Tuesday, October 6, 2009

For Periodicals, The Postal Service’s Math Doesn’t Add Up

Jim O’Brien and David Straus have been arguing about Periodicals postage rates for years, but they definitely agree on one point: The Postal Service has goofed when it comes to measuring the costs of handling periodicals.

“No one to date has been able to explain the incomprehensible rise in Periodicals costs during a period of substantial increases in mailer worksharing,” O’Brien wrote recently at the “Pushing the Envelope” blog run by the Postal Service’s Office of Inspector General.

“Periodicals mailers have, in unprecedented numbers, migrated to co-mailing, co-binding, co-palletization, drop shipping, sack reductions, and increases in carrier route copies. How could this significantly more efficient mail lead to greater mail processing costs?” asked O'Brien, who is Time Inc.’s Vice President of Distribution & Postal Affairs.

Straus, a lawyer who represents the Association of Business Mailers on postal issues, agrees that USPS’s costing methodologies for Periodicals are “highly suspect” and questions the Postal Service’s claim that it loses money on the Periodicals class (mostly magazines and newspapers). Joining the same Web discussion, he noted that USPS’s calculations of Periodicals costs “continue to escalate even as volume declines, or in some cases fall far more slowly than volume.”

“The fact is that there is still a good deal of costly manual handling of machinable Periodicals, for a variety of reasons, none of which have to do with the makeup of the mail itself,” Straus wrote.

Publishers have complained for years that much of that unnecessary manual handling is the result of “automation refugees” – postal employees who are not laid off even though automation has made them unnecessary. Postal insiders say such employees are often assigned to sort periodicals manually even when they are automatable, thereby inflating the costs attributed to the Periodicals class.

O’Brien has been the chief advocate of cost-based Periodicals rates, pushing somewhat successfully for rates that encourage publishers to mail in ways that reduce the Postal Service’s costs. Straus has been O’Brien’s most frequent nemesis, arguing that Time Inc.’s proposals were biased against small publishers – though he has also encouraged his clients to get involved in such efficiency moves as co-mailing and dropshipping.

O’Brien and Straus agree that the Postal Service attributes costs to Periodicals that should actually be considered institutional or as belonging to other classes. USPS says Periodicals customers pay for only 82% of the class’s costs, even though by law each class must operate at least at breakeven. Time Inc. and ABM are among those trying to ensure that the Postal Service’s goofy cost accounting doesn’t lead to a huge spike in postage rates for publishers.

Time Inc. has enlisted the services of postal consultant Halstein Stralberg, whose recent report “The High Costs of Manual Flats Sorting” takes the Postal Service’s methodology to task. Declining volume and increasing automation have caused a sharp drop in manual sorting of flat mail, yet the costs attributed to the Periodicals class for manual sortation have not decreased, notes Stralberg, who seems to understand the Postal Service’s costs of mail handling better than anyone at USPS HQ.

The Postal Service has had difficulty over the years with accounting for the Periodicals class. Its proposed restructuring of Periodicals rates in 2006 was intended to encourage more co-mailing and dropshipping but would have had exactly the opposite effect. It established incentives for creating 5-digit pallets, which supposedly reduce its handling costs, then inexplicably torpedoed those incentives this year.

Regardless of the accounting methodology, it’s clear that many of the costs attributed to the Periodicals class would exist even without Periodicals. When so many postal workers are underemployed and so many machines underused, there is little savings from reducing volume and little cost for increased volume.

As I’ve stated before, with its current structure, the Postal Service’s main problem is not that it doesn’t charge enough for mail pieces but that it doesn’t have enough mail pieces to charge for.

For more on why USPS is more profitable with Periodicals than without, please see Can the Postal Service Still Afford Periodicals?


Anonymous said...

It's actually quite simple when you think about it...the Postal Service prices in their failed initiatives and top-heavy management structure. This organization has burdened itself with many costs unassociated with moving the mail and they have to amortize them somehow. Just recently the OIG determined that FSS deployment ROI will not meet projections. The Postal Service's response? Roll'em out anyway.

The problem with the Postal-related blogosphere and the mainstream media, is that they ask the wrong questions to the wrong individuals. Instead, they should ask the person doing the work (craft employee) what goes on behind the scenes...but on the condition of anonymity. Reprisals would otherwise follow. And when will someone ask the Postal Service the associated costs of discipline/grievances/arbitration? Hmmm...

Anonymous said...

Isn't it true that Periodicals is a category recognized by Congress to receive special handling and rates? If so, why is it being depressed by high-cost processing practices?

Anonymous said...

Someone has to subsidize the unfair discounts given to bulk mailers and presorted first class mail. The private citizen, smaller mailers and periodicals are paying more so the huge customers can get a 10 cent discount for a penny's worth of work. Check the figures!

Anonymous said...

As a bulk mail clerk I know that Periodical cost much less than any other class of mail.(on a per piece basis,and much lower still on non-profit ) MAYBE the industry wants something for free?

Anonymous said...

It doesn't make sense that the Postal Service is charging so much more for flat size pieces of and classification. In the last few years the automation processing of flats have increased greatly but so has the price. Don't blame the workers blame the idots that made the decision to raise flat rates pricing many out of mailing them.

elenia said...

Periodicals or Second Class mail have the lowest postage rates of all classes of mail. That's because the first Postmaster General was Benjamin Frankline and he was a publisher. He made sure he, along with other publishers, had the best rates.

muckraker said...

Keep it up, USPS, and they'll be no more periodicals left to mail. We are really struggling with the current publishing climate as is. And a third of my pub's annual budget goes to mailing?