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.

A Possible USPS ‘Exigent’ Rate Increase – Playing Politics on the Backs of Ratepayers?

There are rumors that the USPS may request another exigent rate increase. Why are we going through this again? Advertisers, marketers and the business community love certainty—and have a strong distaste for uncertainty. When one considers the financial situation of the U.S. Postal Service during the past couple of years, it’s enough to keep mailers at bay in planning their ad budgets, and keep them from devoting much to direct mail in the overall media mix.

There are rumors that the USPS may request another exigent rate increase. Why are we going through this again?

Advertisers, marketers and the business community love certainty—and have a strong distaste for uncertainty. When one considers the financial situation of the U.S. Postal Service during the past couple of years—from uncertain prospects of postal reform legislative efforts, to what any emerging postal reform effort might contain or not contain in cost savings, to short-term financial viability and this past year’s default—it’s enough to keep mailers at bay in planning their ad budgets, and keep them from devoting much to direct mail in the overall media mix.

Tying postage increases to the consumer price index and giving USPS the latitude to implement such increases annually (as is now the law) has helped give the business community certainty about postage costs, so they can plan and budget accordingly.

Allowing an “exigent” or additional postage increase to happen when there are extraordinary circumstances (as is also now the law) was intended as a “last resort” to make Postal Service finances whole. Let’s be honest: An extraordinary circumstance happens when there is an absence of postal reform efforts moving forward, and, possibly, when there is an absence of U.S. economic growth and an exhaustion of wise cost containment initiatives inside the Postal Service. All three of these latter scenarios don’t exist—so why even consider an exigent increase?

It’s a bad idea. First, USPS customers would detest such a rate hike, as they do. It’s an uncertainty.

Recently the Direct Marketing Association (DMA) in its Direct from Washington newsletter reported:

With reason to believe that the United States Postal Service (USPS) Board of Governors may vote on a potential exigency rate increase in early September, the Affordable Mail Alliance (AMA), including the DMA, sent a letter to the Governors voicing their opposition of such an increase. The letter expressed concern about the negative effects that would come with such an increase, especially for the mailing industry and its suppliers. The letter recognized the continued financial struggles that confront USPS, but also stated that an exigent rate increase is not the solution to those struggles. With recent progress toward comprehensive postal reform in Congress, along with steady improvement in the USPS balance sheet, the letter stated that an exigency filing ‘at this point would be premature.’ The letter additionally requested a meeting with the Board to discuss the issues at hand and to ensure that USPS is fully informed before making a decision of such great magnitude.

Second, if the architects of an exigent rate hike think that such a case is what is needed to convince lawmakers that postal finances are indeed a mess, and that a reform law—now in discussion—is desperately needed to fix them, then how dare play politics on the backs of ratepayers? An exigent rate hike is unlikely to move best-case legislation forward (and may even help move a bad bill, from customers’ perspective) and will saddle mailers with even higher costs than budgeted. Thus, there would be more uncertainty and more mail dollars flowing elsewhere in advertising.

As the Affordable Mail Alliance contends, any exigency scenarios are at best premature and, might I add, most likely non-existent. So USPS, please listen to your customers and just don’t go there.