The offer from the American Postal Workers Union would also require a substantial increase in postage rates that would drive profitable business away from the Postal Service and harm its customers.
Here’s the “challenge” issued by William Burrus, president of APWU, last week to Postmaster General Jack Potter:
"Discontinue the exorbitant postage discounts that are offered to large mailers -- which are currently as high as 10.5 cents per letter -- and allow members of the APWU to perform all mail-processing functions at the rate of 10.4 cents for every letter and flat," Burrus said in a statement.
What the Burrus Challenge Means
The 10.5 cents refers to the difference between a 44-cent First Class stamp and the 33.5 cents paid for a one-ounce First Class letter presorted to the 5-digit level. But more than half of all presorted First Class letters pay a higher rate than the 5-digit level, resulting in an average rate of 35.1 cents, according to USPS. That’s an average postage discount of 8.9 cents off the single-piece rate.
By increasing the price of all presorted First Class letters to 44 cents, the Burrus proposal would be raising those rates by an average of more than 25%. Businesses would respond by shifting even more communication from mail to email, offering larger incentives for online billing, and finding other means of reducing their First Class mailings.
The price increases would decrease the volume of such mail by more than 6%, according to Postal Service studies that have been criticized as understating the price elasticity of First Class demand. USPS would save only 11.6 cents per letter on the lost volume, according to data USPS recently submitted for the “Fall Sale”.
A Billion-Dollar Mistake
So here’s what the math means: Presorted First Class letters currently contribute an average of 23.5 cents (35.1 minus 11.6) toward the Postal Service’s fixed costs. With Burrus’ proposal, the contribution margin would shrink to 22.0 cents (44 minus (11.6 +10.4)). Throw in the lost volume, and his challenge would decrease the contribution from presorted First Class by more than 12%, or well over $1 billion annually.
Such a financial loss would put pressure on the Postal Service to downsize even further, threatening the livelihoods of some APWU members.
Burrus’ simplistic challenge glossed over some other inconvenient facts:
• Price Cap: Annual increases in First Class rates by law are capped at the rate of inflation, resulting in no increases next year and only 5% in a high-inflation year. With presorted letters constituting more than half of all First Class mail and single-piece (44-cent) letters more than a third, there’s no way to implement Burrus’ plan without violating the cap even in a high-inflation year.
• Other Costs: Burrus says that APWU members would sort the letters for 10.4 cents each, but there would be other costs as well -- supervisors, maintenance of machinery, heating and lighting of buildings, etc.
• Work-Sharing Discounts: Study after study has shown that work-sharing discounts in general and the discounts for presorted First Class in particular are a good deal for the Postal Service.
• Mailers’ Cost Advantage: It is inherently easier and cheaper to sort bits of data than physical letters. That’s what presort is about – sequencing the addresses in an optimal manner for the Postal Service before the letters are even produced. No matter how hard they work, APWU members cannot achieve the same results as mailers at anywhere near the same cost.
Washington insiders tell me Burrus is a savvy player who knows what to say to get politicians’ attention. So why would he put forth a proposal that would hurt his own members and that probably would be impossible to implement anyway?
With his announced retirement next year, perhaps he’s more interested in getting sound bites than in proposing long-term solutions. And perhaps he realizes that no one on Capitol Hill will take his challenge seriously anyway.
Potter certainly didn’t. Less than 24 hours after Burrus issued the challenge, Potter announced that there will be no increases in postage for First Class and most other mail during 2010.
Maybe the timing was only a coincidence. Or maybe it was Potter’s way of saying to Burrus, “Don’t let the screen door hit you on your way out.”
- When business is down, kick the customers: Burrus doesn't want the Postal Service to meet with its largest customers.
- Why Potter Is Freezing Postal Rates, And What It Means For 2010