USPS Exigency Becomes a Political Toss – and a Punishing Farce

With the sole exception of Sen. Tammy Baldwin (D-WI) swinging for the United States Postal Service ratepayer (you and me), January 2014 was a dismal month for those who advocate direct mail in the marketing mix … and in February, I’m definitely looking for some love. Will we find it?

With the sole exception of Sen. Tammy Baldwin (D-WI) swinging for the United States Postal Service ratepayer (you and me), January 2014 was a dismal month for those who advocate direct mail in the marketing mix … and in February, I’m definitely looking for some love. Will we find it?

First, there was January 26 … the day new postal rates took effect, full-on. “The 6.0 percent postage increase—three times the rate of inflation—will not help the Postal Service shore up its financial base,” said Peggy Hudson, senior vice president, government affairs, Direct Marketing Association, part of a coalition which filed a court appeal to halt the exigency portion of the rate hike, 4.3 percent. “It will simply drive mail from the system, which harms the financial viability of both the Postal Service and its business customers. It is a lose-lose proposition.”

Then, there is an unpalatable compromise brewing in the Senate Homeland Security and Governmental Affairs Committee. (Compromise always deals with some distaste, or else it wouldn’t be a compromise.) On our behalf, Sen. Baldwin was attempting to strip “offensive” Section 301 from the legislation, which would have abandoned the inflation consumer-price-index peg for annual postal rate increases, and replace it with a new CPI+1 percent index—adding potentially 10-percent higher rates over a decade than would happen under existing law.

Last week, one of the primary sponsors of the current postal reform bill—Committee Chairman Sen. Tom Carper (D-DE)—offered a deal: Essentially, Carper would keep the CPI index mailers crave in place but, in return, the exigency (4.3 percent hike) would be included in the baseline for future annual hikes—thereby removing the 2-year limit on the exigency imposed by the Postal Regulatory Commission in its oversight of the rate hike and making the exigency permanent. Further, the PRC’s oversight role on postal rate changes would be kept intact—something the current language of the bill is attempting to strip. Sen. Baldwin asked for a mark-up delay, no doubt to consider the offer with her constituents.

What a farce: An exigency made permanent? Now that’s a paradox—and an audacious one at that. We can see the Postal Service getting much of the would-be CPI+1 back over the next 10 years, assuming there’s no more crises forcing USPS management, the mailing community or both clamoring for another postal reform bill within 10 years’ time.

Is keeping the CPI index so important to us now that we’ll hold our noses on this compromise? A mark-up on the bill—a Committee vote—has been moved to February 6 As of January 31, DMA is still asking its members to weigh in here to get Section 301 tossed.

There is a disturbing pattern here. The Postal Service is our business partner, for sure—and there’s nearly universal support for that partnership across the board. But if it (USPS management, USPS labor, and the both of them) keeps fighting its customers with higher postal rates, and running to Congress with mock exigencies or new rate-setting formulae that undermine fiscal discipline, then the financial reality of that partnership gets sadder by the day. Lose-lose ignites a dying cycle.

Mailers have suffered through recession. Marketers deal with digital migration. They have had to endure cost-cutting, price-cutting and layoffs to make it to 2014—and they’ve relied on invention to survive and thrive. What they have not been able to do is take their customers for granted, by passing along hardships in higher prices.

“Business-like” USPS policy and operations remain marred in politics—exigency is another sadly perfect example.

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.