Assessing the USPS January Rate Hike – Start the Clock

While we still wait for the Senate Homeland and Governmental Affairs Committee to move forward with a meaningful postal reform bill (the vote to mark it up has been postponed), the Postal Regulatory Commission provided some very tough news for mailers to swallow just ahead of Christmas Day

While we still wait for the Senate Homeland and Governmental Affairs Committee to move forward with a meaningful postal reform bill (the vote to mark it up has been postponed), the Postal Regulatory Commission provided some very tough news for mailers to swallow just ahead of Christmas Day.

By a two-to-one decision, the PRC concluded that the United States Postal Service, on its second attempt to do so, did offer enough evidence that the Great Recession (2007-2009) did help generate two years of financial losses to create an “exigency” scenario—and protestations and counter evidence that volume and revenue decreases were created by other means (digital migration, Congressional mandates and such) were not enough by mailer and business groups to prevail and reject the exigency claim. Now mailers will have to suck it up—or go elsewhere with their marketing dollars, come January 25. That is when the annual Consumer Price Index-capped increase plus the exigency increase in postage is slated to take effect. Ouch!

Well, due process and due diligence had its day—a dismal one for mailers—and now a real-life experiment will happen. What will the two-year “exigency” rate hike of 4.3 percent—three times the rate of inflation when added to the already-slated CPI hike—do to marketing mail trends this time around?

When the 2007 postage increase took effect, the results were devastating for flats mailers, who endured an unexpected punishing increase.

“The 2007 rate increase was the real culprit for flats volume declines,” said Hamilton Davison, president and executive director of the American Catalogers Mailers Association, recently. “The recession didn’t help either, but the pullback in volume from catalog mailers, for one, was dramatic. Some of our wounds in growing our own businesses have been self-inflicted. Typically mail order businesses have 40 percent to 70 percent of their total mail volume dedicated to new customer prospecting. After the 2007 rate hike, that was cut to near zero. When you stop prospecting, sooner or later your own house file of customers deteriorates due to attrition. But by that time, a vicious cycle occurs, where there are too few new names to mail. The universe of mailable names has declined, and that is hurting the catalog industry just as the economy has been improving.”

Will such a similar outcome happen now that First-Class and Standard Mailers are facing a total, and unexpected, rate hike of 6% in less than 30 days? Like it or not, the clock starts now and we shall see. For some marketers, I fear, enough is enough. And meaningful postal reform still waits in the wings.

Look Who’s Arguing for Higher Postage

It was a busy past week for postal reform followers, as the Senate Homeland Security and Governmental Oversight Committee convened a hearing on a bipartisan measure to implement various Postal reforms. Perhaps the most contentious part of the Senate’s current bipartisan proposal was the centerpiece of the 2006 Postal Accountability and Enhancement Act: The annual rate cap on postage increases tied to the Consumer Price Index.

Well, it was a busy past week for postal reform followers, as the Senate Homeland Security and Governmental Oversight Committee convened a hearing on a bipartisan measure to implement various reforms that would enable billions in necessary U.S. Postal Service (USPS) savings. The House Oversight and Government Reform Committee already passed a postal reform measure earlier this year—without one vote of support from Democrats. Whatever bipartisan effort the Senate can put forward matters greatly, since votes of majority Democrats are needed in the Senate (and eventually the House) for passage, and also to garner White House support.

Perhaps the most contentious part of the Senate’s current bipartisan proposal, based on comments filed and testimonies given, was not five-day delivery or relief from funding mandates of pre-retirement of health benefits (though both of these have their own list of supporters and detractors), but rather the centerpiece of the now-in-effect 2006 postal reform law (Postal Accountability and Enhancement Act): The annual rate cap on postage increases tied to the Consumer Price Index.

Marketing mailers—USPS customers—insist that such a cap remaining in place.

It is this measure of fiscal discipline that acts as the single most important indicator to mailers that the Postal Service will operate within its means, and mailers will have predictable increases in postage that can be budgeted for with a high degree of certainty.

Uncertainty, on the other hand, is the specter that advertising mailers most fear—and one that channels ad dollars most formidably to other media. The 2007 rate hike (the last rate hike ahead of the 2006 law’s implementation) clearly showed what exorbitant and unexpected increases can do, such as the case of catalogers in that year.

Now we have postal unions (predictably), USPS management and the PMG (less predictably), the USPS Inspector General, and even a Senate Republican (now that’s a surprise) arguing for an emergency rate hike (a “last resort” allowed under the current 2006 law, if and when exigency is proven) or, as the Senate bipartisan bill would allow, the removal of the CPI cap altogether as the USPS looks to $20 billion in overall relief (much of which it has achieved already in its own cost-cutting to date) to balance the books.

Well, I have my own feelings about the negative effects of exigency—which I shared recently in a post. (I’m not an economist here, just a student of history.)

Yet, to do away with the CPI price cap stricture? That would make disappear the crowning achievement of the 2006 law that USPS customers fought so hard for. Getting rid of the cap means exigency, in practice, could be a permanent fixture in postage increases—and mailer flight to digital and other channels will be the “giant sucking sound” as uncertainty reigns again (my apologies to Ross Perot). As we know from the past: USPS management goodwill, Postal Regulatory Commission oversight, and mailers’ testimonies of warning in rate case hearings are not enough to stop punishing and unpredictable rate hikes. A law that keeps cost increases in postage within CPI, however, largely has halted such malaise.

The losses that the Postal Service is experiencing today have to do with Congressional mandates, not nimble efforts of USPS management and workforce to right-size the Postal Service and its infrastructure to USPS mail volume trends.

Mailers: Stay tuned—and be prepared to mobilize.

Reducing UAA Must Focus on New Movers

In a recent post, I addressed the issue of undeliverable as addressed (UAA) mail, and how brands, businesses and other mailers lose more than $1 billion a year by not getting their mail addressed properly. It’s a solvable problem. Both the USPS and the DMA have made public commitments to reduce UAA as an industry goal, both of which would help marketers and their bottom lines. Progress toward UAA reduction, however, has not been uniform.

In a recent post, I addressed the issue of undeliverable as addressed (UAA) mail, and how brands, businesses and other mailers lose more than $1 billion a year by not getting their mail addressed properly. It’s a solvable problem.

Both the USPS and the DMA have made public commitments to reduce UAA as an industry goal, both of which would help marketers and their bottom lines. Progress toward UAA reduction, however, has not been uniform.

Recently, Charley Howard, who is the vice president of postal affairs at Harte-Hanks (disclosure: Harte-Hanks is a client), discussed this concern in a monthly e-newsletter he writes for the company called Postology. Charley wrote about UAA, and explained why UAA reduction goals have been slow to materialize. One of the key reasons has nothing to do with mailers, and everything to do with mail recipients: Too few Americans are filling out National Change of Address (NCOA) forms as they had previously. In fact, less than 50 percent are now doing so, and its ramifications on UAA volume are profound.

Frankly, mailers must supplement their use of NCOA with proprietary change-of-address/new move data from commercially available sources in the private sector. There’s just no way around this. However, by taking advantage of such services (as all direct mailers should), there is a risk that the USPS, ironically, will penalize the mailer. Charley explains the paradox here, used with permission:

USPS New Moves Source Is not Enough
“In addition to … postal-approved methods for Move Updates being applied to mailing files, there are those in the industry that additionally supplement postal moves with a Proprietary Change of Address (PCOA) service offering (for example, Harte-Hanks offers such a service). The sources of this move data tend to come from utility, telecommunication and publishing companies. In recent years, PCOA has developed into a near necessity because of the diminishing numbers of people who fill out the USPS Change of Address form.

When NCOALINK started in late 1986, more than 90 percent of all moves were captured. Today the use of COA cards has fallen to less than 50percent of moves. How can the USPS ever hope to reach its goal of cutting UAA mail by 50percent if its own source for Move Update data has fallen below half of all moves? Forcing mailers to go outside the Postal Service to attempt to obtain the balance of the moves contains some postage risk, however.

During Mail Acceptance, mail samplings are run through the MERLIN detection machine. The scanned records are passed by the USPS’s COA data to test for Move Update compliance of 90%. There is a chance of failure through the use of proprietary sourced moves. Here is an example. Say a grown child leaves home to go to college or to get a job and an apartment. The child files the COA with the USPS. Assume 9 months later the child returns home for whatever reason and no COA is filed. The USPS COA has the first move but not the second. The mail owner, using a PCOA, has obtained the second move back to the original address and is using it in the current mailing. MERLIN would show this as a failure because the move the USPS has on record is not reflected in the mailing. The service provider would have to fight this ruling to prove that it has the more current data.

The real problem here is that the USPS’s own COA data is inadequate to achieve the desired results. It is inadequate to even validate the thoroughness of Move Update compliance. The USPS needs to recognize that along with less use of the mail by younger generations, comes little to no use of COA as a stand-alone product. Therefore the USPS needs to supplement its own data with outside sourced data to become the sole repository of moves, once again. The USPS needs to invest in better data to save more in the end – and only then can UAA be reduced in line with Postal Service management goals.”

This opinion in its entirety reflects Charley’s view—and not necessarily my own or that of Harte-Hanks. But, I do believe that using PCOA should be recognized in some fashion by USPS, so mailers can be rewarded for keeping their mail off the UAA track and in the recipients’ hands. Putting the onus on the mailer to explain how its list is more up to date than the USPS’s on change-of-address concerns seems to be a burden that does not reflect today’s list hygiene realities. Either USPS should incorporate PCOA sources in MERLIN, or it should provide some sort of seal of approval on what private sector sources are already doing to help mail reach the intended recipient. Let me know your points of view in your comments here.

Helpful Links:

Direct Marketing Association on UAA Reduction

USPS Strategic Sustainability Performance Plan, FY 2011 (see page 65)

Harte-Hanks Postology (June 2012) on UAA and Move Updates (live link as of June 14, 2012)

Nextmark’s List Search Platform (search using “New Movers” or “Change of Address”)

An example of a recently released “New Move” file (disclosure: Alliant is a client)