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Quad: Joe Schick Comments on Recreating the Postal Ratemaking Process

Press release from the issuing company

June 6, 2002 -- How can the U.S. Postal Service (USPS) and the Postal Rate Commission (PRC) improve the ratemaking process, making it more responsive to the needs of all types of mailers? This question catalyzed discussion at a May 28 Ratemaking Summit jointly sponsored by the USPS and PRC. The summit, which was held at the Bolger Academy in Potomac, Maryland, was the first in a series of talks aimed at bettering the omnibus ratemaking process. Joe Schick, Quad/Graphics' Director of Postal Affairs, attended the event and prepared comments for inclusion in the record of Ratemaking Summit discussions. Says Joe: When a rate case is filed, it triggers a strange series of costly and time-consuming events – events that could be avoided if the ratemaking process had more predictability as it relates to both the percentage of increase and the timing of when new rates are implemented. Given the success of this premiere Ratemaking Summit, another will be held Thursday, June 27. Joe's comments are as follows: After listening to the discussion at the Summit, I’d like to add my comments from the perspective of a mail preparer – specifically, the printer. I'd like to focus on predictability as it relates to both the percentage of increase and the timing of when new rates are implemented. Each, in its own way, can have a different impact and cause a different reaction.   When a rate case is filed, it triggers a strange series of events. First, each major mailer and mailing association is in a battle to be the first to make their customers/members aware of the bad news. Invariably, there are some minor errors in the language or the numbers, and everything has to be pulled back and reissued. Then each and every customer wants to know exactly what its increase will be for every mailing it produces, even though we all know the numbers will change by the time the Board of Governors blesses the Postal Rate Commission's recommendation.   Knowing what the increase for each mailing will be is never sufficient, so most customers want to know how the numbers will change if they use different combinations of paper (basis weight) for their covers and the body of the magazine or catalog. Then they also want to know what would happen to their postage if they add pages or reduce pages, or if they change their trim size to possibly move from a flat to a letter. Maybe they want to change the preparation from a small parcel to an automated flat. What would it cost to do the extra preparation versus the savings in postage? When the customers are still not satisfied with what they are hearing, we have to get creative. That could result in something new that the USPS was never considering, such as FIRM packages of Bound Printed Matter that may have been some other class and presort of mail before. This creativity is all within the regulations, but usually in gray areas. As we've learned, this can be good for the ratepayers, but not so good for the Postal Service in areas of automation and being able to predict volumes in certain classes of mail. The point is, all of this takes a great deal of time, resources and, ultimately, is a very costly endeavor. The irony is if the numbers change by the time the rate case proceeding concludes, we have to do the whole process over, but with much less time to make it happen. So predictability of the actual rates and discounts is crucial for us and our customers in many ways: 1)      Determining paper for covers and body 2)      Determining number of pages and book makeup 3)      Determining press configurations and capacity 4)      Planning for technology needed to achieve lowest costs/maximize discounts 5)      Planning for increased transportation (in our case, that could mean having to purchase more tractors and trailers, in addition to securing outside contractors) 6)      Having the software to write and upgrade Predictability of rate implementation is equally important for us. When the implementation date is set, any customers that are mailing within a couple weeks of that date will immediately look to change their schedule to beat the increase. That creates: 1)      Scheduling difficulties (labor and equipment) 2)      Transportation crunch which creates higher prices 3)      Volume shifts for the Postal Service and for us Knowing far enough ahead will not be the only deciding factor in alleviating these situations. The percentages of increase will have more of an impact. If the numbers are smaller, customers will take the hit so as not to disrupt mail plans. The question was asked whether predictability would lead to increased volumes. The answer is MAYBE. Again, the size of the increases will be the most determining factor. If you look at our business, the greatest percentage of our new business comes from existing customers. Part of that is because they have long-term contracts with costs that are laid out over a number of years. They know when prices will increase, and they know how much they will increase. However, they also know that they will continue to get more value for the dollars that they spend during the life of that contract, and we know that we have to control our costs during that same period of time in order to be profitable. Thank you for allowing me the opportunity to express my comments. Joseph E. Schick Director, Postal Affairs Quad/Graphics

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