Politically Direct: Economic Pinch Impacts US Postal Service

April 1, 2009 — It should come as no surprise to anyone that the tough economic climate is affecting all sectors of the economy. At the United States Postal Service (USPS), the downturn in the economy has drawn increased attention, and calls for a restructured business plan aimed at helping the agency regain its financial footing.

The Postal Service survived last year with huge declines in mail volume and predictions of another loss of 8 billion mail pieces this year.

As 2009 has progressed, and the economy has continued its decline, that figure has already risen to a predicted loss of over 14 billion pieces of mail. And the forecast continues to climb as business customers, particularly marketers that provide the Postal Service with much of its volume, are forced to cut back on aspects of their operations to mitigate losses.

If the troubles at the Postal Service somehow escaped the public eye as the year began, they certainly came to the forefront during a recent hearing before the Senate Committee on Homeland Security and Government Affairs Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security.

At the hearing on January 28, 2009, on the impact of the financial crisis on the Postal Service, Postmaster General John Potter painted a bleak picture of the Postal Service’s current economic situation.

Facing the increasing decline of mail volume, Potter made the case that unprecedented measures may be necessary for the Postal Service to remain viable. These measures, he said, could include restructuring how payments are made to the retiree health benefit fund, and eliminating a day of delivery from the current six-day delivery system.

MAIL DELIVERY FREQUENCY DEBATED

DMA is pleased that the USPS is reviewing all aspects of its operations, including days of delivery. However, before any action is taken to reduce delivery days, DMA maintains that there must be a plan presented on how such service cuts would benefit mailers.

Elimination of Saturday delivery has been proposed by a number of individuals and groups associated with the mail. DMA asserts that this would be the worst possible day to cut, as the elimination of Saturday delivery would mean that mail would not be delivered for two consecutive days.

This in turn would create the need to increase manpower and systems in order to handle the peak of volume that would follow the weekend. With seven federal holidays falling on a Monday this year, there would be seven instances of three-day periods with no mail delivery, creating an intense surge in mail volume each time.

It is important to note that people who rely on mail for vital deliveries, (especially postal customers in rural markets and those who depend on receiving prescription medications through the mail), would face a particular hardship.

The idea of eliminating a day of service has already been the subject of Congressional action. The House passed its version of HR 1105, an omnibus appropriations bill. In its appropriation language, the bill includes a provision mandating the continuation of six-day and rural delivery, stating, “provided further, that six-day delivery and rural delivery of mail shall continue at not less than the 1983 level.”

FINANCIAL RELIEF

DMA also pushed for financial relief for the Postal Service. DMA sought a new payment schedule for retiree benefits by requiring the Postal Service to continue to make scheduled payments for future retirees to the retiree health benefit fund, but allowing the Postal Service to pay health premiums for current retirees from that fund beginning in 2009 rather than 2017. Because the payments are required by the 2006 Postal Accountability and Enhancement Act (PAEA), allowing this rescheduling would require an act of Congress.

Noting the fundamental role of the Postal Service in the nation’s communications and commerce infrastructure, DMA has urged Congress to act swiftly in this matter to avoid serious and adverse challenges to the structure and services of the Postal Service as it confronts its severe economic challenges.

HR 22, a bill that allows these payments, has been introduced by Rep. John McHugh (R-NY), and supported by DMA and others in the mailing community. Efforts to include a provision to this effect in the American Recovery and Reinvestment Act, (commonly known as the economic stimulus, which was recently signed into law) were not built into the package.

Another provision of PAEA mandates the adjustment of Postal Service Mailing Services prices each May. The USPS has compounded the problem of potential decreases in the value of services with the announcement of increased prices, effective May 11.

Under conditions of the law, the increased prices are tied to the Consumer Price Index (CPI) average. Although the conditions do not come as a surprise to the mailing community, they come at a time when businesses and nonprofits are affected by the economic crisis, and are least able financially to absorb such an increase. Additionally, while the average increase for each class of mail is below the 3.8 percent CPI, many mailers received increases above that figure.

Although the link between mail volume and prices had been seen as an elastic relationship, one in which potential losses in volume would be offset by the increased price, this elasticity is now coming under increased stress under the present economic conditions.

As this elasticity stretches near to its breaking point, DMA has asked the Postal Service’s Board of Governors to examine options to delay the implementation of increased prices in order to avoid even further declines in volume. A common fear among the mailing community is that volume driven away from the Postal Service will not return, even as the economy recovers.

DMA and the entire marketing community depend on a financially viable Postal Service. To that end, DMA encourages the Postal Service to examine all available options. At the same time, however, it is essential that the Postal Service not make changes for short-term gains that will ultimately lead to loss in the future.

DMA will continue to support the Postal Service’s reworking of its business plan for the purpose of increasing both revenue and volume of the mail. The success of such a plan would ensure a mutually-beneficial future for the USPS and the overall marketing community.

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