Magazine Industry Group Issues Fact Check on USPS Finances

From the Association of Magazine Media:

USPS: Myth vs. Fact

The magazine industry supports and needs a healthy Postal Service. Yet, the Postal Regulatory Commission is proposing rate increases for the Market Dominant segment of the mail stream as high as 40 percent.  Such a move will have the chilling effect of driving away business and creating an existential threat to the Postal Service.

While USPS continually refers to periodicals being “underwater” in their cost coverage, this is completely due to USPS’ decrease in efficiency.  Instead, periodicals are “over-contributing” to the efficiency of the Postal Service by taking on much more of the work themselves in an effort to keep the service viable.

That’s not the only misrepresentation of the Market Dominant segment of the mail stream.  Let’s separate the myth from the fact on U.S. Postal Service’s financial situation.

MYTH 1: The United States Postal Service needs to charge magazines more money to ship their periodicals because they do not cover their costs.

FACT: The PRC’s proposal to ratchet up magazine postage ignores the fundamental fact that USPS mismanagement is to blame for magazines’ situation. The Postal Service shifted magazines from low-cost to high-cost processing, causing cost coverage to decline. If efficiency had simply remained at previous levels, even without any improvement, periodicals would be at 97-percent cost coverage.  When you factor in the additional mail that publishers send in other classes – invoices, renewals, etc. – periodical mailers get to 121 percent cost coverage. The PRC needs to push USPS to fix its problems, not raise rates.

MYTH 2: USPS has improved its operation by using automation and incorporating better supply chain management practices, but it’s not enough. The USPS needs more revenue dollars and must charge customers more money.

FACT: The Postal Service has made changes in automation, but, for flat shaped mail pieces, productivities have declined anywhere from 24-percent to 52-percent for the applicable sorting machines.  Meanwhile, to compensate for USPS’ falling productivities, publishers have undertaken much more upfront prep work before giving magazines to the Postal Service for final processing and delivery.  More than two-thirds of magazines are sorted to the deepest sortation level before mailing, and about three-quarters are driven by private trucks to mail entry points near readers’ homes.  Despite those efforts, USPS is the only partner in the magazine production/delivery ecosystem whose costs have increased in recent years. There is substantial room for cost reduction across multiple levels at USPS. USPS’ operational and sorting issues can’t be solved by simply adding more money into the equation.

MYTH 3: The advent of email and other shipping competitors is mostly responsible for USPS’s decline.   

FACT:  Revenues related to e-commerce continue to climb.  The profit from packages keeps growing, giving the Postal Service an extra $1 billion of profit per year. Companies such as Amazon, FedEx and UPS all use USPS to deliver packages the “last mile.” By proposing only one solution – much higher postage rates – the Commission will do lasting harm to the Postal Service by either forcing businesses out of the mail or pushing them to find –or create—alternative, cheaper, and more stable distribution methods.

MYTH 4: The Postal Service’s poor finances are due to deficiencies in the rate-making system.

FACT: The Postal Service’s balance sheet lacks “balance” due primarily to the Congressionally-mandated retiree health prefunding designed to pay for the full liability for future retiree health care on an accelerated schedule. Over 90 percent of Postal Service reported losses in the last decade are due to this misguided prefunding schedule. Despite missing prefunding payments, the Postal Service is better funded for retiree benefits than the vast majority of federal, state or private sector entities. In total, more than $340 billion are already set aside in the U.S. Treasury for retiree benefits.  This is enough to cover decades of retiree benefits for postal employees.

We are at a critical juncture.  The Postal Service is a unique institution with a unique set of circumstances. However, there is no precedent for an organization in any industry that succeeded through exorbitant prices increases in the face of weakening demand. It is the PRC’s responsibility – and legacy – to recognize that here.

Linda Thomas Brooks

President and CEO, MPA – The Association of Magazine Media