Increased Efficiency Led to Higher Periodicals and Catalog Costs, Goldway Says

Is the head of the Postal Regulatory Commission really falling for the Postal Service’s nonsensical accounting methods for periodicals and catalogs?

In her speech last week to a Federal Trade Commission workshop on journalism in the Internet age, Ruth Goldway tried to explain why Standard flats (mostly catalogs) and Periodicals mail (magazines and newspapers) had become increasingly unprofitable for the Postal Service in the past decade despite rate hikes and increased mailer work sharing.

“Part of the reason is that the Postal Service actually created a system of great savings and efficiency for letter mail, and so letter mail became automated,” she said, referring to delivery-point sequencing of letters. “But magazines -- Periodicals -- were not automated, so a greater share of the labor costs for the Postal Service … was then attributable to magazines and newspapers because they still had to be handled manually.”

That’s like an auto company saying it has to raise the price of its trucks because it figured how to reduce the cost of making cars. Automating the sortation of letters had no impact on the true cost of sorting flat mail.

In defense of Ms. Goldway, she did refer several times to “attributable costs,” suggesting that she realized the issue was that the USPS’s broken cost-accounting system was assigning greater costs to flats, not that the actual cost of handling flats had increased so rapidly. But she also mentioned that publishers get a $641 million annual subsidy because “it appears that cost coverage for Periodicals is now at 76%.”

Ms. Goldway works in a world where "cost" refers to a number determined by the Postal Service when it follows a consistent (and flawed) methodology that is in accordance with the law. She seems smart enough to see past that, but let's hope that hours of perusing mind-numbing Postal Service reports doesn't make her forget that, in the real world, the cost of providing a service is calculated by determining how much money would be saved if that service were not provided.

Without stating it directly, Ms. Goldway’s informal speech confirmed what magazine publishers and other mailers have been saying for years: The automation of letter mail turned many postal employees into “automation refugees” who were then assigned to unnecessary manual handling of flat mail. The Postal Service’s accounting system mis-assigns these costs to Periodicals and Standard flats rather than treating them as overhead.

It’s clear that automation and declining mail volumes have left the Postal Service with too many employees. The USPS’s new transformation plan mostly dodges the issue, saying the service will gradually downsize through attrition. It seems penny wise and pound foolish not to do what private industry would do to shrink its workforce in the face of declining revenue: Offer a decent early-retirement package ($15,000 is chicken feed in this context) to selected employees so that the Postal Service can rightsize now.

Ms. Goldway’s speech had some other interesting comments about periodicals:

• "After the year 2000, there's only one year in which Periodicals appeared to have covered their costs, and that was in 2003."

• "In 2007, there was a big rate increase for Periodicals. And while periodicals were shocked by it and troubled by it, it was, from the Rate Commission's point of view, the only fair thing to do, because, after all, we had single-piece users of the mail, people who are paying bills and using correspondence, who are subsidizing other uses of the mail unwittingly. And under the law, that's our obligation, to try and spread the responsibility for the costs more fairly."

• "The lowest work-sharing groups, those with the smallest circulation, and with the highest editorial content, actually, cost the Postal Service on average about 19 cents apiece. And those periodicals are often the ones that journalists are most concerned about, those are often the periodicals of opinion, and they're the ones who are distributed nationwide, as opposed to a particular region."

• She hopes that the Flats Sequencing System “will actually be able to have some really documented cost savings, so that there will be less of a . . . cost requirement for Periodicals to meet in the future." (Question: If FSS creates more automation refugees, to what class will the costs of those employees be allocated?)

• There’s a “symbiotic relationship” between publishers and the Postal Service, going all the way back to the first Postmaster General, Ben Franklin. "I think if the Congress understands this unique relationship, arguments can be made for finding financial support in one way or another, that may address both of our concerns. I think together we have a case for what is an essential part of American infrastructure, and something that the Congress really does want to maintain. If only for its own personal desire to get reelected every year, they want to make sure that there's a vibrant political dialogue in the country." 

For more information: The Postal Service's mis-allocation of costs to the Periodicals class and the issue of automation refugees is explored further in Postal Service Inefficiency Drives Up Periodicals Costs and Postal Accounting Snafus Might Be Bad News for Publishers.