Sunday, November 27, 2016

Never Stamps: A $3.5 Billion Postal Subsidy

Nov. 30 update: Linn's Stamp News quoted a postal official as saying that the "breakage" for Forever Stamps is only $2.4 billion, not $3.5 billion. So somehow I must have misinterpreted one of the USPS's obtuse financial reports from previous years. The official's statement means that nearly half of that breakage was recognized in the three years since the previous time the USPS adjusted its calculations -- which suggests that postal officials either underestimated Americans' lack of organization or their passion for stamp collecting!

Way to go, Americans: Your sloppiness, forgetfulness, and hoarding are helping to prop up the struggling U.S. Postal Service.

Based on new data about its customers’ behavior, the USPS recently added $1.1 billion to its estimate of how many Forever Stamps it has sold that will never be used for postage. These “Never Stamps” now total about $3.5 billion, according to a Dead Tree Edition review of previous USPS financial reports.

That’s out of $48 billion in sales from the Forever Stamp’s introduction in April 2007 until the end of Fiscal Year 2016 on September 30, the USPS reported (page 16 of this PDF).

In other words, for every 14 Forever Stamps sold, one will be – or already has been -- eaten by the dog, dropped into a mud puddle, accidentally thrown out, lost in the seat cushions, hopelessly stuck to another stamp, left in that pairs of jeans in the washer, used in an art project, placed into a stamp album, or otherwise diverted from becoming postage.

When you buy a sheet of stamps, the Postal Service treats the money as “deferred revenue”: It gets the cash immediately, but accounting rules say it can’t book the money as actual revenue until the stamps are used to send mail.

The USPS, however, has no way of knowing when those stamps are used or when they become unusable, so it calculates a “breakage factor” that estimates how many stamps have been lost, destroyed, or placed into collections. The USPS didn’t release details of its latest breakage-factor calculation, except that it was based on a revised “estimation technique” using “new information regarding customers’ retention and usage habits of applicable postage.”

But I’d say it means you need to check the nooks and crannies of your desk, scour your purse, and shine a flashlight under the driver’s seat for Never Stamps that could become Forever Stamps. Or maybe you should just take the patriotic route and not bother, knowing that your carelessness is helping to support an iconic American institution.

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Tuesday, November 15, 2016

The Postmaster General's Salary: $286,000

The chief executive of the U.S. Postal Service was paid less than one tenth of what her counterparts at competitors UPS and FedEx received last year.

Postmaster General Megan Brennan's salary during Fiscal Year 2016 was $286,137, the USPS revealed today in a financial statement (Page 72 of this PDF). The total value of her compensation was $904,784, mostly from a nearly $600,000 increase in the value of her pension (perhaps because she reached 30 years of service with the agency).

David P. Abney, UPS's CEO, received $11.3 million in compensation during 2015, including more than $1 million in base pay, $633,000 in bonuses, and a whopping $7.9 million worth of company stock.

Frederick W. Smith, Chairman and CEO of FedEx, earned nearly $1.3 million in base pay, $7.4 million in bonuses, and $7.6 million worth of stock options in a compensation package that totaled $16.8 million in the company's 2016 fiscal year.

Of the five highest-paid executives in each of the two private companies, none earned less than $2.7 million in total compensation. Three of the top five at the Postal Service earned less than $400,000.

The USPS's top five also average 26 years of service with the agency. That's no wonder: The Postal Service couldn't pay a middle manager from UPS, FedEx, or another major corporation enough to take a top position at the agency, so its executives are mostly lifers who came up through the ranks.

Brennan is one of the highest-paid federal employees, but not the highest. The President of the United States gets a $400,000 base salary, free housing, domestic help, a personal chef, use of a really cool jet -- and upon retirement a huge pension and an even huger library.

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Tuesday, November 8, 2016

This Magazine Subscription Has No Co-Pay

Most industries have lots of creative people who focus on how to sell the companies' products and services.

But in my industry, magazine publishing, some of the most creative work goes into figuring out how to give our products away.

Many people enrolled in employer-sponsored health insurance plans run by Aetna received an offer last week that may have looked too good or too unrelated to health insurance to be true: a free one-year subscription to the print edition of Better Homes and Gardens magazine.

For magazine-industry veterans, however, the only mystery is why Meredith, the publisher, limited the offer to the first 1,500 takers. The subscriptions were quickly snapped up; Aetna enrollees who didn't act fast enough  are being offered a free digital edition of a Better Homes and Gardens cookbook.

Most consumer publishers still make more from selling ads than from selling magazines. And their ad-sales strategy typically includes a ratebase -- a guarantee that a minimum number of copies of each issue will be sold or otherwise distributed to consumers.

A magazine that misses ratebase, even for one issue, may have to issue refunds to advertisers and to counter doubts about its viability and "wantedness."

The challenge for publishers is that, though people still like magazines, they are reluctant to shell out money to buy them, saying "I'll just read the articles online." (A magazine subscriber is worth orders of magnitude more in ad revenue than is someone who visits the publisher's web site once a month.)

Long before Al Gore invented the internet, magazine publishers honed the art of meeting ratebase without actually receiving money for the magazines -- by delivering to hair salons and doctors' waiting rooms, letting people use frequent-flyer points to subscribe, and offering huge commissions to independent agents.

Competition from digital media has made print advertising less lucrative, forcing many publishers to reduce their ratebases and to eliminate such lavish schemes as negative-remit subscriptions (where the agent's commission is higher than the subscription price).

But digital media and digital editions of magazines are also opening the door to new methods of giving away our magazines in ways that will pass muster with the circulation auditors. Not to mention new methods of getting people to renew their subscriptions once the freebies expire.

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Sunday, October 16, 2016

New Postal Rates Will Benefit Some Publishers and Printers

Mail that's been sorted by an FSS machhine.
A quiet boycott by some mailers helped persuade the U.S. Postal Service to change how it charges for publications, catalogs, and other flat mail.

As a result, many mailers will pay lower postage bills next year, printers will earn more money from their co-mail programs, and the USPS is likely to benefit as well.

The USPS announced on Wednesday average rate increases of slightly less than 1% for First-Class, Standard, and Periodicals classes, to take effect on January 22. But some customers, including the most efficient mailers of magazines and catalogs, will apparently see their postage bills drop.

The new rate structure will do away with a change first introduced a year and a half ago – separate Standard and Periodicals rates for ZIP codes served by the Flats Sequencing System. FSS rates are higher than rates for non-FSS pieces that are in carrier-route bundles but lower than other non-FSS rates. There was a logic to the separate FSS rates, but they backfired for the USPS.

“Many mailers who previously paid Carrier Route rates for their FSS volume experienced an above average price increase after the new rates were introduced in May of 2015,” the Postal Service said in explaining the new Standard Class rates.

Rate change led to partial boycott
“Since then, FSS volume has declined faster than the volume in other categories of flat-shaped mail” because catalog companies “have significantly curtailed the number of pieces sent to potential new customers (prospecting pieces) in FSS zones. Additional feedback indicates that other flats mailers may be engaging in similar cost mitigation strategies to avoid sending certain pieces in FSS zones.”

Periodicals mailers have little opportunity to engage in similar FSS-avoidance schemes. But publishers, like cataloguers, were talking of legal action a few months ago to prevent the Postal Service from shifting more ZIP codes to FSS, arguing that would in essence be an illegal rate increase.

The new rates would eliminate that controversy. Standard and Periodicals rates will be identical in FSS and non-FSS ZIP codes, so the USPS can move forward with shifting more areas to FSS without pushback from its customers.

The additional volume is exactly what postal officials say the giant FSS machines need to run efficiently. And by restoring some of the incentives to co-mail, the new rate structure should result in flat mail being presented to the USPS in more efficient packages and closer to the point of delivery.

One  failure, one success
Two major investments have been made this century in reducing the costs of handling and delivering flat mail pieces – USPS’s $1.4-billion Flats Sequencing System and the publication-printing industry’s massive expansion of co-mailing.

The FSS so far has failed. But co-mail – consolidating mail from a variety of customers in a way that reduces both the mailers’ and the Postal Service’s costs – has been a huge success.

Such a success, in fact, that it has undercut the ROI of FSS. Thanks to co-mail, more than 70% of flat Standard and Periodicals mail going to non-FSS zones is in carrier-route bundles, up from less than 50% when FSS was first planned. That means much of the Postal Service’s expected savings from FSS have already been achieved via co-mail.

By reducing the incentives to co-mail, the FSS rates actually undercut what the printers achieved. But the January rate structure will restore and actually enhance the incentives to co-mail.

For example, the Periodicals piece rate for copies that are in carrier-route bundles will not change, but the rate for copies in the next-best category will rise by more than 3%. That means the minimum savings from promoting a copy to carrier route will rise from 9.8 cents to 10.7 cents. Printers that use co-mail and other techniques to bring about such shifts typically get a share of their customers’ postal savings.

For publishers that have a high percentage of copies in carrier-route bundles, the savings from eliminating the FSS rates will outweigh the higher rates for less efficient copies – resulting in lower average postal rates.

The picture for Standard flats, such as catalogs, is more complicated. But again it appears that the incentives to improve mail sortation will be greater and that the most efficient mailers will enjoy lower postal bills.

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