Postal Rates and Internet Sales Tax Present Perfect Storm of Marketing Woes

This week I’m turning the blog over to some old friends at the ACMA. For anyone who uses direct mail, there’s a good chance postage will be going up dramatically soon. Whether you’re aware of that or not, this week’s post will bring you up to speed on the issues and how you can get involved in protecting your postage rates.

Note: This week I’m turning the blog over to some old friends at the American Catalog Mailers Association (ACMA). For anyone who uses direct mail, there’s a good chance postage will be going up dramatically soon. Whether you’re aware of that or not, this week ACMA’s Hamilton Davison and Paul Miller (former editor of our sister magazine “Catalog Success”) will bring you up to speed on the issues and how you can get involved in protecting your postal rates.

A Perfect Storm Headed Our Way

By Hamilton Davison & Paul Miller

Had enough snow-sleet-rain-wind-fire this past winter? Spring and summer could see even far worse storms in Washington, DC, that will affect all remote sellers — catalogers, publishers and e-commerce companies — for decades. Unless a strong industry push back is made, the resulting consequences will undermine your company’s profitability and add new complexity for both you and your customers.

These two major industry issues should have everyone’s attention:

  1. A potentially significant change (not for the better) in how future postal rates are to be set;
  2. The ramifications of a forthcoming Supreme Court ruling on the future of remote/internet sales taxes that could overturn over 50 years of precedent businesses nationwide have relied upon.

Our industry must mobilize to take action to respond to these industry-wide threats! The time to do so is right now. Inattention will be costly. Without a concerted, coordinated response, the outcome for both will be dire.

In each matter, it will remain with Congress to provide a solution. Moving bills through Congress is a challenge even in the best of times, but at this point in our political history, with charges and counter charges, with facts and fiction being obscured, even more effort is necessary. There are 535 different members of the federal legislature. Members of Congress respond best to the people that vote for them. So we need immediate constituent pressure on every member of Congress to let them know an important sector of the economy in their home jurisdiction is at risk.

ACMA is calling on every company with interests in remote selling, including all industry suppliers and other service providers, trade media to get engaged and help mitigate these very real threats facing our industry today. Whether with ACMA or some other trade group, history shows that professional associations are the best means to coordinate an industry response. Moreover, whether you are an AMCA member or not, ACMA will help you get connected to Congress. It is that important!

Let’s now examine these issues, explore where and how we go from here, and what must be done.

Postal Rates Going Up

A big change is in store for the postal rates-making process that may well lead to enormous rate hikes very soon. Here is how it happened:

  • The Postal Accountability and Enhancement Act, passed in 2006, called for postal rate increases to be capped annually at the consumer price index rate.
  • The system has worked well for most types of mailers since; postage rises only with inflationary pressure, something widely available and understood.
  • But the law called for the USPS’s oversight body (the Postal Regulatory Commission – PRC) to conduct a comprehensive review of the rate-setting system after 10 years.
  • Released this past December, the PRC review determined the price cap system hasn’t quite worked out as well as originally hoped. Medium- and long-term financial stability is allegedly not being achieved. In fact, the PRC proposed a significant change in which catalog postage rates will increase approximately 7% for Marketing Mail Flats and 5% for Carrier Route each year over the next five years. All mail will face significant increases.
  • The following five years, the PRC may elect to continue above-CPI increases or return to a CPI-capped maximum.
  • Assuming a level 2% CPI rate, this amounts to a cumulative 40% increase over the first five years (28% for carrier route) and upwards of 56% over the next decade (42% for carrier route). If inflation rises above 2% annually, total postage increases will be even higher.

The estimated percentage increases listed above primarily apply to mailers of catalogs and periodicals, because portions of these parts the postal system are considered to be “underwater.” Based on questionable data, some claim the Postal Service loses money in delivering such mail. But without question, the reported costs for flat shaped mail have risen rapidly since the purchase of the colossal Flats Sequencing System and now represents an existential threat to catalog and periodical mailers.

The PRC’s December review was termed a “proposal” and requested suggestions for alternatives. More than 100 commenters stepped up; the ACMA submitted four comments — one on its own, and three other joint comments with other industry groups. No time frame for a decision has been released, but the case is expected to be litigated.

Internet Sales Tax

Meanwhile, on April 17 the Supreme Court of the U.S. (SCOTUS) will deliberate for an overturn of its 1992 decision in Quill v. North Dakota, which held that businesses lacking a substantial nexus (or physical presence) in a state cannot be forced to adhere to their sales tax collection and remittance requirements. The case involves South Dakota’s 2017 suit against three online retailers: Wayfair, Newegg and Overstock.

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.