of the credit market based on gender, race, nationality and marital status.  

Earth day is middle aged. Is it over the hill?

Tue, 2014-04-22 02:52

Graphic by Shea Huffman/Marketplace

Earth day, at 44, may be a little tired. The United Nations continues to report that the urgency of fighting climate change, for instance, should be red hot. But polling from Gallup shows that fewer people say they worry about it "a great deal" than at any time since 1998, when Gallup started asking the question. 

Frank Newport, Gallup's editor in chief, says there's a trend that the top-line numbers don't show: The people who have moved from saying they're concerned about the environment to saying "not-so-much" are Republicans.

"So clearly the fact that this has become a political football has kept the overall concern numbers down," he says. "You’ve got a lot of conservatives and Republicans who say that it's exaggerated, and the concern and alarm are not nearly as high as Democrats say they are."

Fred Krupp, president of the Environmental Defense Fund, doesn’t think that polarization will last. He cites numbers from a poll commissioned by the Sierra Club, showing that young voters want action on climate change.

"To me, that says you’re going to see a return to bipartisan solutions on this issue sometime soon," Krupp says. "Because for either political party to have a future, they’re going to have to address this overwhelming challenge."

Is Abenomics working? Depends on who you ask.

Tue, 2014-04-22 02:43

Shinzo Abe came to power in December of 2012 with a strategy he called "the three arrows." Everyone else in the world has taken to calling it "Abe-nomics." Roughly approximated, you might call it: Inflate, stimulate, and deregulate. 

How's it working? Depends who you ask. 

Inflate: Fighting the deflationary monster

Deflation, or the threat of deflation, has stalked Japan for nearly 20 years. Deflation is poison for economic growth. Consumers put off today's spending because things will be cheaper tomorrow, wages don't rise, and both of those things reinforce future deflation. 

Abe appointed a new Central Bank president, Haruhiko Kuroda, and they went to town on the money supply and interest rates. They proclaimed a goal of doubling the monetary base and achieving inflation of 2 percent within two years, says Georgetown University's Arthur Alexander: "It was like a 222 program, very easy to sell, bumper sticker type of policy."

Some results were immediate. 

Longer term bond yields rose as people began to expect inflation and demand protection against it.  

"The new approach was also reflected in the exchange rate," says Stanford University's Takeo Hoshi. "It depreciated between 20 and 30 percent in the last year and a half," again reflecting people's expectation that inflation would at some point make the Yen less attractive – a good sign if you are trying to break the back of deflation.

Finally, inflation as measured by consumer price indices eventually rose above 1 percent. Japan may not get to the 2 percent Abe would like, but it’s certainly better than a zero or negative number.

Stimulate!

Abe has put forth a major stimulus package, but that, plus the ongoing expense of rebuilding after the Fukushima disaster, has resulted in a government debt of 227 percent of GDP. The country’s fiscal situation was problematic to begin with, and this has made some Japanese even more concerned.  

"People are seriously divided," says Ulrika Schaeda, who teaches Japanese business at the University of California, San Diego. It's reminiscent of the debates over government spending here.

A value added tax was introduced on April 1, but opinion is mixed as to whether it is sufficient to stabilize Japan's fiscal situation.

Deregulate: structural reform and the Big Picture

"The verdict on Abenomics will depend on whether or not they do the structural reforms," says Anil Kashyup, professor of Finance at the University of Chicago's Booth School of Business. The structural reforms are the big picture problems.

"There's all kinds of frictions that make Japan an unappealing place to do business," says Kashyup. Starting a business, getting hired full time, even finding childcare is hard in Japan. 

Some parts of Japan's economy are subsidized, protected, and unproductive says Kashyup.

"Rice in Japan is seven times the price on the world market," says Arthur Alexander, adjunct professor at Georgetown University. It appeared for a time that some headway was being made on opening Japan up to more international trade and a more vibrant retail sector, "but domestic politics seems to have reared its ugly head," Alexander says, referring to a cooling in negotiations between the U.S. and Japan over the Trans Pacific Partnership trade agreement.

This is the most difficult of Abe's arrows to guide, and it's what Japan watchers will be following closely. So in some ways Japan has changed a lot in a year.

The question is, will it keep changing?

Sherpas base salary is about $2,000

Tue, 2014-04-22 02:36

Update, April 22, 8:15 am ET: Mt. Everest's Sherpa guides decided late Tuesday to abandon the rest of the climing season, according to AFP. The decision came after a meeting with government officials in Nepal over insurance and financial aid for victims of last Friday's avalanche on the mountain that killed 13 people. 

Original story, April 22, 7:00 am ET: Sherpa mountaineers believe insurance and financial aid for families of victims is inadequate. The minimum insurance policy for the guides pays a death benefit of about $10,000 and the Nepalese government has announced a special payment of $415 to families in the wake of a tragedy. Average per capital income in Nepal is about $645 a year.

The sherpas who climb Mount Everest above the base camp, which is where the danger begins, make a base salary of about $2,000. But their pay is also determined by a bonus sytem for delivering loads to various camps. If they make the summit, they are paid $250 the first time. And every additional summit is worth $500, according to Conrad Anker, the world-renowned mountaineer who has scaled Everest several times.

"A good sherpa can earn between $4,000 to $6,000 in pay in one season," says Anker. "But it is extremely dangerous work."

Anker says the economics in Nepal, outside of the climbing season, is mostly subsistence agriculture. 

 

A tour of China's ghost towns

Tue, 2014-04-22 02:26

For the past three decades, China’s growth model has been anchored in building big projects: highways, bullet trains, and real estate. And that’s left hundreds of cities across China, nearly empty – ill-conceived projects built for the sole purpose of boosting GDP growth.

An empty shopping mall in the ghost city of Ordos, China.

Rob Schmitz/Marketplace

As part of Marketplace’s stage performance in the beltway “How I learned to stop worrying and love the numbers,” China Correspondent Rob Schmitz will take audience members on a tour of China’s ghost towns, ghost malls, and ghost suburbs, delving into the numbers that explain how a land of 1.4 billion people can have so much empty real estate.

A glimpse into China's most-famed "ghost cities"

China has laid out an ambitious plan to transform 250 million people from the countryside into city dwellers in the next 20 years. Its push for urbanization has encouraged local governments and developers to build skyscrapers and residential complexes, many under the belief of “build it and they will come”. However, the construction spree has left soaring debt, creating insolvency risks for local governments and inflating the country's real estate bubble. By China’s official account, China’s local governments owed $ 1.8 trillion of debt by the end of June 2013, about a third of China’s GDP. A CLSA report says China is "addicted to debt".

We'll take listeners to a Chinese replica of Manhattan, a city that was built to replace New York City as the world’s financial capital, but is now one of the world’s largest abandoned construction sites. He’ll bring listeners on a journey to one of China’s largest ghost cities, a metropolis built for a population the size of Pittsburgh’s, but that is now largely empty, a place where squatters have begun to occupy empty offices and where the government is in so much debt that it’s turned to developers to bail it out.

The city of Yujiapu is being built to become the world's largest financial capital. Construction on the city, a replica of Manhattan, has been recently halted due to a lack of investor confidence.

Rob Schmitz/Marketplace

It’s a side of China you rarely hear about, but it’s an incredibly important phenomenon to understand to grasp the totality of the economic changes China’s embarking on as it attempts to rebalance its economy.

Activist investors help shareholders, right?

Tue, 2014-04-22 02:02

Activist investor William Ackman has set his eyes on a new target: Allergan.

Ackman has joined forces with Valeant Pharmaceuticals to purchase the Botox-maker for an undisclosed amount -- $50 billion is one educated guess. Ackman along with other so-called corporate raiders Carl Icahn and Nelson Peltz, have become famous, and sometimes infamous, for shaking up the companies they invest in.

Do they do more harm than good?

Bloomberg News reporter Tara Lachapelle joins Marketplace Morning Report host David Brancaccio to discuss the track record of activist investors, noting that more often than not, these in-it-to-win-it investors are actually a shareholder's friend.

Click on the audio player above to hear more. 

What's in a number?

Tue, 2014-04-22 01:29

We’re taking Marketplace on the road this week, heading to Washington, DC for a live show on Thursday night. The title of the show is “How I Learned to Stop Worrying and Love the Numbers".  Which can be quite difficult, sometimes, as numbers can lead you seriously astray.

For example, I’m looking forward to tech earnings this week, and specifically  to results released by Apple (Wednesday) and Microsoft (Thursday). Lately a lot of people have been debating whether Apple is a “value” stock, or a “growth” stock.  Growth stocks are usually the shares of young companies, and investors buy them in the hope that they grow very quickly and the investor can make pots of money by selling into the stratospheric gains. Value stocks, on the other hand, tend to be associated with more mature companies. These shares grow slowly but steadily and often pay dividends: they are a long term play, while growth stocks are often a short term buy.

So which is Apple? Well, it’s a bit confusing, really. You see, from 30 thousand feet, Apple looks a lot like a value stock. It was started 38 years ago, and it went public in 1980, eight years before Microsoft. It’s huge: at $453 billion, it’s the biggest tech company in the US. It generates more revenue than any other US tech company. And it’s been paying dividends to shareholders since 1988. Big, mature, dividend-paying and safe, it looks like the epitome of a value play.

But that’s at 30,000 feet. Get a little closer to Apple, and a different picture emerges. Yes, it’s still the biggest and most profitable tech company in the US, but you could argue that Apple really only became Apple as we know it today in 1997, when Steve Jobs rejoined the firm.

Let’s call it Apple 2.0.

And Apple 2.0 looks a lot more like a growth stock. For one thing, it’s just 17 years old. As for those dividends, well, Apple 2.0 does pay dividends, but it only started paying them in 2012 (Apple 1.0 stopped paying them in 1995).

Apple 2.0’s stock trajectory makes it look like a growth company, too. Most companies go through a growth spurt, during which their stock price surges – this is what attracts investors wanted to make a little fast money, of course –after which companies often settle into a nice steady pace of slower growth. In other words, they transition from growth to value. But it’s hard to know whether Apple has done that. Microsoft’s growth spurt peaked in 2000, a full fourteen years ago, and people still argue about whether it’s a value stock or a growth play. Apple’s growth spurt peaked in 2012, just two years ago.

It goes to show that often it’s not the numbers that tell the story: it’s the numbers within the numbers. And that’s something we’ll be talking about a lot on Thursday night. Hope to see you there.

Is Chicago America's funniest city?

Tue, 2014-04-22 01:00

Researchers at the University of Colorado have used a Humor Algorithm (HA) to determine the funniest city in America. Among other things, factors like the number of comedy clubs and how many famous comedians were born in each city were taken into account.

And the funniest city? Chicago. It makes sense when you consider the improv scene in the area. The iO and The Second City are two of the most notable training grounds for fledgling comedians and improvisers.

Among the long list of notable Second City alumni are Steve Carrell and Stephen Colbert:

Speaking of Second City, two of their regular comedians (Alan Linic and Claire Meyer) are in a relationship in which they regularly tweet what they fought about that day. That helped Chicago in the algorithm because the number of humorous tweeters in each city also factored into the rankings:

How did the rest of the country fare? Boston came in second and Atlanta third. You can check out the rest of the rankings, and the full report here.

The costs of climbing Mount Everest

Mon, 2014-04-21 15:00

The deadliest avalanche in Mount Everest history is leading Sherpas in Nepal to consider a labor strike. The boycott would protest the amount of money provided by the Nepalese government to families of the deceased. Thirteen Sherpas were killed and more are presumed dead after last Friday's fatal avalanche. The government currently provides about $400 per family and the strike would aim to increase that amount to $10,000. 

Sherpa guides have one of the most dangerous jobs in the world, but many Sherpas are attracted by the relatively high pay of assisting climbers up Mount Everest. Sherpas make at least $2,000 per climbing season, considerably more than the median income of Nepal, which comes in at around $540 per year. Elite Sherpas can make as much as $4,000 - $5,000 in just two months. By comparison, Western guides make as much as $50,000, plus tips.

Alpine Ascents is a company the leads Everest climbs for $65,000 per person. Five of the Sherpas who died in last week's avalanche were employed by that company. Director of Programs Gordon Janow understands the importance of the Sherpa role in the business. "They're setting up the camps, carrying oxygen, walking side-by-side one-on-one," Janow says. Without Sherpas, he continues, "it'd be an entirely different style of expedition."

Perhaps even more difficult than the task of accompanying climbers to the summit, Sherpas also carry supplies and equipment on the climb. Legally, they are only supposed to carry 8 to 10 kilograms (17 to 22 pounds), but willingness to carry double that can also lead to double the earnings

 Right now, it's the start of climbing seasson and business is booming.

"You know there's a lot of money in the hundreds of thousands, if not millions of dollars that changes hands on Everest every year," says Nick Heil, editorial director of OutsideOnline.com and author of "Dark Summit," a book about the commercialization of climbing the Earth's highest mountain. "Only a small percentage of that goes into the hands and pockets and accounts of the work force that basically enables all of this to take place."

Sherpa's wages are not a part of the proposed boycott, but Janow says they're also worth discussing. However, he acknowledges it's a balancing act. If compensation rises too much, it could damage Nepal's climbing industry altogether. 

"Like anything else, does it push the cost of it up so people aren't going?" Janow asks.

Sherpas face more than just the fear of death. Being a Sherpa means frequent exposure to injuries, yet there is little support for those who become disabled on the job. The Sherpas are also asking the government to provide $10,000 in compensation for guides who can no longer work in mountaineering due to their injuries.

Skechers a winner this Boston Marathon

Mon, 2014-04-21 14:42
Monday, April 21, 2014 - 17:33 Jim Rogash/Getty Images

Meb Keflezighi of the United States celebrates after winning the 118th Boston Marathon on April 21, 2014 in Boston, Massachusetts. And check out his shoes.

It was a big day for the Boston Marathon, of course, and also for men's winner Meb Keflezighi. 2:08:37 was his winning time.

Also enjoying a victory lap today, if you will, are Skechers. Yes, the sneaker company voted most unlikely to be associated with marathon winners.

Keflezighi was wearing them for their first marathon win ever.

Marketplace for Monday April 21, 2014by Kai RyssdalPodcast Title Skechers a winner this Boston MarathonStory Type BlogSyndication SlackerSoundcloudStitcherSwellPMPApp Respond No

Skechers a winner this Boston Marathon

Mon, 2014-04-21 14:33

It was a big day for the Boston Marathon, of course, and also for men's winner Meb Keflezighi. 2:08:37 was his winning time.

Also enjoying a victory lap today, if you will, are Skechers. Yes, the sneaker company voted most unlikely to be associated with marathon winners.

Keflezighi was wearing them for their first marathon win ever.

Why it makes economic sense to send a letter for $0.49

Mon, 2014-04-21 13:52
Monday, April 21, 2014 - 16:30 David Weinberg/Marketplace

Postal worker Dalyncia Stevenson at the sorting facility in Los Angeles, where she took our letter and sent it on its way to a small island in the South Pacific.

Every other week we try to answer some of the questions that you've submitted for our series, I’ve Always Wondered. This week, we are going to answer a question from listener Mark Robbins: "How is it possible that for less than the price of a cup of coffee, you can send a letter halfway across the globe to a remote island in the South Pacific?" 

Marketplace reporter David Weinberg wanted to know, too. And thus his week-long experiment began: 

Robbins sent us his question via email. He chose, for his example, the island of Tanna, about a thousand miles West of Australia. I found an address for a bar on the island, and before I sent the letter, I called Mark to ask he had anything he'd like to say to the people of Tanna.

“Hello from chilly northeastern Pennsylvania. Wish I were there.”

I dropped the letter in the mailbox with a $1.15 global forever stamp. From there, it was taken to the main Los Angeles sorting facility, a 1 million square foot building  where I met Ken Starks, the acting manager of plant support operations.

And herein lies the answer to Mark’s question: The reason you can send a letter across the ocean for less than the price of a cup of coffee is because of the staggering economy of scale of the USPS.

Take, for example this one machine:

This delivery bar code sorting machine processes 30,000-40,000 pieces of mail per hour. The minimum amount of postage required to send a letter is $0.49. So nearly every day, this one machine processes at least $20,000 in postage revenue per hour. And this is just one of several machines in a single sorting facility.

The USPS handles half of all the mail in the world. In 2013 the postal service generated $65.2 billion in revenue. It has more retail locations in the U.S. than McDonald's, Starbucks, and Wal-Mart combined. It's the second largest employer in the U.S. behind Wal-Mart, and the median salary of a U.S. postal worker is about $53,000.

So for every letter that travels across the globe, there are millions that travel much shorter distances. They subsidize the cost of international letters.

The story of this letter's journey will continue throughout the week.

Marketplace for Monday April 21, 2014

Answers to the big questions behind small, simple, ubiquitous things in the world of business.

by David WeinbergPodcast Title Why it makes economic sense to send a letter for $0.49Story Type FeatureSyndication SlackerSoundcloudStitcherSwellPMPApp Respond No

Fertilizer for farmers competes with oil for rail cars

Mon, 2014-04-21 13:37

It’s just about time for spring planting season in the Upper Midwest. But to plant, farmers need fertilizer, and the trains that ship fertilizer are busy. Shipments of crude oil have squeezed out other freight and now the federal government has stepped in, ordering two railroads to make room. 

To farmers waiting for their fertilizer, the problem seems obvious. Roger Johnson, president of the National Farmer’s Union, says agricultural shipments are way behind: "What I’m hearing from farmers back home is that these oil cars are moving just like clockwork. And there is very much the sentiment: They have been given some sort of priority treatment by the railroads.”

The government has ordered two railroads, BNSF and Canadian Pacific, to ensure the delivery of fertilizer for spring planting. A BNSF spokesperson said in an interview that the railroad is not favoring oil over fertilizer. Traffic is up, but consumer products are the growth leader, not crude oil. BNSF does say it sets rates individually, according to the market.  Canadian Pacific says it also sets rates individually, depending on the type of freight. 

“It’s called differential pricing,"  says Steve Sharp,  president of Consumers United for Rail Equity. "The railroads charge different prices per car or per pound or whatever, depending on the commodity and what they think the market will bear.”

Sharp notes that  power companies trying to get shipments of coal are having problems, too. He says, because a lot of the shipping contracts are private, it’s hard to compare prices for shipping oil via train with other commodities.

“That’s one of the issues as shippers we have," he says, "we don’t have access to a lot of good current data to really tell where we are.”

The National Surface Transportation Board, which issued the order, says it’s tracking the railroads’ fertilizer shipments. Their first reports are due this Friday.

Why it makes economic sense to send a letter for $0.49

Mon, 2014-04-21 13:30

Every other week we try to answer some of the questions that you've submitted for our series, I’ve Always Wondered. This week, we are going to answer a question from listener Mark Robbins: "How is it possible that for less than the price of a cup of coffee, you can send a letter halfway across the globe to a remote island in the South Pacific?" 

Marketplace reporter David Weinberg wanted to know, too. And thus his week-long experiment began: 

Monday

Tuesday

 

Monday

Robbins sent us his question via email. He chose, for his example, the island of Tanna, about a thousand miles West of Australia. I found an address for a bar on the island, and before I sent the letter, I called Mark to ask he had anything he'd like to say to the people of Tanna.

“Hello from chilly northeastern Pennsylvania. Wish I were there.”

I dropped the letter in the mailbox with a $1.15 global forever stamp. From there, it was taken to the main Los Angeles sorting facility, a 1 million square foot building  where I met Ken Starks, the acting manager of plant support operations.

And herein lies the answer to Mark’s question: The reason you can send a letter across the ocean for less than the price of a cup of coffee is because of the staggering economy of scale of the USPS.

Take, for example this one machine:

This delivery bar code sorting machine processes 30,000-40,000 pieces of mail per hour. The minimum amount of postage required to send a letter is $0.49. So nearly every day, this one machine processes at least $20,000 in postage revenue per hour. And this is just one of several machines in a single sorting facility.

The USPS handles half of all the mail in the world. In 2013 the postal service generated $65.2 billion in revenue. It has more retail locations in the U.S. than McDonald's, Starbucks, and Wal-Mart combined. It's the second largest employer in the U.S. behind Wal-Mart, and the median salary of a U.S. postal worker is about $53,000.

So for every letter that travels across the globe, there are millions that travel much shorter distances. They subsidize the cost of international letters.

Tuesday

To send our letter to the island of Tanna, I purchased a global forever stamp for $1.15. By the time it arrives it will have traveled on multiple on-the-ground vehicles and airplanes in multiple countries.

This is what the inside of a postal truck looks like.

David Weinberg/Marketplace

So how does that $1.15 get divided among all nations?

Step 1: Receive Payment for Postage

The origin country of the letter gets to keep 100 percent of the postage revenue. For now…

Step 2: Weight it

The island of Tanna is in the country of Vanuatu, which is one of the 192 member countries of the Universal Postal Union. At the end of the year, every member of the UPU adds up the weight of all the mail it delivered for other countries.

Step 3: Pay Your Dues

The UPU has established a complicated system of terminal dues that countries pay each other for mail delivered outside its borders. So if the USPS delivered 2,000 kilograms of mail from Vanautu in 2013, and Vanautu only delivered 1,000 kilograms U.S. mail from the U.S., then Vanautu will have to pay terminal dues to the U.S. How does that money get divided up among the multiple countries that handle the letter? 

Google Maps

Short answer: It doesn’t get divided for each individual piece of mail. Instead, countries pay terminal dues based on the overall weight of mail shipped between them.

These rates are decided by The Universal Postal Union.

The story of this letter's journey will continue throughout the week.

Prefab apartment buildings on the rise

Mon, 2014-04-21 13:13

A new apartment building called The Stack is about to open in the Inwood section of Manhattan. By design, it looks like a collection of staggered Lego blocks. On the inside, it’s like any other modern rental building in New York. It has a sleek, simple design. 

What’s different is that these apartments were not built here in Manhattan, but almost entirely somewhere else. 

“The paint, the lighting, the kitchen cabinets, the appliances, the bathroom tile, fixtures, mirror, all of that is done in the factory,” says The Stack’s architect, Tom Gluck, with the firm GLUCK+.

Gluck has been an architect for years, but this is the first time his firm has built what’s called a modular building. 

Each apartment comes out of a factory from a company, like Capsys in the Brooklyn Navy Yard. It looks like an auto plant, complete with assembly line run on a track in the ground. 

“Where we’re building pieces of building like you’d build a car in a factory. You get that repetition, that precision," says Tom O’Hara, director of business development at Capsys.

On one end of the plant, a team is joining steel beams to make the skeleton of a new apartment. On the other end, a crew is putting the finishing touches on a unit. One guy is tiling the bathroom. You could cook in this kitchen. There’s even a thermostat on the wall already. The apartments are so close to finished that they look like you could move in immediately, if they weren’t sitting on a factory floor.

An apartment module nearing completion at Capsys. It will soon be trucked to the building site and hoisted into place. (Photo: Dan Bobkoff)

But soon, this entire apartment will be put on a flatbed, trucked to the Bronx, then hoisted on top of all the other modular apartments. When the building’s done, you won’t even know it was built this way. 

There are many reasons proponents like O’Hara think modular construction is better: it’s built inside, away from weather and dirt. It’s faster because you can build the foundation and the building at the same time. There’s much less wasted material. And yet, while it’s popular in Europe, modular construction in the U.S. remains a rounding error, accounting for just a tiny percentage of new home and multifamily construction. 

“I think a lot of people really have misconceptions about the modular business,” O’Hara says.  “I think they feel somehow that there’s substandard construction in the factory.” 

He says most people think modular means mobile homes or boring, blocky buildings. To him, it just means it’s built better. 

“Why would I want my toaster built by a guy sitting on a bench with a ten snip banging things together. I want it out of a factory! Why shouldn’t the building come out of a factory?” O’Hara says. 

Modular has been seen as the future before, and yet never caught on beyond certain sectors like college dorms and hotels. 

But nearly everyone I talked to thinks this is the moment that changes.

“A lot of it truthfully has to do with this building that we’re standing in front of,” says Jim Garrison, an architect and professor at the Pratt Institute. We’re behind the new Barclays Center arena in Brooklyn, looking at what’ll soon be the tallest modular building: 32 stories of apartments. 

It’s funded by a big name developer. Garrison says it’s the biggest example that modular is possible, practical, and not necessarily cookie cutter. 

“We now have opportunities to build very interesting buildings using these systems. And, people are listening to the benefits that come with it,” Garrison says. 

That’s not to say modular doesn’t have downsides. Because it’s made of boxes, you end up with walls against walls, taking up valuable square footage in the building. Designers have to decide everything on the front end. But more developers are attracted to modular’s faster, and sometimes cheaper construction. And, with new projects in the works, maybe this time is different.

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