What Postal Rate Stability Should Deliver

The law modifying the Civil Service Retirement System funding requirements provides the mailing industry, and the thousands of businesses that use the mail as a critical method of customer communication, reason for celebration. It corrects a situation that for years has masked the fact that the U.S. Postal Service’s core operations are consistently profitable.

It is vital that we use this respite from rate cases and take advantage of this unique period of rate stability to create an environment in which the USPS, our clients and our companies will flourish. This is a tremendous opportunity for our industry, which employs nearly 9 million workers and generates $871 billion in commerce annually, to grow in the coming years.

However, for the industry to achieve its potential, we must better align the USPS’ business model to the needs of the modern marketplace, a task that has not been successfully undertaken in a comprehensive way since 1970.

It is time to recognize more fully that business mail is a force that can ensure the postal service’s long-term viability, helping to sustain the institution and its valued services for all Americans. For that goal to be realized, our industry needs a USPS that focuses passionately on meeting the needs of the business marketplace.

Postal officials must be given (and encouraged to employ) the commercial tools and marketing incentives to structure and manage their resources to best meet the price and service needs of business customers. If we do so, this period of rate stability could stretch well beyond 2006, possibly until 2010. We can forestall rate increases while improving service quality and reliability.

Specifically, the USPS should adopt a competitive pricing strategy that provides real incentives to build its volume and customer base. Wholesalers typically have contractual relations that encourage business growth, produce stronger results and increase stability. Mutually beneficial, contract-based rates would build volume and grow our industry in a way that the contentious, divisive and litigious rate case process does not.

Without a competitive pricing strategy, the postal service’s future is limited at best. Advo and other mailers have found alternative home-delivery options at costs ranging from 33 percent to 50 percent below those of the USPS.

Second, the USPS must offer modern payment terms. Credit builds volume. It should let dependable mailers pay postage 14 to 30 days after mailing, subject to revenue-protection safeguards.

Currently, the postal service does not even allow for a few extra hours for payment. To stay competitive, many of us are forced to use our working capital on behalf of clients so they can mail under “normal” business arrangements. Providing credit terms to our (and the postal service’s) customers obviously comes at an additional cost. To further complicate matters, the process of paying the USPS involves a number of commercially unfriendly burdens, particularly for those who originate mail in many locations nationwide.

Though Advo has found ways to work around these challenges, they inhibit our and the postal service’s growth. Many businesses that could increase their use of the U.S. mail choose not to deal with the postal service because it is simply too difficult to do so.

As direct mail advertising spending appears to continue upward, it is clear that postal volumes would rise if the USPS addressed these two areas. However, our clients’ – and our own – business needs have instead led Advo to find alternatives to the USPS. We have moved more than 7 percent (240 million mail pieces) into private delivery. That alone costs the USPS more than $500,000 in lost revenue weekly. That’s more than $26 million a year.

Beyond these fundamental needs, the USPS must tackle other financial burdens. Under its current business model, it has overcharged mailers for years. But that’s not solely because of the CSRS pension problem. The USPS is undercapitalized, has excess labor and capacity that isn’t easy to restructure, is labor-inefficient and has many government-related constraints that cause its costs to be excessive compared with private industry.

The USPS also lacks the marketing tools to properly address market needs. Its workers’ compensation costs must be brought under control, perhaps by switching from the current Civil Service program to one of those used by states and commercial firms – programs that work hard to close cases rather than leaving them unresolved and open-ended.

In addition, the USPS’ current unfunded retiree health benefits liability should be transferred to the U.S. Treasury. This would be a one-time transfer that would strengthen the business by allowing this expense line to be customer-funded going forward.

We all work hard to grow our businesses. We also would like to increase postal volumes, but it must make economic sense to do so. Given rate stability until 2006, it is time to address these issues and modernize the USPS’ business model.

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