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.

PMG Fights Congress on Postal Reform

The U.S. Postal Service reiterated this past week—in hearings before the House Oversight and Government Reform Committee—just how crucial it is that Congress undertake reforms that are necessary for the USPS to accrue the savings to restore its fiscal state. There should be no “half measures,” Postmaster General (PMG) Pat Donahoe stated

The U.S. Postal Service reiterated this past week—in hearings before the House Oversight and Government Reform Committee—just how crucial it is that Congress undertake reforms that are necessary for the USPS to accrue the savings to restore its fiscal state.

There should be no “half measures,” Postmaster General (PMG) Pat Donahoe stated.

First, PMG Donahoe questioned draft “discussion” legislation being devised by Rep. Darell Issa (R-CA) to enable USPS management’s bold efforts to “right size” Postal Service costs and infrastructure to volume trends. As Direct Marketing News reported on July 17:

“The draft did not appear to meet the full approval of the PMG, however, who is adamant that any new legislation remove the U.S. Postal Service’s obligation to prefund employee health and retirement programs. Issa’s plan calls for future payments to be made on an actuarial calculation that will reduce the Postal Service’s annual $5.7 billion prefunding payment, which it defaulted on last year.

“‘We are seeking the authority under the law to control our healthcare and retirement costs. We can completely eliminate the need for Retiree Health Benefit prefunding if we can move to our proposed solution,’ Donahoe said, addressing Issa directly.”

The Postmaster General maintains that being allowed to set up its own healthcare coverage for retirees programs would lower premiums paid by employees, while delivering up to $8 billion in savings annually. Donahoe also is asking Congress to return $6 billion in USPS “overpayments” to the Federal Employees Retirement System (FERS).

At this juncture, Rep. Issa’s discussion draft does not include provisions for enabling these savings in full, and the Postmaster General says time is running out-or more defaults will be in the offing. (The next default on payments likely will occur this September, Reuters reports.)

Next, the Postal Service is seeking Congressional approval—and likely Postal Regulatory Commission approval as well—on a five-day delivery plan for residential mail delivery, and the estimated $2 billion in savings it estimates it would achieve there. The false start earlier this year—USPS unilaterally announced its five-day delivery intent beginning August, and Congress promptly shot those plans down the following month—doesn’t mean that five-day delivery is dead. On the contrary, USPS management believes such savings are crucial toward keeping delivery costs in line with volume and revenue: First-Class Mail volume, in particular, continues its decline, despite an improved U.S. economy.

Some of my contacts in the mail industry say that five-day residential delivery is probably (1) inevitable, (2) something direct mailers can adapt their production and transportation schedules to live with, and (3) perhaps necessary for long-term USPS viability, as the PMG reports. While postal unions—and their supporters in Congress—are still not for it, the need for cost-cutting and right-sizing USPS delivery infrastructure remains. Alternate proposals for achieving $2 billion in savings (or revenue from new and existing product lines) so that six-day Ddelivery can remain so far remain elusive.

All in all, PMG Donahoe wants that $20 billion onto the USPS bottom line to come from somewhere—and he knows it can’t come from higher postal rates, not at least until the Postal Service is more lean.

As the PMG told Congress this past week, “The Postal Service continues to face systemic financial challenges because it has a business model that does not allow it to adapt to changes in the marketplace, and it does not have the legal authority to make the fundamental changes that are necessary to achieve long-term financial stability.” (Reuters, July 17).

Harte-Hanks has published an informative discussion of current postal reform efforts, and I encourage interested readers to take a deeper dive: http://www.harte-hanks.com/postology/Harte-Hanks_PostologyReport_2013_July.pdf

We’ve been waiting for Congress to act in a serious manner on postal issues since 2006-if not before. How much longer?