Few industries engage in the kind of symbiotic relation-ship shared by the graphic arts industry and the U.S. Postal Service (USPS). Consider that, at some point, the majority of printed products are mailed. At the same time, the postal system relies on the printing industry to supply much of its mail volume. The fate of each player depends in large part on the well-being of the other.
In this context, the signing of the Postal Accountability and Enhancement Act (PAEA) in December 2006 was beneficial for the graphic arts industry. It was a move that spelled reform for the postal system that industry experts agree was long over-due. Even so, the new postal legislation has caused no small amount of anxiety for those in the graphic arts industry.
Combined with the rate increases anticipated for this year, how will the various elements of the new postal reform affect the demand for print? To find out, PRIMIR commissioned INTERQUEST, an industry consulting firm in Charlottesville, Virginia, to provide an executive overview of the postal reform legislation and recent rate case, and examine the potential impacts on the graphic arts industry. The resulting study, “Effect of Postal Reform on the Demand for Print,” provided a complete review of the legislation ele-ments plus impacts on key print products that are dependent upon the mailstream.
Work-shared financial/ transactional mail accounted for about 53% of First Class letters and cards in 2005. It is no secret that the greatest effect on First Class financial/transactional printing volume comes from electronic diversion, such as automatic debit, online banking and electronic bills. According to the United States Postal Service (USPS), in the three years leading up to 2005, approximately four billion pieces of mail were eliminated from the First Class mailstream, and another four billion pieces will be removed between 2005 and 2008. In total, the USPS estimates that electronic diver-sion has reduced First Class Mail volume by 30% since 1988. While First Class financial/ transactional workshared mail will continue to erode with a forecasted decrease of 8.6% over the next three years, there will be no apparent decline solely due to the recently enacted postal reforms. (Note: PRIMIR has launched a study to investi-gate the future of Financial/ Transactional printing; the results will be revealed during the PRIMIR Spring Meeting held during the NPES 2008 INDUSTRY SUMMIT.)
Modifying a structure proposed by Time Warner Inc., rather than wholly accepting USPS suggestions, the Postal Rate Commission (PRC) recommended that periodical rates be applied to pieces and pounds — the existing method — as well as to bundles, stacks and pallets. However, because piece rates vary on machineability, and container rates depend on the point of entry into the mail system, the result is a complex rate structure with at least 55 elements.
In general, demand for periodicals is influenced by income and the rate of employ-ment, the price consumers pay for periodicals, and the availability of substitutes on the Internet. General magazine readership has been on the decline for a number of years. (For a more in-depth discussion of periodicals and magazine printing volume, see PRIMIR’s February 2007 report, “Magazine Printing & Publishing, 2006–2011.”) Thus, mail-bound periodicals have declined steadily at a rate of 2.6% from about 2000 to 2005. According to the USPS, the proposed rates alone could reduce periodi-cals mail by about 3.5% in 2007.
Periodical printers and publishers have yet to fully assess what these rate increases and rate design changes will mean to their businesses. What is expected is that mailers will have to increase their use of co-mailing, co-palletizing and drop shipping. It’ll be tougher going for smaller and medium-size publications, which may ultimately have to turn to consolidators — or even competitors — for help.
Direct Mail and Catalogs
Direct mail and catalogs fall into the postal category of Standard Mail, which actually encompasses a wide range of printed products. Direct mail advertising accounts for about 90% of the Standard Mail volume.
Standard Mail grew at a healthy 10% rate between 1980 and 1988. Though growth has slowed considerably since then, Standard Mail volume nevertheless increased from 14.8 billion to almost 54 billion pieces between 1980 and 2005. In 2005, Standard Mail became the postal class with the largest volume, surpassing even First Class Mail.
Standard Mail volume is dependent upon how an advertiser chooses to spend his marketing dollar. The cost of paper, printing and postage, therefore, play heavily into whether advertisers choose direct mail vs. other forms of advertising. Postage alone can easily comprise 30% of a direct-mail advertising campaign.
Though the basic rate structure of Standard letters remained unchanged, the most recent rate case did make several key adjustments to Standard Mail including:
• detached address labels now carry a 15-cent surcharge; and,
• drop shipment discounts were increased slightly.
Ultimately, the postal reform pro-visions will hit catalogs the hardest of all printed products, primarily due to the rates now being based on mail shape rather than weight. Some lighter weight catalogs will incur a higher increase than heavier catalogs due to these changes. Plus, catalogs that do not conform to the dimen-sions of USPS flats processing equip-ment will have to be modified.
Despite being the hardest hit, INTERQUEST concludes that even catalog mailers will be able to adjust to the rate increases. Carrier route pre-sorting and destination entry will help lessen the impact of the new rates. In addition, other strate-gies, such as decreasing page count, eliminating mailings and raising shipping charges for catalog items may help offset the rate hikes. Some mailers may change the size and shape of their catalogs to enable co-mailing with others.
Many printers and mailers will agree that the worst aspect of past rate increases was their unpredictability and the lengthy process. The new legislation pro-vides relief in that aspect while at the same time provides some stability for the USPS. Mailers will obviously make format changes to afford them the best available rates for getting their product into the mailstream to postal patrons, and printers will be there to help their customers adapt. NPES member suppliers are well advised to stay abreast of postal changes and to take the lead in providing systems, products and services to ease the burden for printers and mailers as they make the transition.