Donna Hanbery
Saturation Mailers Coalition

USPS "NEW YEAR" NEWS AND UPDATES

As 2008 comes to a close, there is not much holiday cheer to report from the USPS. The nation's economic woes have been felt in the sharp decline of postal business and volume. Here is a summary of what has been happening, and will be happening with next year's rates and revenues, at the USPS.

Volume Decline Produces Big Losses

In the financial presentations given to the Mailers' Technical Advisory Committee and the Postal Service Board of Governors, the financial officers of the Postal Service were not delivering good news. The Postal Service saw a major decline in business for all classes of mail with a loss in fiscal year 2008 of 10% in total volume. The Chief Financial Officer for the Postal Service predicted an additional decline of 3-4% in volumes for 2009. Although the Postal Service has attempted to aggressively achieve cost reductions, and is in the process of making an unprecedented adjustment to its delivery route system, the Postal Service concluded its 2008 fiscal year with a net loss of $2.8 billion.

As the Postal Service is announcing it will do everything it can to contain costs, it has embarked upon an ambitious and unprecedented effort to adjust its city delivery routes. With a goal of achieving $4 billion in cost reductions, the Postal Service has set out to reduce fulltime city carrier routes by 9200 routes in fiscal year 2009. The goal is to achieve a savings of more then 32 million work hours in city deliveries. The ability to readjust routes can be attributed to the Postal Service's success in reaching an agreement with the National Association of Letter Carriers that will permit the Postal Service to adjust city delivery routes using an expedited route evaluation and adjustment process.

Postal delivery represents the largest cost center for the USPS. With city delivery representing 75% of those costs, rural delivery accounting for 24% and highway contract route delivery accounts making up approximately 1%.

With such massive changes under way, mailers should be alert to service issues and should work closely with their local postal stations on mail delivery. The Postal Service has changed its move update standards and the time frame for move updates has been shortened. Most discounted mail must have address lists updated, with an approved method, within 95 days prior to the mailing date.

POSTAL RATE CHANGES AND PREDICTIONS

Competitive Products

The Postal Service announced price changes to its existing menu of competitive and shipping services in mid-November. The price changes will take effect on January 18 and will result in express mail prices increasing by approximately 5.7%, Priority Mail increasing by 3.9% and Parcel Select increasing by 5.9%. Additional competitive services include personal return service, international mail, and Express Mail International which all saw price adjustments ranging from approximately 6 to 8.5%.

Market Dominant Products and Rates for Saturation Mail

The Postal Service's calendar for announcing and implementing postal rate adjustments for mail subject to the price cap standard is a mid-February announcement with a mid-May implementation date. The Postal Accountability and Enhancement Act subjects all rates for mail covered by the Postal Service monopoly to a "modern" system for regulating rates and classes for market dominant products under a price cap regime. The price cap is based upon a consumer price index that is tracked on a 12-month rolling average basis going back to the last date that price changes were announced. The average CPI may change each month with increases or decreases in the CPI. As of the writing of this column, the averaged CPI for the year was approximately 4.3%. The CPI cap to be used for the February 2009 rate announcement is anticipated to be between 4 and 4.3%.

For budgeting purposes, mailers can plan upon rate adjustments in mid-May of 2009 approximately 4.3%. But keep in mind this estimate is subject to significant variations for a mailer's individual type of mailings and mail profile. The rate cap regime provides that rates are set on a class level. This means that the average rate increase for standard mail cannot exceed the price cap. Within the class of standard mail, which includes a wide variety of mail of all types, the Postal Service has the flexibility to adjust its price and rates to reflect market (competitive) conditions, reward and encourage efficient (low cost) mail and to charge more for mail that is more costly or difficult to handle.

The Saturation Mailers Coalition (SMC) has made a pointed appeal to the USPS to adjust the prices for saturation program mailers with an eye to market and competitive conditions and USPS revenue opportunities. SMC representatives, including many free paper publishers, have shown that free paper publishers can switch from the mail to private delivery, have difficulty attracting desirable, heavier retail preprints and circulars, and can leave the mail if prices and postal operation requirements are burdensome. SMC members have also shown that free paper publishers, and other shared mailers, could represent a stable and growing source of needed revenue for the USPS.

USPS Asks Congress For Relief

In this season of budget bailouts, the Postal Service has also made its pitch to Congress for debt relief. One of the significant challenges the Postal Service faces is the steep debt service requirements of the 2006 Postal Reform Act. This law requires the USPS to pay anywhere from $5.4 billion to $5.8 billion a year to fund, in advance, the costs of Postal Service retiree health care. In describing its financial picture for 2009, the Postal Service Chief Financial Officer, H. Glen Walker, predicted the Postal Service would incur a $7.7 million loss for 2009 due, in large part, to the requirement that it prefund the retiree health benefits.

The Postal Service, along with the support of numerous individual mailers and mail associations, has written to the Senate Majority Leader, The Honorable Harry Reid, making an appeal for relief from the 2008-2009 funding requirements. In a letter to Senator Reid, the Industry wrote, "We are asking your support for efforts to help the United States Postal Service through our unprecedented national financial difficulty. The $900 billion mailing industry, millions of jobs, continued efficient universal postal services, and the long term survival of the Postal Service are at stake."

The Postal Service, and the mailing industry, has been quick to point out that the USPS is not seeking a bailout. The Postal Service is simply asking for a cash management change that would give it temporary relief from funding requirements and stretch out the term for prefunding the debt. The industry letter notes:

The Postal Service has proposed an adjustment to that payment schedule which would preserve the law's requirement for full funding of retiree health benefits, but lessen the financial demand upon the Postal Service for several years. It does not relieve the Postal Service of any existing financial obligation. Employee and retiree benefits are fully protected.

Without some form of relief, the Postal Service is hitting the debt ceiling maximum allowed by current law. In 2008, the Postal Service increased its debt to the maximum borrowing allowed for the year, $3 billion, and brought its total debt to $7.2 billion as of the end of fiscal year 2008.

SMC Anniversary

In early 2009, SMC will celebrate its 12th anniversary as a stand-alone organization with participation and support from free paper publishers, shared mailers, coupon envelope mailers, and reciprocal membership relationships with many of the fine associations that represent the free paper industry. Any person that is using the mail for distribution of a paper, or is interested in using the mail for all or part of your circulation, should contact SMC for membership information.

SMC was formed in 1997 to represent the common interests of its members in maintaining fair and reasonable postal rates and regulations, laws and postal policies that promote a viable, competitive and customer focus postal service, and a positive public image and response to mailed print advertising. Our efforts in the last dozen years, and 2008, include fighting to achieve rate stability and more competitive rates for saturation mail programs, proposing and advocating a simplified address format for free papers and shared mail programs, and promoting the value of freely distributed print mail products - whether in the mail or by other methods - as a consumer friendly, and environmentally sound, way of connecting buyers and sellers and supporting local business.

For membership information, contact: Donna Hanbery Executive Director, SMC 33 South 6th Street, Suite 4040 Minneapolis, MN 55402 Telephone: 612-340-9855 Fax: 612-340-9446 Email: Hanbery AT hnclaw DOT com