A postal rate hike in 2001 is a rip-off!

Jan 01, 2000 10:30 PM  By

All the hubbub in the mailing industry is currently centered on the “spiritual ritual” known as postal rate making.

The tribal leaders and medicine men at the U.S. Postal Service are putting their cases together because they “know” they need to, because the alignment of planets has come into place – in other words, because three years have gone by since the last rate case, and they have the wonderful excuse of the recent labor arbitration to boot.

Be assured that these medicine men will use smoke, rattles, beads, mushrooms, and the dark, if necessary, to advance their case for increased postal rates in 2001. Unfortunately, we villagers – the postal customers – sometimes are forced to offer up sacrifices during these chaotic, and unnecessary, rate rituals.

Fellow villagers, these heathen rituals must come to an end! Everyone needs to focus on the hard facts.

Over the past five years, the Postal Service, a $50 billion enterprise, has invested more than $12 billion in capital expenditures. For the next five years, it intends to invest more than $17 billion. The chart below indicates some of the planned expenditures, according to USPS annual reports:

While some of us may question certain specifics, none of us would argue with the concept of improving human productivity in a work environment in which 85% of all costs are labor-related.

But in addition to these capital expenditures, we have to endure the “topping up” of the Postal Service’s “negative equity” of more than $10 billion. In other words, we have to fund the money the USPS owes from prior years’ losses and pensions. I still don’t understand how on earth the Postal Service can fall into so much negative equity. The USPS shamans tell us this topping up should be over soon, but we villagers may need to offer up further sacrifices because the planets are approaching alignment….

This is utter nonsense! The reality is, all capital expense improvements at the Postal Service are volumetrically hungry – that is, they work better and better with increasing volume. In fact, they need high volume to achieve economies of scale.

So why would or should the U.S. Postal Service raise rates, which in turn will limit mail volume, just as all this terrific new capital equipment is coming on stream? It is clearly premature to raise postal rates when the new volume-hungry capital equipment is only now beginning to come up to operating speed.

Is the USPS saying that the $12 billion-plus in capital expenditures over the past five years was ill-spent? Or could it be that the shamans don’t want to risk the embarrassment of coming up short in a budgetary sense? Better to put up with the smugness associated with unforecasted surpluses in the hundreds of millions – net income of $300 million-plus for fiscal ’99, $600 million in ’98, $1.3 billion in ’97….

A gross monopoly

The fact is, we as mailers and the American people have been ripped off, and rates have been implemented that simply exceed the need. I have no doubt that postal officials want these multibillion-dollar surpluses to continue. As a matter of fact, I think they want us to get used to seeing them year after year. It’s the Washington Beltway mindset.

Well, I’ll never get used to seeing huge postal surpluses, as they are nothing more than a reflection of pricing excess in a monopolistic market.

Our company is a $150 million catalog business. Although we continually raise the wages of our workers, we haven’t been able to raise prices for five years. If we did, customers wouldn’t buy our products. We’ve made up for this inability to raise prices through improved productivity. What makes the U.S. Postal Service any different?

I’ve never really believed any numbers the USPS puts forward, because the way I figure it, any organization that is off more than $1 billion on an annual profit forecast probably doesn’t get it, nor is there much hope that it ever will.

The real question the Board of Governors need to ask themselves is, Will the Postal Service be better or worse off with a rate hike in 2001?

The fact is, they don’t know, because most of their ritualistic algorithms no longer apply in today’s boom economy. The Postal Service needs to wake up and realize that it doesn’t need a price advance; it needs a price decrease that will leverage all the capital improvements it has made in the past five years.

And if this villager is wrong (a remote possibility) and the tribal leaders decrease or hold postal rates for two more years only to see that economics don’t improve, they can take corrective action later, and this villager will shut up. But in the meantime, postal shamans, get real, and lose the smoke and beads.