Postal Reform Should Give USPS More Contracting Ability

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As Congress considers H.R. 22, the comprehensive postal reform bill, few elements of the legislation are more important to the U.S. Postal Service's future than those that would allow the USPS to negotiate contracts with its customers. While H.R. 22 includes Negotiated Service Agreements, the bill needs to go further to achieve its reform objectives.


If H.R. 22's goal is to modernize the postal service so it can continue to provide universal mail delivery at an affordable price well into the next century, then the legislation must help preserve and grow mail volumes and revenues by giving the USPS more flexibility to compete in today's economy. This is more important than ever as the explosive growth of electronic communications alternatives such as faxes, e-mail and the Internet increasingly puts the USPS's mail-volume stream under siege.


NSAs are critical to the postal service's long-term health. They would enable the postal service to be more competitive and thus prevent erosion of essential mail volumes. Standard A mail, for example, is one of the USPS's few growth areas at 7 percent annually. However, it's price-sensitive and easily diverted to nonpostal alternatives. NSAs are based on sound business practice since virtually every competitive business in the United States, including postal service competitors, has been using negotiated contract rates for years.


As currently drafted, H.R. 22 authorizes the USPS to enter into NSAs with its customers. While its intent is good, the provision includes regulatory hurdles that would weaken NSAs' effectiveness. Specifically, the provision would require NSA mail to make a contribution to USPS overhead costs that is equal, on an average unit basis, to that of the most similar mail classification. This means that NSA pricing would not be determined by a customer's ability to grow mail volumes as a result of that pricing -- in essence undermining the concept's original intent.


Instead, the only rate benefit for a mailer would be the cost savings the mailer brought to the USPS through taking on additional mail processing steps. Thus, NSAs would be turned into an inferior form of a traditional work-sharing discount. As with any work-sharing discount, the mailer would incur additional preparation costs to achieve those savings. Unlike work-sharing discounts, however, an NSA would leave the mailer responsible for any money owed if the mailer failed to perform as contracted. Few mailers would be willing to accept this combination of increased costs and higher risks.


There is a better way. The Saturation Mailers Coalition, a group of more than 40 saturation advertising mail companies, has recommended a modified NSA provision that would give the postal service the pricing freedom necessary to act decisively in a business environment where a protracted rate process would cripple its ability to manage the mail stream efficiently. Specifically, the provision would require mailers to generate an equal or greater total dollar contribution to USPS overhead costs. This guaranteed contribution could be achieved by increased volumes, reduced costs or a combination of the two.


Postal service competitors have argued that NSAs would enable the USPS to favor certain customers with artificially low rates, while other mailers would be forced to make up the difference. In our suggested new framework, however, NSAs would be self-financing, requiring customers to "earn" their reduced rates by bringing in additional revenues. Regardless, mailers would owe the postal service the money stipulated in their contract. Thus, no other mailers would bear the burden of these reduced rates. And, because mailers would be required by law to fulfill their contracts, no mailer would enter into a negotiated rate lightly or carelessly. In addition, NSAs would be available to any mailer who qualifies, regardless of size, and all USPS contracts would be public records.


With the earned NSAs, everyone wins. The postal service sustains its financial strength, its customers retain their competitive stance, postal competitors are not unfairly disadvantaged, the NSAs are "sunshined," and the consumer continues to receive universal mail service while paying the lowest amount in the world for a First Class stamp.


Postal service competitors have argued that the USPS is doing fine financially and that there is no reason for such drastic changes as contracting ability. I would respectfully submit, however, that the proverbial writing is on the wall for the postal service. To turn a blind eye to the revolutionary, technology-driven changes taking place in the marketplace, and to a solution that is in everyone's enlightened self-interest, would be nothing short of reckless.


The postal service's current position reminds me of the book, "The Age of Paradox," written by change management guru Charles Handy. The author asserts that any organization -- even one that appears on a strong growth trend -- must change its path in order to avoid complacency, gain new momentum and sustain long-term growth. Otherwise it will eventually lose power and stumble. Paradoxically, the time to make such a change is the exact time the organization appears to be operating smoothly. The author's bottom line is "If it ain't broke, fix it anyway."


Truer and more profound words were never spoken about the postal service's future.


Robert Kamerschen is chairman of the board at ADVO Inc., Windsor, CT.
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