New Postal Incentive Could Backfire for Mailers

Mailers should beware of postal officials bearing gifts.

The U.S. Postal Service announced a few days ago a “Technology Credit” of up to $5,000 for mailers who use Full-Service Intelligent Mail Barcodes. But if the Postal Service gets its way, the one-time credit would result in a permanent and ultimately far more expensive price increase for senders of First Class, Standard, Periodicals, and Bound Printed Matter mail.

And it would set a precedent for similar efforts to circumvent the inflation-based price cap on most postal rates.

“The purpose of the Technology Credit is to offset a portion of the investment by mailers in the hardware and software changes necessary to support Full-Service mailings,” the USPS filing said. Mailers already have another incentive to go Full Service by Jan. 26, 2014: After that, only mail with Full Service IMbs will receive automation discounts.

At an estimated cost of $66 million, USPS will provide credits to mailers that have mailings containing at least 90% Full-Service pieces between June 1, 2013 and May 31, 2014.

Here’s the catch: USPS is asking the Postal Regulatory Commission to consider the credits a price decrease for purposes of calculating the price cap for the next round of rate changes. Without such consideration, USPS claims it would be discouraged from offering future credits that promote more efficient mailing practices.

The logic of the request seems to be that the Postal Service would be paying out credits of $66 million to mailers in the coming months, so it should be able to balance that with $66 million worth of price increases next year.

But consider the case of a major magazine that now pays $10 million annually in Periodicals postage and earns the $5,000 Technology Credit. If the Consumer Price Index doesn’t change during the course of 2013, the magazine normally would not face a postage increase next year.

With the Postal Service’s request, however, even with no inflation the Periodicals rate cap would increase an estimated one-quarter of a percent. That increase would cost the magazine almost $25,000.

And if the inflation rate remained zero percent for another year, again the magazine’s postage bill would be $10,025,000 – instead of the even $10 million it would be if the USPS's request is denied

In other words, if the Postal Service is successful, the magazine would get a $5,000 credit this year and in return pay a recurring charge of almost $25,000 annually. With a return on investment like that, no doubt postal officials would look for other one-time credits they could “give” mailers.

The PRC has set a deadline of May 6 for comments on the Postal Service’s proposal.

Other articles about postal price-cap controversies include:

• No Such Thing as a Free Ounce: Does 'Second Ounce Free' Make Sense for USPS or for Mailers?  
• Publishers May Pay To Preserve Saturday Delivery
• Postage Rates Could Rise 1.8% As USPS Wins Rate Ruling  
• Will Postal Rates Decrease Next Year?

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The Worst Postal System in the World, Except . . .

Complaining about the postal system is a national pastime in the U.S., but looking at the rest of the world can put things into perspective.

"The USPS, even with its vast problems, is still the best and cheapest postal system in the world," wrote an unnamed subscriber in a comment published today on Morning News Beat, a grocery industry news site.

The writer, who frequently sends mail overseas, says "most European countries charge between $2.00 and $3.00" to send a one-ounce letter to the U.S., while the comparable rate for an international letter from the U.S. is only $1.10.

(The U.S. Postal System often charges much less than its international counterparts for domestic mail as well. While most magazines in the U.S. are delivered by mail, in many developed countries high postal rates mean that publications are typically delivered via the newsstand system.)

"Even though there is some pilferage stateside, there is nothing like the level of mail theft in other countries," the writer adds. "Yes, I have had delivery problems and things that have disappeared into a black hole, but I still think they do an amazing job with what they have to handle."

This reminds me of a Winston Churchill quip that "democracy is the worst form of government except all the others that have been tried."

Of course, most foreign postal services do have one big advantage over the USPS: They're solvent.

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Publishers May Pay To Preserve Saturday Delivery

Publishers and other mailers celebrating today’s news that Saturday mail delivery will be continued should take another look at the announcement’s ominous words.

“The Board has also asked management to evaluate further options to increase revenue, including an exigent rate increase to raise revenues across current Postal Service product categories and products not currently covering their costs,” today's statement from the U.S. Postal Service’s Board of Governors said.

Translated from Beltway Babble into plain English: The board wants to hit Periodicals publishers and mailers of Standard-class flat mail, such as catalogs, with an extra rate hike. Increases in most postal rates are limited to the inflation rate, but in emergencies USPS can seek “exigent” rate hikes.

USPS estimated its plan to end most Saturday deliveries would have added $2 billion annually to its beleaguered bottom line. Now the governors are looking for other ways to get that money, and instead of an across-the-board increase they’re suggesting that the hikes be targeted at allegedly unprofitable mail.

Despite extensive downsizing by the Postal Service and better preparation of catalogs and magazines by mailers, USPS claims its costs of handling flat mail have risen rapidly in recent years. Some postal experts blame USPS’s cost-accounting system, which tends to allocate the costs of “automation refugees” and other inefficiencies to the Periodicals class and to Standard flats.

Adding insult to injury, the $1.3 billion investment in the Flats Sequencing System (FSS) – which was supposed to revolutionize the handling of such mail – so far is costing more money than it is saving.

USPS claims the Periodicals class (magazines and newspapers) pays only 72% of its costs, meaning that a 39% rate hike would be needed to bring the class to theoretical breakeven. For “Standard flats” – the portion of Standard-class flat mail not in carrier-route bundles – the increase would be 24%. The most efficient Standard mailers would be largely shielded from an exigent rate hike because most of their mail is in carrier-route bundles.

Here’s some background information on the relevant postal issues:

• USPS's plan to end Saturday delivery for all mail except parcels: 5 Myths of Saturday Mail Delivery
• Exigent rate increases: PRC Decision Only a Partial Win for Mailers
• Questionable cost accounting for Periodicals and Standard mail: Increased Efficiency Led to Higher Periodicals and Catalog Costs, Goldway Says
• Automation refugees: For Periodicals, The Postal Service’s Math Doesn’t Add Up
• FSS Problems: USPS Admits FSS Is Losing Money 
• The "Washington Monument" Strategy: Do Postal Execs Want To Lose Money on Periodicals?

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5 Myths of Saturday Mail Delivery

Misunderstandings abound regarding the U.S. Postal Service’s proposal to end Saturday delivery of all mail except parcels later this year. Here some of the most common myths:

1) Congress recently put a stop to the plan. That’s the story told by the news media, Congress, and the Government Accountability Office, but it’s not necessarily true. Congress did indeed put the requirement to continue six-day mail delivery into a recently approved appropriations bill. But the USPS’s Office of Inspector General says that if the Postal Service merely refuses the pittance in such appropriations (which are mostly for free mail for the blind), it would not be blocked from ending Saturday delivery. And it’s not even clear whether USPS’s plan – which would continue Saturday delivery of certain types of mail – would violate the legislation.

2) Ending Saturday delivery would save USPS $2 billion per year. Even the Postal Service talks about $2 billion in savings, but in reality its position is that its profitability (cost savings minus lost revenue) would grow by $2 billion. The calculations have been subject to debate and competing interpretations, partly because of different assumptions about how much business would be lost. Also, the $2 billion estimate was for full cessation of Saturday delivery, not for the latest plan to have mostly non-career employees delivering profitable parcels on Saturday.

3) The loss of customers would hurt the Postal Service. Actually, it could be a blessing. The customers who care most about Saturday delivery are daily newspapers and certain weekly publications; few other mailers care so much about getting delivery on a specific day of the week. Newspapers may be USPS’s most unprofitable product because they are often inefficiently prepared for mailing, can be difficult to sort, and sometimes get special treatment. Even highly presorted and dropshipped weekly magazines – though not as unprofitable as USPS alleges – are no big money maker. And most will survive without Saturday delivery.

4) Letter carriers oppose ending Saturday delivery. Yes, the main carrier’s union, the National Association of Letter Carriers, is vehemently opposed to the Postal Service’s plan. But many rank-and-file carriers would be happy to get Saturdays off. The NALC is “fighting a battle the majority of its members do not want,” writes Tom Wakefield, a city carrier and NALC member who runs PostalMag.com.“Five-day would be such a benefit to letter carriers. Today, because of shortages of letter carriers in many districts, many, many carriers are being mandated to work on their days off against their wishes, often with less than 24 hours notice,” adds Wakefield, mirroring frequent comments by rank-and-file carriers to Dead Tree Edition and other sites. “Today, the ‘daily grind’ is stretched to six days, with a Sunday off and one day during the week for many carriers. Five-day would allow two days off in a row and the daily grind would only be five days.” Many carriers are also hoping that five-day delivery would cause USPS to thin its carrier ranks by offering retirement incentives.

5) Ending Saturday delivery is the key to saving the Postal Service. No one who has looked at USPS’s finances believes five-day delivery is a cure-all, regardless of their position on the Postal Service’s plan. Because of declining mail volumes, $2 billion alone is not enough turn around the Postal Service even if the accounting games with postal pensions and “pre-funded” retiree benefits are corrected. More cost cuts or, less likely, significant new revenue sources are needed to keep USPS afloat.

Related articles:

• The Law Is On Donahoe's Side Regarding Saturday Delivery 
• How USPS Could Bypass Congress on Saturday Delivery  
• Is the Postal Service Really Broke?  
• Do Postal Execs Want To Lose Money on Periodicals?

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