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Mailers Call for a More Nimble, Competitive USPS

Prominent industry leaders testifying at a Senate Governmental Affairs Committee hearing yesterday said that adding flexibility and competitiveness to the U.S. Postal Service is critical to both stable rates and the postal service's survival.

Ann Moore, chairwoman/CEO at Time Inc., urged Congress to put a rate-cap system in place because postage costs have been rising at a rate far exceeding that of inflation.

“The dramatic rate increases we've seen are simply not acceptable,” Moore said. As a result of rate increases in recent years, she said, postage expenses have become Time Inc.'s single-biggest line item.

“This often surprises people,” she said, “but this year, we will spend more than $500 million on postage. We actually spend more on postage than we do on paper or printing.”

Moore said today's rate system fails to provide the postal service with strong incentives to hold down costs and fails to provide mailers with predictable rates.

“Give us predictable rates, and we'll give the postal system more volume, from our current magazines to all the new ones I would really like to launch,” she said. “We have lots of creative ideas on the drawing board — magazines that consumers tell us they want. But if I cannot predict the future cost of mail and the long-term cost of a new launch, the risk of building a new magazine is too great.”

Mark Angelson, R.R. Donnelley's new chairman/president/CEO, focused on work-sharing, network optimization and the Civil Service Retirement System issue.

Work-sharing frees the USPS to focus on its core abilities, he said, while having others such as R.R. Donnelley focus on the non-core.

“Delivering the mail to and from every address six days a week, otherwise known as universal service, is the USPS's core competency,” he said. “It's simply what they do best. All of the rest, I suggest [respectfully], should be left to those who can do it better.”

Yet, Angelson said, “even though there is proof that this works, it is as difficult today to enter into a work-sharing arrangement with the USPS as ever before. It is simply not a widely accepted practice.”

Angelson cited an agreement R.R. Donnelley and others recently made with the USPS involving co-palletization.

“The deal took 18 months to reach, and in the end all we were granted was a three-year trial,” he said. “That same deal, if it were with a private sector partner, would take six to eight weeks.”

As for network optimization, Angelson said it is inconceivable that adjustments in the USPS network are not ongoing.

“The postal service's current distribution network was established over 30 years ago, and yet it has remained virtually unchanged ever since,” he said. “That's astonishing when one thinks about the changes that have occurred in that same period. Facility locations, size and transportation routes should be changing constantly to keep up with demand, eliminate redundancy and overcapacity, and to achieve productivity gains.”

In a question-and-answer period, Sen. Richard Durbin, D-IL, claimed that most of the bulk in an Illinois landfill is paper, and that a few years ago, he proposed providing a postal discount for recycled fiber content. He said he was mystified by the opposition to the notion.

Moore responded that Time has recognized the need to be environmentally conscious but that the use of recycled content currently is economically not viable. Durbin said he aimed to accommodate the need to recycle and use recycled content in the Senate's reform bill.

Chris Bradley, president/CEO of Cuddledown Inc., Portland, ME, a manufacturer and direct marketer of down comforters and pillows, told the committee that Cuddledown mails more than 10 million catalogs yearly, and its annual postage bill is roughly $3 million.

“Large increases in postage rates will result in small-business failures in my industry,” he said.

Bradley also said that Cuddledown buys goods and services from hundreds of suppliers, yet the USPS is the only supplier that does not extend it open credit terms.

“Trade credit is the lubrication that keeps the business world running and growing,” he said.

United Parcel Service, FedEx and Parcel Direct give Cuddledown open terms, Bradley said, as does its printer, color separator, photographers and models.

“I can even think of a guy from China who sells us down-filled booties. We meet with him in Germany, he's never been to Maine, much less visited us at our factory, and yet he is willing to give us trade credit,” he said.

All witnesses urged that a postal reform bill resolve two issues created by last year's Civil Service Retirement System Funding Reform Act:

· The shift in responsibility for military service retirement costs of USPS employees before they became postal employees from the Treasury Department to the postal service.

· Requiring the postal service to put CSRS savings into escrow pending congressional review starting in fiscal year 2006.

Witnesses wanted responsibility for military pension benefits transferred to the Treasury and the escrow provision repealed.

Also testifying were William Ihle Sr., senior vice president, public relations, Bear Creek Corp.; Max Heath, vice president of Landmark Community Papers, on behalf of the National Newspaper Association; and Shelley Dreifuss, director, Office of the Consumer Advocate, Postal Rate Commission.

The next Senate postal reform hearing is set for March 11. The following executives are scheduled to testify: Fred Smith, chairman/CEO, FedEx; Michael Eskew, chairman/CEO, UPS; Gary Mulloy, chairman/CEO, ADVO Inc.; Gary Pruitt, chairman/president/CEO of McClatchy Co. on behalf of the Newspaper Association of America; and H. Robert Wientzen, president/CEO of the Direct Marketing Association.

The House of Representatives and Senate also are to host a joint hearing March 23. Though not confirmed, postmaster general John E. Potter, USPS chairman David Fineman and Treasury Secretary John W. Snow are expected to appear.

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