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Economics & Research Blog

The USPS Sneaks a Rate Increase on Christmas Eve; Media Irrelevance Must be Their Objective

The Postal Regulatory Commission left a piece of coal the size of an asteroid in the direct marketing,

By Dr. Joe Webb
Published: January 14, 2014

The Postal Regulatory Commission left a piece of coal the size of an asteroid in the direct marketing, publishing, and printing market stockings on Christmas Eve. Why this story is not getting more coverage, I don't know. Here are some links to articles by Al Urbanski at Direct Marketing News: The PRC's press release stated that it was "partially approving a request by the Postal Service for an exigent rate increase to offset losses suffered as a result of the Great Recession of 2008-2009." Here it is: they approved a +1.7% inflation-related price increase, plus the 4.3% exigent increase. That's 6%. Let's go back to 2008, shall we? By December 2008, the year-to-year inflation rate was 0.1%. Yet, the USPS was granted a +3.8% increase because that was the average inflation rate for the year. Remember when oil hit $140? By the end of the year all commodity prices had fallen so much by December all of the increases had virtually disappeared. So 2009 prices were higher than they should have been, and were competing with the rise of social media. That's not all, as the chart below shows. The USPS has been ignoring its competition for more than a decade, as computers and communications have constantly decreasing prices.

USPS inflation

At least the USPS can get a price increase, while printers cannot. Printers are not immune to the marketplace, nor are they immune from being crowded out of print job budgets. To oversimplify, if someone has a budget for a mailing for 100, and 80 is printing and 20 is postage, after an increase by the USPS, they can grab 23 while the printer has to find a way to get by with 77. The press release continues...
In its majority decision, the Commission found that the Postal Service experienced financial harm as a result of the Great Recession and is legally entitled to implement price increases in excess of the CPI cap for less than two years. The Commission denied the Postal Service’s request to make the increases permanent.  It found allowing the increases to remain in effect indefinitely would be inconsistent with fundamental postal policies underlying the price cap. In its order, the Commission directed the Postal Service to report quarterly on revenues generated by the rate increases, and to develop a plan to phase out the rates once they have produced the revenue justified by their request.
This is where the USPS has it both ways. It always insists that it is independent of the government, yet it can use a government mechanism to force price changes on the marketplace. When has a printer ever been able to do that? Then press release has the funniest line uttered in 2013. Jay Leno couldn't have done this one. Yes that's the one that goes "develop a plan to phase out the rates once they have produced the revenue justified by their request." I blogged about the USPS a few months ago and there's a link there to my (insomnia-curing) video presentation about the topic. I discuss the current statistical relationship of print and USPS rates in it. As you might guess, rate increases by the USPS don't help print in the media shift. Another story indicated that the USPS was going to loosen delivery guidelines for mail based on how busy they were at the time. The article in DMNews, USPS Aims to Institute Load Leveling in March, is another indication of how the USPS structure cannot respond to market conditions. If they wanted to charge different rates (by bid, by traded contracts, etc.) based on how busy they were, the load leveling would take care of itself. Instead, they publish specific guidelines and mailers actually use them and expect them to be followed! It's illegal for them to have floating market rates, or for mailers to buy a futures-based mailing contract (unless they buy Forever Stamps!). I don't envy any of the management at the USPS. They have virtually no range of management action that is not open to political meddling and influence. When Congress and the USPS engage in negotiations, it like that old saying "when elephants fight, the biggest losers are the ants." What does this mean for printers? The rate increase is real, and even if the exigent increase is eliminated, the fact is that rates are still going up to the prices and conveniences of competitors. Mail-based businesses are risky, which makes them prime candidates for consolidation. The reason is that the bigger and stronger the business (that means less debt than competitors, usually) the more likely they are to be able to offer their clients alternative approaches that keep their budgets intact even though the USPS is grabbing more of it. Getting into the mail is a long process, and the workflow from design to delivery has to find ways to reduce the total cost of the process, and to deliver better economic returns to the mailers. This is a time for massive creativity and innovation. The workflow has to change to create those cost savings to pay for the inefficiencies and counterproductive situation of the USPS. Mail specialists are more important than ever. With this price increase, the penalty for mishandling a mail campaign from its design to its implementation is greater than ever. The value of good list management and hygiene just got a big boost, thanks to the PRC decision. Other printers who cannot keep up with the intricacies and automation investments that mail requires would be advised to find outsourceable mail specialists who can be trusted with their clients. Those same printers must begin to focus on print and media alternatives that do not rely on the mail. Most customers who use the mail will focus on these elements of print jobs: size, run length, pages, weight, and frequency. Most all of these are likely to go down, making a print business' fixed cost harder to cover unless they find work to replace it. Strangely enough, you may be able to help customers use the mail more efficiently at lower cost using a program like EDDM (Every Door Direct Mail). If it's for the right kind of business, eliminating the need for addressing and other aspects of the mail may mean that delivering messages with EDDM to households who are not likely buyers may be cheaper in the long run. Hard to believe? Sometimes it can work out that way. The USPS and the PRC have taken a firm stand for their long term goal of market irrelevance. No matter how much they would insist otherwise, this is the result. Watch what they do, don't listen to what they say. Act accordingly for you and especially your clients. - - - - - Crazy thought: Does the USPS want to cause a severe decline in first class and standard volume? USPS has been stressing the importance and profitability of its packaging business. If typical mail declines, they may have enough leverage to get everything they've wanted in terms of ending Saturday delivery and changing mail delivery procedures. Is this a thought that only a conspiracy theorist can love?   # # #    

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink's Economics and Research Center.



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