“Told you so. Now don’t try to slap us with a Stupidity Tax.”
That, in essence, is the magazine industry’s response to the U.S. Postal Service’s latest attempt to jack up postal rates for publishers.
For the past decade, changes in publishers’ average postal rates have been limited to the rate of inflation. But a Congressionally mandated review of how postage rates are set, coupled with USPS’s failure to rein in magazine-delivery costs, has raised serious doubts about whether that protection will continue.
Scores of organizations – from tiny charities to behemoth corporations like Amazon, FedEx, and UPS – have submitted comments and evidence to the Postal Regulatory Commission, which is conducting the review and may recommend overhauls to the current law.
The Postal Service used the opportunity to argue that, as long as the price cap is in place, it will continue to lose roughly 25 cents on every dollar publishers spend to mail magazines and newspapers. The PRC’s staff more or less agreed, calling for removal or “a one-time rate reset” of the price cap on Periodicals.
Fortunately for publishers, the PRC recognizes an inconsistency in the Postal Service’s data: In the past eight years, publishers have responded to rate incentives by dramatically increasing their participation in co-mailing and dropshipping programs. That should have significantly lowered the USPS’s Periodicals costs, the PRC noted recently.
“The trends for transportation and mail processing unit costs, however, show that the Postal Service has not realized cost savings from increased mailer preparation (worksharing), via dropshipping and presortation,” the PRC said.
The MPA (the Association of Magazine Media) and two other mailer organizations provided the PRC an answer for that conundrum last month: the Flats Sequencing System (FSS), the USPS’s multibillion-dollar investment in football-field-sized machines that postal officials said would dramatically reduce the costs of delivering flat mail.
This slide is excerpted from a presentation given at the 2003 Flats Summit on the economics of automation. (Click to enlarge.)
“Before the FSS was deployed, experts both inside and outside the Postal Service warned that the FSS was unlikely to achieve its goals and was likely to increase, not decrease, the costs of processing and delivering flat-shaped mail,” the three organizations told the PRC last month. Mailers argued instead for better incentives for co-mailing, which would require no USPS investment to lower the agency’s costs.
Halstein Stralberg, a long-time consultant to Time Inc. on postal costing and pricing issues, in 2003 provided postal officials a litany of reasons that their assumptions about FSS were flawed, contradicting the USPS claim that FSS-sorted copies would be cheaper to deliver than copies in carrier-route bundles.
“The outcome of the FSS deployment has been much worse than I imagined and has resulted in USPS costs for Periodicals and Standard Mail flats being far higher than I believe would have occurred if the Postal Service had moved in the direction of encouraging more worksharing,” Stralberg told the PRC recently.
“FSS prepared Periodicals flats in FY2016 cost an average of almost 17 cents per piece more than CR [carrier route] presorted flats cost in non-FSS zones,” Stralberg wrote, citing the USPS’s own data. “The average cost added by FSS flats to Periodicals costs in FSS zones is 10.5 cents per piece,” an increase of about 40%.
“The large reductions in sorting and delivery costs that were invoked to justify the FSS program have not materialized, and almost certainly never will,” the MPA and its allies wrote, noting that FSS productivity is declining.
“The Postal Service should face reality, mothball the FSS, and promote efficiency by increasing the rate discounts offered for carrier route presorting,” the organizations said. “Doing this would stimulate a massive surge in co-mailing, enabling Periodicals Mail and Marketing Mail Flats to cover most if not all of their reported attributable costs.”
But removing the price cap on Periodicals would give postal officials no incentive to unwind the FSS disaster, the MPA and its allies said.
“Without the price cap, the Postal Service would likely return to the practice . . . of simply passing cost increases on to the mailers,” wrote Jerry Faust, Time Inc.’s VP of print & distribution. “The price cap has successfully incented Postal Service management to focus on reducing costs and increasing efficiency in a manner that was lacking with the prior cost-of-service pricing approach.”
Results of an MPA-led survey, which asked MPA members what they would do if postal rates increased. MPA SVP for legislative and regulatory policy Rita D. Cohen recently provided the survey results to the Postal Regulatory Commission. (Click to enlarge.)
“We estimate a postage rate increase of 5% above CPI would result in a 14% reduction in the number of periodical pieces mailed by Time Inc. (approximately 97MM pieces/yr.); CPI +10% would result in a 39% reduction in total mailed pieces.” An MPA member survey predicted similarly dire consequences throughout the industry.
As Stralberg noted, “We should not be punished for a bad decision in which the Postal Service ignored industry concerns.”