USPS Proposes Action Plan to Battle Mail Volume, Revenue Decline

Proposal includes Saturday delivery cut, rate hike in 2011.

By Chandra Johnson-Greene
Wednesday, March 3, 2010

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In order to close the gap on a projected $238 billion shortfall during the next 10 years, the U.S. Postal Service Tuesday proposed 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.

In addition to proposing a “modest” exigent price increase in 2011—which has yet to be calculated, but will most likely result in sharp increases for magazines and newspapers—and adjusting the delivery schedule, the plan also outlines the following actions:

• Restructure retiree health benefits payments to be consistent with what is used by the rest of the federal government and the majority of the private sector and address overpayments to the Postal Service Civil Service Retirement System pension fund.

• Continue to modernize customer access by providing services at locations that are more convenient to customers, such as grocery stores, pharmacies, retail centers, and office supply stores. Increase and enhance customer access through partnerships, self-service kiosks and a world-class Website.

• Establish a more flexible workforce that is better positioned to respond to changing demand patterns, as more than 300,000 employees become eligible to retire in the coming decade.

• Ensure that prices of Market Dominant mailing products are based on demand for each individual product and its costs, rather than capping prices for every class at the rate of inflation.

• Permit the Postal Service to evaluate and introduce more new products consistent with its mission, allowing it to better respond to changing customer needs and compete more effectively in the marketplace.

In order for some of these actions to occur, however, the USPS will need approval from Congress. “Lifestyles and ways of doing business have changed dramatically in the last 40 years, but some of the laws that govern the Postal Service have not,” Potter said. “These laws need to be modernized to reflect today’s economic and business challenges and the dramatic impact the Internet has had on American life.”

UPDATE: Time Inc.'s VP of distribution and postal affairs Jim O'Brien, who attended yesterday's meeting, said that although the USPS provided a realistic assessment of its future and provided actions that could improve its outlook, some of the changes will most certainly result in hardships for Periodical mailers.

"The Postal Service announced that it intends to file an exigent rate increase next year and to make progress toward increasing Periodicals cost coverage," he wrote in an email to AD. "Both of these items will have a significant impact upon Periodicals mailers in 2011. In addition, the Postal Service announced its intention to eliminate Saturday delivery. Timely distribution will become a major challenge for all less than monthly magazines. Higher rates and a reduction in service appear to be in the not-too-distant future for magazines."

Will the USPS Change Partnership Sub Rules?

At an FMA luncheon in New York last week, ValueMags president Andrew Degenholtz issued a warning to attendees that the USPS has been reviewing the rates it charges for magazines that are bundled with retail products via partnership programs.

“To summarize, we heard from a client that there’s talk to not count what we call ‘partnership deductibles’ as part of the periodical rate,” he said. “For example, when you bundle a magazine with a [product] and the purchase price is valued at $50, the magazine included in the package may be worth $10 of that. If they wish, the customer can separate the magazine out of the package and get their $10 back via a check or credit card. The Post Office is looking at that and considering that it might not count towards the periodical rate.”

According to postal consultant Ed Mayhew, the USPS is reviewing whether a magazine bundle with a retail product should be charged off as a non-subscriber or non-requester piece and, therefore, fall into the Standard mail category if it exceeds their 10 percent non-subscriber allowance.

“What makes this happen is a mailing standard under eligibility of subscribers that indicates that to be a legitimate subscription for Periodicals purposes, the transaction must be a distinct individual and voluntary act on the part of the recipient,” he wrote in an email to AD. “The only way to make it acceptable in a retail ‘bundle’ transaction is for it to be clear to the purchaser that a certain dollar amount will be set aside for the cost of the subscription so that the recipient is aware of what they are buying. Many retailers do not want to do this because the customer generally will have the option to beg off that part of the transaction.”

The USPS, Mayhew added, may choose to take a more liberal stance to help publishers increase the circulation of its magazines. “However, at the same time there is a concern over SOX compliance issues and definitions that may prevent any change from taking place where control over records could come into question,” he said. “It is truly an unknown right now.”

Degenholtz mentioned at the luncheon that both the MPA and ABC were in talks with the USPS regarding the possible rule change. Both organizations declined to discuss their efforts in detail, but according to an MPA spokesperson, “discussions on periodicals eligibility for partnership subscriptions are ongoing with postal officials and no final decisions have been made.”

According to an ABC spokesperson, “the USPS is making initial inquiries to magazine publishers to better understand the business relationships that occur in a partnership sales environment. Once they make their review, the USPS will contact ABC and let us know if any changes are required for our postal service audits.”

RELATED LINKS

A Small Timeframe for Real USPS Reform

Time for Periodicals Class to Pay Up?