what you need to know about periodicals rates rita cohen, senior vice president, magazine publishers...
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What You Need to Know About Periodicals Rates
Rita Cohen, Senior Vice President, Magazine Publishers of America
Key Postal Legislation 1971 – Postal Reorganization Act
2006 – Postal Reform (PAEA)
2009 – One year relief on Retiree Health payment
PAEA Pricing Inflation-Based Price Cap
Applied by classCap currently negative (modest
deflation) Exigency Clause
“Extraordinary or exceptional circumstances…necessary to enable the Postal Service…to maintain…postal services of the kind and quality adapted to the needs of the U.S.”
Other PAEA Considerations Flexibility within class
Rate change within a class does not have to be across-the-board
Attributable cost coverage A factor to be “taken into account”
Worksharing discounts generally limited to avoided costs
Rates must be “just and reasonable”
USPS Mail Volume (Billions)
Total mail volume dropped by nearly 13 percent in FY 2009 and will likely drop further in FY 2010.
Periodicals Volume (Billions)
In the first quarter of FY 2010, Periodicals volumes were down another 11 percent from last year.
Net Income/Loss (Billions)
Without legislative relief, FY 2009 loss would have been $7.8 billion. FY 2010 situation is similar.
Cost Coverage - 2009
Periodicals First Class Standard Standard Flats
Cost Revenue Cost Revenue Cost Revenue Cost Revenue
76%
200%
143%
82%
Questions Regarding Periodicals Costs Why have measured attributable costs
gone up more than inflation despite much more worksharing by publishers?
Are mail processing costs really 100% volume variable?
“Automation Refugee” problem?
Major Ideas Being Discussed to Improve USPS Finances Temporary or Permanent Relief on
Retiree Health Benefit Prefunding
5-Day Delivery
“Exigent” price increase?
Retiree Health Prefunding FY 2009 payment reduced from $5.4 to $1.4
billion Same thing this year?
PRC and OIG studies support less aggressive payment schedule
Pension Overfunding OIG estimates USPS
overcharged for pension obligations by $75 billion Sufficient to fully fund
existing retiree health benefit obligations
USPS asked PRC to review report
Fix would require legislation
Five-Day DeliveryDaily Pieces Per Delivery
Shift to 5-day delivery would bring daily pieces per delivery closer to past levels.
Five-Day Delivery USPS push to eliminate Saturday delivery
PRC advisory opinionCongressional approval required
Potential cost savingsUSPS: $3+ billion per yearPRC: $1.9 billion per year
USPS now saying facilities will accept periodicals on weekend
PMG: No 2010 Price Increase
“Promoting the value of mail and encouraging its continued use is essential for jobs, the economy, and the future of both the Postal Service and the mailing industry.”
Next Price Increase Minimal cap authority for 2011 increase: 1-2%
PMG: “Moderate” exigent rate increase in 2011 Is a recession an exigent occurrence?
Public Representative at PRC thinks rates should be raised to “breakeven” 3 % or 10% extra in 2010 and 2011 depending on
health benefit fund relief
Valpak Wants periodicals and other “underwater”
product revenues to cover measured costs
Says it is causing $1.7 Billion of USPS loss
Suggested that the Periodicals rate structure could be changed to raise rates on less efficient publications
Some Responses to Cost Coverage Questions Periodicals Mailers shouldn’t be charged for
USPS excess capacity or unnecessary manual processing
Contribution of subscription-related mail in other classes should be considered as well First-Class Mail Standard Mail
USPS Long-Term Outlook Based on McKinsey & Company analysis,
USPS will lose $238 billion this decade unless something is done
USPS plans to eliminate $123 billion of this through: Revenue generation initiatives Improved productivity Workforce flexibility Purchasing savings
USPS Action Plan to Close Rest of Gap Retiree Health Benefit Prefunding Delivery Frequency Expand Access Workforce Pricing Expand Products and Services Oversight
Changes in regulations Flat Sequencing System Impact
Critical Entry TimeCarrier Route discount
• Reduced value in FSS zones• Lower discount?
New deflection standardsPenalty for “droopiness” starting
October
Possible changes to Ride-alongs
USPS considering loosening content standards to increase magazine advertising. Could improve pricing for:electronic componentssmall product samplesadvertising-only supplements
Secret Questions And Answers
True Or False
1. Under the 2006 postal reform law, the Postal Service is allowed to change individual rates within Periodicals by different percentages. True
2. Mail volume is expected to rebound to 200 billion pieces this year, solving the Postal Service’s financial difficulties. False
3. Because inflation is currently low, the 2011 postal rate increase is guaranteed to be minimal. False