“The tendency of Periodicals costs to increase much faster than inflation . . . has continued with few interruptions since FY1986,” postal expert Halstein Stralberg wrote recently. As a result, the Postal Service has repeatedly hit the Periodicals class with rate increases that exceed both inflation and those for most other classes, as it is trying to do again in the exigent rate case being considered by the Postal Regulatory Commission.
Stralberg blames “the ingrained Postal Service culture” for the Periodicals mess. “The machines they use have become more powerful and sophisticated over time; but the way that operational decisions are made, and the lack of awareness of cost attribution issues among those who make the decisions, has changed very little,” Stralberg’s wrote in his testimony on behalf of Time Inc. for the exigent rate case.
Using the Postal Service’s own data, Stralberg’s showed that USPS’s cost of delivering a periodical increased by 200% from 1986 to 2009 even though inflation was a bit less than 100%. (See Stralberg's chart above.) The Postal Service’s wage rate – calculated as total USPS wages and benefits divided by total hours worked – increased 140%.
For most of the period studied, in fact, changes in the USPS wage rate closely tracked the Consumer Price Index. After all, the Postal Service’s labor contracts generally peg cost-of-living increases to CPI (which is a good reason to limit price increases to changes in CPI as well). Only in the past decade, presumably because of benefits costs (including, perhaps, pension and retiree-benefits overpayments) did the wage rate start to diverge from CPI.
Although some mailers have blamed employee compensation levels for rapid cost increases, Stralberg’s analysis shows that the larger problem is productivity: The Postal Service requires more work hours today to deliver a certain number of periodicals than it did in 1986.
The Postal Service, Stralberg wrote, has never really addressed these “unexplained and anomalous Periodicals cost increases” that occurred during a period in which it “deployed several generations of new technology that were supposed to automate and sharply reduce the costs of flats mail and Periodicals in particular.”
The USPS can’t blame publishers, who during that time have implemented a variety of measures that were supposed to reduce Postal Service costs, such as dropshipping, shifting mail from sacks to pallets, and putting a larger proportion of copies into efficient carrier-route bundles.
Here are excerpts from Stralberg’s explanation of the Postal Service’s skyrocketing Periodicals costs:
For more than a decade, various studies have shown that “as processing of other mail classes was automated, Periodicals continued to be processed in a more manual fashion. Employees freed up by the automation of other mailstreams were kept busy handling Periodicals, whose costs therefore skyrocketed. Additionally, portions of indirect costs that previously had been borne by other mail classes were shifted to Periodicals by the Postal Service’s cost attribution system.”
“In recent years, the Postal Service has acquired enough automated flats sorting capacity, particularly with the recent loss of volume, to sort practically all flats to carrier route on high speed automated equipment. However, many facilities, unable or unwilling to change their traditional ways, or perhaps simply to keep employees occupied, have continued to process Periodicals manually.”
“There evidently are postal clerks … whose costs must be attributed to something, and as long as postal managers continue to send them Periodicals flats to be sorted, their costs will be attributed to Periodicals flats.”
For further reading:
- Postal Service Inefficiency Drives Up Periodicals Costs: Stralberg published a report earlier this year showing that USPS has “a great surplus” of flats-sorting machines but still insists on using more expensive manual sortation.
- Do Postal Execs Want To Lose Money on Periodicals? Tough Question #4 For USPS: Another reason the Postal Service's Periodicals costs may be so high: Postal executives may be playing a political game by ensuring the Periodicals class always looks unprofitable.
- A Decade of Postal Mismanagement Is Costing Publishers and Catalogs