Printers, ACMA Head Defend Five-Day Postal Delivery

While many consumers and businesses were outraged at Postmaster General John E. Potter’s Jan. 28 appeal to Congress to let him reduce postal delivery, a few catalog industry watchers are supporting Potter.

The U.S. Postal Service needs to look at every available opportunity to reduce their costs, says Joe Schick, director of postal affairs for printer Quad/Graphics. “Should they be reducing service at a time when they are also going to be increasing prices, albeit at the rate of inflation?” he says. “In a normal time and place we’d all answer no.”

But given the current economic environment, if the USPS can still meet the needs of its customers by reducing mail delivery to five days a week, “why should anyone care?” Schick asks?

“It would be disingenuous for me/Quad to insist that they continue six-day delivery when we would not want to be dictated to by our clients as to when we run our presses and binding lines,” he says. “That is determined by us and is driven by the needs/requirements of our clients. As long as at the end of the day, we have met our obligations to our clients, it should not matter to anyone how it was accomplished.”

Schick adds: “We’re obviously in a much different place than we were two years ago. But, the last thing anyone should do is make a change that will drive more mail (and print) out of the Postal Service.”

Indeed, the U.S. Postal Service needs a different approach to cover mounting losses, says Hamilton Davison, executive director of the American Catalog Mailers Association. In an environment where virtually everything is coming down in price, or at least not advancing, “raising rates only drives more volume out of mail.”

Structural mail volume decline caused by migration to the Internet is being compounded by temporal declines driven by the economy, Davison says, “and increasing postage cost in this environment only compounds a crisis. Considering the merits of all options at this juncture makes good sense. As hard as it is, it must be done.”

The USPS in 2008 lost 9 billion pieces of volume. Catalog-dominated service categories were down nearly 25% for the year ended Sept. 30, 2008, “well before the recession really took its toll,” Davison contends. Given the economy, the USPS recently acknowledged the fiscal year 2009 forecast of 8 billion pieces is low and sees piece count erosion exceeding 12 billion pieces or more.

The Postal Service took $2 billion in cost out last year, Davison says, and it plans to double this amount in fiscal 2009. “While ACMA applauds aggressive cost side management in the face of sharply declining volumes, it is not enough,” he notes. “Attention must be given to the revenue side of the equation too.”

While both costs and revenue are being addressed, the USPS needs relief from prefunding retiree health care, Davison says, “an overly conservative Congressional obligation that could break the entire system in this economy.”

Potter asked Congress to change the payment schedule for funding its retirees’ health benefits. In 2008, total retiree health benefits costs came to $7.4 billion—nearly 10% of the annual operating budget, he said.

The Postal Accountability and Enhancement Act of 2006 requires accelerated prepayment of future retiree health care costs. The USPS “is the only public or private entity required to prepay health benefit premiums at these extremely high levels,” Potter said in his testimony.

Don Landis, vice president of postal affairs for catalog printer Arandell Corp., says Potter’s request for five-day mail delivery could be just to get Congress to delay the prefunding of retirement and health benefits. “Our customers seem to think [Potter] is not serious” about five-day mail delivery, he notes. “I think he is serious.

The advantage to five-day delivery is reduction in cost, “and with the low volume it could probably be pulled off,” Landis says. The disadvantage—especially if it is Tuesday or Wednesday—would be the limited in home dates available for catalogers causing marketing strategy changes.

Also, Landis adds, “the possibility is printer and mailers would have limited drop shipment appointments available causing potentially not meeting an in-home date at all.”

Although losing a day of mail delivery could create some problems, the ACMA’s Davison contends that catalogers would accept three-day-a-week mail delivery if it made a significant impact on catalog postage costs.