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Postal Service Follies: It’s No Laughing Matter –Michelson

October 2011
The USPS is in dire financial straights; no one can argue with that. Shrinking mail volumes, onerous union contracts, inefficient work rules, outdated business practices, requirements to “prepay” retiree health benefits and Congressional meddling, are all contributing factors. And, there seems to be almost as many plans, as there are problems, to fix what’s obviously broken. As of press time, the USPS has come out with its own wish list of necessary cutbacks, President Obama has proposed solutions as part of his overall U.S. deficit reduction plan, and Congressional lawmakers have floated ideas that range from draconian cost-cutting measures to mere band-aid fixes.

One thing is certain, though. With another $9 billion operating loss expected for fiscal 2011 and a large prepayment soon due for its retiree health care plan, the USPS is on the verge of insolvency. Congress and the White House most likely won’t let that happen, but Congress itself is also a major source of the problem. For instance, a law passed in 2006 mandates that the USPS alone prefund much of its retiree health care obligations. The agency also claims it’s been required to overpay into its pension plans since the 1970s. And, as the postal expert blogger Dead Tree Edition points out, Capitol Hill doesn’t want to eliminate the existing health care prefunding requirement because it serves as “an accounting trick used to understate the size of the federal budget deficit.”

Contending that it must reduce its annual costs by $20 billion by 2015 to be profitable, the Postal Service wants Congressional authority to get rid of Saturday delivery, to undo the retiree prepayment requirement and to eliminate about 120,000 jobs, some in violation of existing union contract pacts. It also intends to consolidate up to 252 mail processing centers, close 3,600 small post offices and modify delivery service standards.

But, even that is likely not enough, in light of permanently shrinking First Class mail volumes due to a shift to electronic banking and e-mail communications, as well as reductions in other classes of mail, including direct marketing pieces, printed magazines and catalogs. The volume of First Class mail fell from 108.7 billion pieces to 87.2 billion pieces from 2007-2010. And Standard mail reportedly nose dived from 103.5 billion pieces to 78.9 billion pieces during that same time frame. Couple those shrinking mail volumes and subsequent revenue stream losses with the fact that, according to the Government Accounting Office, 30 percent of all postal revenues get eaten up by pension, health care and workers’ compensation payments alone. Like our country’s massive federal budget deficit, costly entitlement programs and future retiree social security obligations, the USPS’ business model, as currently structured, is an unsustainable one.

In what could end up being a devastating blow to the printing, publishing and direct marketing industries, the Obama administration is said to be in favor of an exigent (emergency), higher-than-inflation increase in postage rates. Periodical class mail rates reportedly would rise by as much as 9 percent, and increase by 5.8 percent for Standard mail, which includes catalogs and other types of direct mail. How ironic, since even the USPS itself had backed off recently on a similar rate hike request it made earlier, this time noting the razor-thin operating margins that these industries are already facing.  

The Postal Service realizes that such large rate increases, in today’s harsh economic climate, would drive more magazine publishers, catalogers and direct marketers to reduce their mail volumes, potentially even putting some of them—and the printers and mailers that serve them—out of business. It pushes its largest-volume customers to disband print and pursue cheaper, electronic alternatives, which many are doing already.

Founding father Benjamin Franklin, the patron saint of printing and our nation’s first Postmaster General, must be rolling over in his grave watching how our dysfunctional government and broken postal system are helping to ravage an industry that played such pivotable roles in the birth of America and the spread of democracy.
Mark T. Michelson


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