Sorting Out the Mail with Hamilton Davison

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The head of the American Catalog Mailers Association discusses the effects of higher rates on mail volume, and suggests how mailers should get involved in postal reform.


Al Urbanski:
Welcome to DC Direct, this is Al Urbanski, senior editor of Direct Marketing News.

The last couple of months have been turbulent ones for mailers and cataloguers. The exigent increase is in, we have a 6% mail increase, postal reform is stalled in Washington, and there are some big, new plans being made by mailers. We wanted to talk today to Hamilton Davison, who's the president and executive director of the American Catalog Mailers Association, about this predicament that mailers find themselves in. Hamilton, welcome.

[00:00:33]

Hamilton Davison: Thank you, Al.

Urbanski: So, Hamilton, the exigent increase has been in place for about a month now and I know it's early on, but, from what you hear from your members, how are they coping? And—and, you know, how has the exigency increase impacted their mailing plans this year?

[00:00:48]

Davison: Well, it's been something that's still a bit of an uncertainty. As you are aware, the PRC has made a decision to apply a surcharge of 4.3% on top of the CPI increase, but they have said that surcharge can stay in place only until the Postal Service collects $2.8 billion or an estimated 18 to 24 months.

There are some legal challenges to that on both sides, in the US Court of Appeals, the Tenth Circuit. Mailers, including ACMA, have sued to repeal the exigent increase on the basis of the PRC decision, which we—we find has some internal inconsistencies. And, on the other side, the Postal Service has sued to make this 4.3% increase a permanent one and not a temporary one.

So a lot will depend on what the outcome of that litigation is and what the final decision is. We expect it will be remanded back to the PRC to make a final decision, with some guidance from the court and I think, at that point, we'll have a much clearer notion of what the implications will be, given the uncertainty today.  Certainly, it's an added cost load, but it's uncertain whether this is just a one-time or a two-year thing, or it's going to be an ongoing increase to postal rates.

[00:02:13]

Urbanski: Right, and it's a discussion that's gonna keep going on with postal reform, right. But what are you hearing from your members about how they plan to adjust their mailings? Because, if you look at the U.S.—U.S. Postal Service's five-year plan for all mailings, for volume, they kind of foresee, in their four-year (sic) plan that the Postmaster General refers to and Joe Corbett, the CFO, refer to all the time. They kinda see this—they're expecting like a 3%, about, decrease every year.

Does that gibe with what you hear from your mailers, as far as catalog mailing goes?

[00:02:47]

Davison: Well, that's interesting, Al, because a 3% overall decrease in piece volume, with first class being still about half the toll and on a continued downward trend, that implies that—that at least a slight increase in standard mail volume. We're not getting that feedback from our members.

In fact, our members' responses, their forecasting [is] varied…to be sure. Some calling for no volume reduction; they're just going to suck it up and take the hit to the bottom line. Those are typically mailers that have more gross profit margin to work with.

Other mailers are telling us a 1-5% increase (sic) and we have a significant number of mailers—and, importantly, some of our larger mailers—are telling us a 6-10% decrease overall.

So we're—we're—we're expecting a decrease. We're expecting that decrease to be levied over time. Some mailers have a little bit longer lead time, given their merchandise order close and they'll be impacting their mailing plans toward the end of this calendar year, with some continuing decrease occurring in next year. And other mailers have indicated that they're—they're going to be cautious and reduce slightly their mailing volumes, but are going to be watching for the outcome of not only the court case, but, as you mentioned, this issue is also at play in the postal reform legislations pending before Congress.

[00:04:20]

Urbanski: Yeah, 2007 was a horrendous year for mailers. There was a huge—the increase that they suffered that year and, as a result, catalog volume just dropped precipitously.

Do you foresee something similar emanating from the exigent increase, if it is allowed to continue?

[00:04:38]

Davison: Relative to the amount of the increase, I think, yes. We saw, in 2007, a 22% reduction—I'm sorry, a 22% increase in postage mailing rates and a 35% reduction in catalog volumes. Now, obviously, that was compounded by the recession that followed shortly after that, but our in-—interviews with members have suggested that it's primarily due to the postage rate change and less due to the recession. And, since the recession has ended, you've seen volumes come back only 5%.

So a net of 30% reduction for a 22% increase and we're expecting something in the same proportion this time around.

[00:05:18]

Urbanski: Yeah, so it's a pretty scary prospect, whichever way you look at it.

So, just to wrap up, postal reform has been stalled throughout all of this. All of these plans have gone along and all of these court cases and whatever, without any new postal reform on the boards. And there's a postal reform act on the table in the Senate, there's one in the—in Congress—in—in the House of Representatives.

How do you see that playing out this year? And I know it's—it—you don't have a crystal ball. But what are some of the things that our readers should be watching out for in the next year and how can they take part in—in helping it along?

[00:06:00]

Davison: Well, that's—that's a great question. I think postal reform has been a large uncertainty overhanging the entire postal system, including the future of the Postal Service itself. And that uncertainty is—is difficult for business to deal with.  When you have an uncertain future, you have to do everything you can to hedge against a better outcome, given a worst-case scenario.

Postal reform itself is moving both in the House and in the Senate in—in different ways. It's passed out of both of the committees, the respective committee's jurisdiction in both houses and it's awaiting action on the full floor. It's uncertain, at this point, as to when that will occur. Postal reform does have a habit of being passed during the lame duck session, which we will have this fall.

But one of the things that is being discussed back and forth in—especially in the Senate chamber, is taking the exigent increase and baking it into the rate base. So that—that certainly would be not good for mailers and would hasten efforts to migrate out of mail.

Unfortunately, Al, mail is still the most productive medium that many marketers have. And, while the cost continues to go up and that does impact mail volumes, there's a lot of other factors at play as well; response rate being the chief—chief among them.

So, you know, one of the questions is: How does the American consumer react to less…mail volume coming into the household? Does that improve or worsen response rates? There's just an awful lot of unanswered questions at this point.

[00:07:45]

Urbanski: Mm-hm. So what are you telling your members to say when they call their Congress-people and Senators?

[00:07:50]

Davison: Well, you know, it's interesting.  One of the things the—the Postal Service has said is that, "If we get postal reform, we're not going to file for an exigent increase." Or, "If we get postal reform, we're gonna pull back on the exigent increase." They've been pretty quiet on that, so our current belief is that they—that—that commitment is no longer on the table.

I think it's really important for all mailers to make their needs known to their Congressmen and women and their Senators. And there's no question this is ultimately going to come to a floor vote and members will be voting based on what their constituents tell them to do.

It really does work. Letters are good. Calls are better, calls are better. In fact, the best thing that could happen would be to build a relationship with your member of Congress, so they know who you are, they know your business, they know the impact—they know the impact and importance of that business to their district. And then, once you've built that relationship, when an issue such as postal reform comes before them, you have a great opportunity to make your needs known and have a much bigger impact, because they know you're a constituent that's involved, engaged, paying attention, and participating in the process.

[00:09:03]

Urbanski: Right, because this thing—on—and, from everything I hear, there's a lot of controversy with the individual districts on this—on this bill, the postal reform act. And it's far from a done deal, right? There's plenty of time to be talking to your representatives.

[00:09:18]

Davison: And, you know, ironically, the unions are the ones that are having the greatest impact in national postal policy and the ironic thing is that unions, the Postal Service itself, and mailers all have a great stake in the outcome. We all need to have a healthy Postal Service and, yet, we can't—the three groups, three stakeholder groups can't seem to agree on the essential elements of what should be included in that legislation.  And that lack of clarity, that lack of consensus certainly makes the job of Congressmen and women much harder, as they're trying to decide which way to go and what decisions to make.

[00:09:54]

Urbanski: Great. Hamilton, we've run out of time.  Thank you very much for speaking with us today. Always great to speak with you and I'm sure we'll be keeping in touch with you as this progresses.

[00:10:03]

This has been DC Direct. This is Al Urbanski from Direct Marketing News. Please join us for our net broadcast, thanks.

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