Could this be the end of inflation-capped postal rate hikes? Many in the industry feel that the pending Congressional review of how postal rates are determined may set the stage for exactly this.
And the industry is not taking the specter lying down.
As the always forthright D. Eadward Tree notes, the industry is basically saying “Told you so. Now don’t try to slap us with a Stupidity Tax.”
Tree gives a succinct description of the current situation in Publishing Executive: “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,” Tree continues.
There is so much pushback to the USPS’s current rumblings that many are calling it high noon for the USPS, as they find themselves going toe-to-toe with their biggest customers: the mailing industry. The postal service argues that it’s losing money … 25 cents to the dollar … to mail magazines and newspapers, Tree notes.
Many in the industry blame the multi-billion-dollar Flats Sequencing System (FSS). It’s a total “I told you so” moment for the industry, and rightly so.
“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,” a coalition of industry groups told the PRC last month. Instead, they asked for better incentives for co-mailing, which would require no USPS investment to lower the agency’s costs, Tree explains.
They didn’t get it.
Tree himself is publicly calling for the FSS to be scrapped, saying “The U.S. Postal Service’s Flats Sequencing System is a disastrous failure that cannot be fixed.”
“The FSS is adding so much to the costs of handling magazines, catalogs, and other flat mail that no amount of machinery tweaks, Lean Six Sigma projects, or ‘Tiger Teams’ can ever make it right,” he continues.
The real trouble, Tree notes, is that removing the current inflation-based cap would give the USPS an easy out, with no incentive to fix or replace the expensive and ineffective FSS. Rather, their mess would be borne by mailers in rate increases.
“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.”
Meanwhile, mailing volume will drop due to increased costs, exacerbating the problem. Tree quoted an unidentified MPA member as saying: “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.”
That’s the kind of out of control downward spiral that is exactly what we don’t want to see.
The USPS – and by that we mean not just the organization itself, but the PRC and the politicians who try to fix things – needs to wake up. NO business survives by creating more pain for their best customers. Even when those customers need them. NO business SHOULD survive when they ignore customer ideas that can help create win-wins.