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Postal Point-Counterpoint

Does the new postal agreement benefit everyone? Some say no.



By Jill Ambroz
04/30/2008

Folio: asked two magazine executives with vastly different publishing backgrounds a set of questions about the impact of last July’s shape-based postal rate structure. While Time Inc.—the largest magazine publisher in the United States and the U.K. with more than 120 magazines—was perhaps the foremost proponent of the new structure, it could be argued that The Nation was among those hit the hardest, having to absorb a half-million dollar increase in postage costs. The political weekly, with a circulation of 181,070, had to turn to subscriber donations to stay afloat. So, 10 months into the new rate structure, here’s a look at their different approaches and different experiences.

Jim O’Brien
Vice President of Distribution and Postal Affairs | Time Inc.

1. Do you feel the new shape-based postal rate structure implemented last July is a better system than previous rate structures?

The new rate structure is definitely a step in the right direction. Rates need to reflect the key cost components of the Postal Service. When the rates begin to match the costs, mailers will work toward the lowest-cost method of preparing their mail, which is why you’re seeing new growth in co-mailing and co-palletization right now. The new rates aren’t perfect, but they’re necessary if we want to keep Periodicals Class rate increases at or below CPI.

2. Are the new periodical rates fair to everyone, small publishers and larger publishers?

If you surveyed the industry today, you would probably find that many small mailers think that the rates are unfair because they incurred higher increases than large mailers, and large mailers think that the rates are unfair because they pass through only 40 percent of the bundle and container costs and therefore perpetuate the cross-subsidy to small mailers. Our industry needs to get to the point where the rates reflect the costs and mailers pay for the resources that they consume within the Postal Service.

3. What would you change in the postal structure?

I would like to see each rate element cover the Postal Service’s cost to process and deliver that product and make a contribution to the overhead of the Postal Service. In other words, each mailer should pay for what they use. Last year, Periodicals mail covered only 83 percent of its postal costs. We need to get to 100 percent cost coverage or we may be at risk of an exigent increase.

4. Do you think this rate structure change will help the USPS offset its business costs?

For the moment, I’m optimistic that the changes in mailer behavior resulting from the new rate structure and the migration to the Flat Sequencing System (FSS) will help to move Periodicals toward 100 percent cost coverage. Our own experience shows that we’re producing fewer mail sacks than we were one year ago and palletizing more of our mail.

5. The first quarter saw a significant decline in both First Class and Standard Mail, which pay for most fixed costs. If this trend continues, what will the repercussions be for the USPS and potentially, for publishers?

If Periodicals Class mail does not make progress toward 100 percent cost coverage, at some point in the future, the Postal Service will file for an exigent rate increase to bring us to 100 percent. The average Periodicals contribution to institutional costs last year was negative 5¢ per piece. A 5¢ increase would be devastating for both large and small publishers.

As far as the Postal Service is concerned, volume losses put additional pressure on their cost reduction efforts. They have done an excellent job of removing costs but at some point they will hit the wall on cost reductions. When that happens, if volume does not rise, the USPS will be faced with either an exigent rate increase above the CPI cap or a bail-out from Congress.

 

Teresa Stack
President | The Nation

1. Do you feel the new shape-based postal rate structure implemented last July is a better system than previous rate structures?

I think it is a bad system. Instead of the preference that periodicals were entitled to since the founding of the postal service, the new rate plan imposes the most burdensome requirements for magazine retailers. What these new rates do is favor the large volume magazines (that by definition can better fill containers and perform other worksharing) and shift the costs onto the small magazines, including those that specialize in political content. Our rates went up between 18 percent and 20 percent; some other small political magazines saw even larger increases, while the average rate increase was around 12 percent. The largest magazines received rate increases below the average. It’s hard to argue that this is a better system that fulfills the historic mission of the Postal Service. Unless you’re a large magazine, of course.

2. Are the new periodical rates fair to everyone, small publishers and larger publishers?

Clearly they are not. The largest publishers spent a lot of money lobbying for this new rate structure because it benefits their interests, unfortunately at the expense of small magazines. And while they can correctly argue that the new rates more accurately reflect costs to the postal system of individual titles, we have to remember that the entire class of periodicals has been subsidized for hundreds of years, with the goal of supporting a thriving multitude of opinions and content. The new rates simply increase the subsidy to the largest titles at the expense of the smallest.

3. What would you change in the postal structure?

In order for small magazines to survive, they cannot be subject to the radical restructuring imposed by the new rates. If we believe in our postal system, we may have to carve out different treatment for small titles in order to preserve the health of the class.

4. Do you think this rate structure change will help the USPS offset its business costs?

Possibly in the short term. But at what long term cost? How many magazines will go out of business because of this new rate structure? Small titles are not against increasing mailing “efficiency” and sending the appropriate “price signals” to change industry behavior, though this should be implemented gradually so that we can adjust. Why do we need a government-run postal system if we’re going to set rates purely on a market-basis?

5. The first quarter saw a significant decline in both First Class and Standard Mail, which pay for most fixed costs. If this trend continues, what will the repercussions be for the USPS and potentially, for publishers?

Two things could happen: prices could go up even more (and if the large magazines have their way, those increases will be much higher for small magazines than for large ones). And then volume will go down. At that point, the USPS could be in real trouble. It may then take a congressional subsidy to preserve the universal service that our leaders believed was essential to our form of self government.

 

By Jill Ambroz
04/30/2008







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