How the USPS Cost Reductions Will Impact Periodicals

The USPS’s cost-cutting proposal cites a Saturday delivery cut, a rate hike in 2011 and possibly another price increase just for periodicals class.

By Chandra Johnson-Greene
Monday, May 3, 2010

In order to close the gap on a projected $238 billion shortfall during the next 10 years, the U.S. Postal Service proposed last month an aggressive plan to cut costs that includes a possible rate increase in 2011 and canceling Saturday mail delivery. Postmaster General John E. Potter said the plan, known as “Ensuring a Viable Postal Service for America,” could save the USPS as much as $123 billion.

Mail volume, according to the USPS, is projected to fall from 177 billion in 2009 to 150 billion in 2020, representing a 37 percent decline in first-class mail alone. Revenue contributed by first-class mail will decline from 51 percent currently to about 35 percent in 2020.

“The future depends on a suite of solutions that takes a balanced and reasonable approach, one that cuts across every aspect of our industry but one that, in the end, does the greatest possible good for our stakeholders and the American public,” Potter said in a statement.

But according to industry experts, the periodicals class will experience the most direct impact from the plan. For publishers, a possible exigent rate increase across the board may just be the tip of the iceberg.

USPS ‘Automation Refugee’ Cost Factor
At odds are the USPS’s position that periodicals are only covering 75 percent of the cost to process the category, which could lead to higher increase for those in that class.

According to postal consultant Edward Mayhew, word is that dominant market classes might see a 5 percent exigent rate increase in 2011, but periodicals could be charged another 2.5 to 3 percent on top of that to make up for the 25 percent shortfall. “Increasing rates like that all at once could cripple the industry,” he says. “Periodicals are already being assaulted by the Internet.”

The publishing industry has contended that it has cooperated more than enough to reduce costs and that the USPS should examine its own automated processing of flat mail as a key factor to closing the gap. Namely, the emergence of a category of Postal Service employees who were displaced by automated processing into manual sortation roles, a group dubbed “automation refugees.”

“That really started way back in the eighties when the postal service began automating letter mail,” says Jim O’Brien, vice president of distribution and postal affairs for Time Inc. “The rules prohibited them from laying anyone off, so they had to migrate them over to manually processing flat mail. Over the years, in spite of huge improvements in co-mailing and other initiatives, we’ve seen periodical costs increase. It makes you ask what’s wrong with this picture.”

Too Much Manual Processing
Potter says that more Periodicals mail is being manually processed than ever before, which contributes to the 25 percent shortfall. “One of the things that the Postal Service points to is that ad pages are down, which means our magazines weigh less and we’re paying less postage,” he says. “Less postage and the same or more costs mean lower coverage. But I don’t think we’re to blame for that. This is a 20-plus year-old problem. Our costs coverage was under water even when we were flush with advertising.”

Five-Day Delivery’s Effect on Weeklies, Newspapers
While most classes will be able to survive if the USPS switches to five-day delivery, it’s still unclear how weekly and daily publications will fare, according to Mayhew.

“Publications such as weeklies have critical information that always drops on a Monday,” he says. “With five-day delivery, a whole weekend’s worth of news won’t be able to get processed until the beginning of the week. There’s no answer from anyone yet how on they’re going to address this, but they’re moving forward and there’s little possibility that exceptions will be made for weeklies and newspapers. It’s a big hurdle to deal with.”

Some members of the industry are also concerned about mail delivery at apartment buildings because a large amount of them only have banks of small mailboxes. “Where will the carriers put all of the mail that doesn’t fit into these boxes?” Mayhew asks. “One of the answers has been that the doormen of these buildings have back rooms in which they can to store the overflow, but less than 10 percent of apartment buildings have doorman, so that’s not an answer.”