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.

5 Hopes for the USPS New Year

October 1 marked the New Year—that is, the 2014 fiscal year of the U.S. Postal Service. But it’s the same old (sad) song, delivered by a dysfunctional Congress. Thanks to our elected Senators and Representatives, we not only have to endure not just another year of postponed reforms, but also an exigent rate case on top of a regular Consumer Price Index-capped rate hike slated for January.

October 1 marked the New Year—that is, the 2014 fiscal year of the U.S. Postal Service.

But it’s the same old (sad) song, delivered by a dysfunctional Congress. Thanks to our elected Senators and Representatives, we not only have to endure not just another year of postponed reforms, waiting longer still for a reprieve from mandates of Congress from years past, but also an exigent rate case on top of a regular Consumer Price Index-capped rate hike slated for January.

For Standard Mail, that means:

  • Letter Mailings CPI-capped rate increase of 1.55%
    But now with the Combined CPI and Exigency, that increase jumps to 6.09%
  • Flat Mailings CPI-Capped Impact 1.66%
    But now with the Combined CPI and Exigency, that increase rises to 6.32%

As Charley Howard of Harte-Hanks correctly surmised, the only exigency here is “continued inaction by Congress.”

What are the chances?

  1. Congress will get its act together and pass a new formula for prefunding retiree healthcare costs that are more in line with … say, sanity?
  2. Such a reform bill will pass—and leave in place the most hard-fought, cherished centerpiece of the 2006 postal reform bill—the CPI-index cap?
  3. That USPS current cost-cutting discipline—and network consolidations—will continue as management had planned, with “right sizing” the infrastructure achieving its intelligent end?
  4. That universal delivery remains intact—in six days, or five—take your pick?
  5. That certainty and predictability is restored to the Postal Service’s financial picture—providing the assurances marketers crave?

Let’s put it this way—if the “right” postal reform gets deep-sixed (again) in the coming election year, then will we pass the point of no return, with marketers taking their integrated marketing dollars elsewhere? If postal reform passes, but the most important mechanism of fiscal discipline—CPI caps—are undermined, or worse removed altogether, will we pass that same point?

By this time a year from now, will the crises be solved—or compounded? The clock keeps ticking.

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.