Understanding Postal: Caught in the Postal Downstream

In my role as second-in-command with American Catalog Mailers Association (ACMA), I’m often asked by members what they should do about their catalog marketing programs in light of the current state of calamity facing the nearly bankrupt U.S. Postal Service (USPS). In these uncertain times, our recommendation is fivefold:

1. Pay attention to what’s going on in Washington and advocate for your company’s general needs.
2. Determine your specific business needs as they relate to the Postal Service.
3. Build a relationship with your elected representatives. Communicate to them your business needs and how they impact your employment.
4. Engage and support those working with the Postal Service and Congress to figure out viable solutions to this complex problem.
5. Stay informed as to how various alternative approaches may impact your business.

Despite all the postal tumult, ACMA’s raison d’etre, lobbying for lower or stable catalog postage, is under control — at least for now. Effective Jan. 22, catalog mailers are subject to a consumer price index-capped 2.2 percent rate increase for Standard Mail flats and a 2.4 percent rate hike for Carrier Route flats, the two primary catalog mail categories. While no increase is ideal, these modest increases are certainly doable for most direct marketers. There is, however, an exigency rate case on the table.

Beyond this seemingly routine postage rate hike, there’s plenty of backstage drama taking place in Washington, most of which will impact catalogers and other mailers. To focus on matters specific to catalogers, consider the full picture of the ailing USPS. As of press time, the House and Senate were seeking ways to rework their marked-up postal reform bills (H.R. 2309 and P-21, respectively) to get them enacted. The goal is to reform the USPS for future long-term success as a scaled-down operation in the digital age.

Both bills, as well as a plan unveiled by the Obama administration, were introduced last fall not long after the USPS itself presented a multifaceted plan to rebound from its current dire situation.

Political Gridlock
The biggest roadblock in getting postal reform passed is the same problem getting any legislation passed lately: Congress remains deadlocked along party lines and few members are willing to break from their positions. Consider these key factors in play right now:

• In December 2011, the USPS delayed its planned closings of more than 200 mail processing centers until May 2012. This downsizing is one of a few cuts the USPS can make without the need for legislation. Nevertheless, Congress had a hand in delaying this measure, which will set this valuable cost-cutting action back at least three months.
• A key part of the USPS’s plan to return to solvency is to trim its workforce by as much as 225,000 from its current number of 550,000. It can induce about 100,000 losses through attrition over the next few years, but some are calling for the ability to lay off 125,000 additional workers. It’s unlikely Congress will give the USPS this authority.
• Each bill, as well as the plan put forth by the Obama administration, allows for some favorable changes to the USPS, but also denies some changes the USPS has been calling for. For instance, the elimination of Saturday mail delivery, which Postmaster General Pat Donahoe says can provide annual savings of $3.1 billion — although the Postal Regulatory Commission (PRC) calculates the savings as less — was denied in the marked-up Senate bill.

Weighing in on Mail Volume
The Postal Service needs scale to deliver to every address every day. At the center of the postal storm is the loss of volume and revenue in First Class mail, the USPS’s most profitable mail category. Having peaked at 98 billion in 2006, First Class volume has since dipped below 78 billion pieces per year and is projected to drop by half by 2020. This is largely due to a migration to online billing and bill payments and movement away from correspondence via letters and cards in favor of email, Facebook and Twitter.

On the other hand, the Standard Mail business, including catalogs, represents one of the USPS’s brightest hopes for the future. Between its 2009 and 2011 fiscal years, the USPS’s Standard Mail revenue grew from $17.3 billion to $17.8 billion, while First Class revenue dropped from $35.9 billion to $32.2 billion.

Will catalogs “save” the Postal Service? The ACMA has made tremendous progress with Donahoe and his team by demonstrating catalogs’ vitality in the mailstream and educating the USPS brass on the intricacies of the catalog business.

That said, catalog mailers have other reasons to be on guard this year. The exigency postal rate case — which was filed in 2010 by the USPS and then rejected by the PRC — reared its ugly head again late last year. Donahoe has repeatedly insisted that the case, designed to help the USPS catch up from volume and revenue losses stemming from the 2008 recession and online migration, is basically the USPS’s insurance policy. As such, he’s told mailers to only budget for the Jan. 22 consumer price index-capped rate hike and nothing else … for now.

Have a Backup Plan Ready
My feeling is to take Donahoe at his word, but have a rainy day plan drawn up just in case.

In fact, on Dec. 20 the PRC issued an order stating that if the USPS wants to pursue the exigency case, it will have to complete the submission of its entire case to the PRC. This includes “all information, materials and testimony on which the Postal Service would rely to demonstrate that its exigent request satisfies the causal nexus of ‘due to,’ as interpreted by the Commission” — the “due to” referring to the impact of the 2008 recession.

Catalogers also can’t lose sight of the fact that the Standard Flats mail product is reportedly considered underwater — i.e., the postage collected isn’t great enough to cover the USPS’s cost to deliver catalogs. In fact, in its fiscal 2011 Annual Compliance Determination filed in December 2010, the PRC ordered the USPS to figure out ways to get Standard Flats out of its underwater status, including the possible need to raise catalog postage by 22 percent over some undetermined time frame. The ACMA has raised some serious questions on the validity of the reported costs and why Flats handling costs rose 75 percent from fiscal year 2004 to fiscal year 2010 while inflation was about 16 percent in that same time. We believe there’s something seriously wrong with the reported numbers.

No doubt, you can expect to see plenty of changes taking place within the USPS this year. The challenges for direct marketers and catalogers will be to remain alert, not be caught off-guard if those changes don’t work in your favor and to participate in the process in an effort to make sure that the changes will work in the best interests of catalogers.

Paul Miller is vice president and deputy director of the American Catalog Mailers Association. Reach Paul at pmiller@catalogmailers.org.