The Postal Service, in its Annual Compliance Report (ACR) continued its usual tag line that it is working with mailers and the Postal Regulatory Commission to address the market dominant classes that are not covering their attributable costs.  In this report, there are two market dominant products that do not cover their attributable costs – Periodicals and Package Services. This is the first time for Package Services, as a whole, to be below attributable costs since the enactment of the PAEA.

In the 2008 ACR, Periodicals was the only market-dominant class that did not cover attributable cost.  In the 2009 ACR, the Postal Service said. ”. . . Periodicals Mail has not been covering its attributable costs, and the cost coverage declined further in FY 2009. This presents a challenge to the Postal Service and mailers, since the Periodicals class does not satisfy section 3622(c)(2) of title 39, and publishers’ margins are typically very low.” Even with an above average price change (3.961 compared to 3.8 CPI) in May 2009, the Periodicals class did not gain any footing with regards to cost or cost containment. According to the Postal Service, “. . .efforts are underway to determine what steps can be taken to improve Periodicals’ contribution.”

In the Postal Service’s Revenue, Piece, Weight (RPW) report, it shows Periodical volumes declining by 7.6 percent or by 652 million pieces, with Outside Periodicals declining by 680 million and In-county growing by 28 million. Periodical weight was adversely affected as well in 2009, with total weight declining by 17.5 percent. This means that not only was volume declining, but the number of pages per Periodical or issue also declined.  So even if a Periodical mailer did not lose volume, that mailer might have decreased its page count to help combat rising postage costs.

Although there has been no communication from the Postal Service on its efforts or undertakings to help reduce Periodical costs, it has been pointing to the Flats Sequencing System (FSS) as the savior of all flat shaped mailpieces.  The USPS goal is to delivery point sequence the same percentage of flats as letters, to help reduce overhead and costs.  The Postal Service has encountered many snags with its deployment of FSS due to steep declines in flat volumes in both Standard Mail and Periodicals.  According to the Postal Service, things still have to get a lot worse before FSS becomes a wasted investment, but until then, the USPS continues to move ahead.

The actual benefits of FSS have yet to be realized or monetized by the Postal Service.  Costs for all flat shaped mailpieces continues to rise making almost all products below their attributable costs.  So what strategy can the USPS pursue to get Periodicals back to breakeven?  Some agrue that PAEA mandates the Postal Service to have all products at breakeven, while others will argue that the CPI cap takes precedent over products covering attributable costs.  If the Postal Service were to make Periodicals and Package Service breakeven, mailers would see an average increase of 32 percent and 3 percent respectively.

Obviously any double digit increase would drive volume out of the system faster than it would increase revenue, but it is an option to the Postal Service.  Yet, the USPS seems to be having trouble cutting the costs necessary to make this product viability under PAEA and some hard decisions will need to be made.  If Periodicals, newspapers, and other publications are all going digital anyway, why shouldn’t the Postal Service breakeven on these products as they walk out the door.  Some would argue this is a sound business decision that most companies would follow or they would stop offering the service altogether. The Postal Regulatory Commission will be issuing its Periodicals Study sometime this year.  Until then, the Periodicals industry will sit tight, holding its breath in anticipation of will or won’t be said, and the implications it will have on this once vibrant postal product.

from ragcontent.squarespace.com