Wednesday, March 3, 2010

Postal Service Preparing Double Whammy for Publishers

The U.S. Postal Service is preparing to hit magazine and newspaper publishers with sizable rate increases starting next year.

In addition to seeking an extra rate hike for all mail next year, the U.S.P.S. will ask Congress for legislation that would allow Periodicals rates to be increased much faster than the rate of inflation.

The long-range action plan postal officials released yesterday calls for changing "the fact that certain mail, such as nonprofit mail, Media Mail, Library Mail and Periodicals, does not presently cover costs." Postal officials want to "ensure that these products get to a point where they cover costs while contributing reasonably to overhead costs. An alternative would be appropriations funding to cover the gap."

Based on the latest data from the Postal Service's Alice-in-Wonderland accounting system, Periodicals rates would need to be increased more than 31% for the agency to break even on the delivery of magazines and newspapers.

The plan calls for a "moderate" exigent (emergency) rate increase next year for most classes of mail. That would be in addition to the usual inflation-based price increases for each of the "market-dominant" classes -- such as Periodicals, Standard, and First Class.

"The Consumer Price Index should apply to the entire group of products, rather than each individual mail class," the Postal Service's fact sheet on pricing flexibility says. Such a change in the law would mean that if the CPI increased only 3% one year, the Periodicals increase could be 10% as long as it were balanced out with, say, a Standard mail increase of only 1%.

"No business can survive selling products below costs," says the fact sheet. The problem is that the Postal Service really has no idea what its costs are for the Periodicals class.

In the past couple of years, Periodicals mailers have greatly increased the sort of activities that reduce the Postal Service's costs, such as co-mailing, dropshipping, and reducing the number of sacks. At the same time, the average weight of copies has decreased.

Despite all of that, the Postal Service's accounting methodology finds that the costs for handling Periodicals have increased dramatically. Postal officials have never explained this nonsensical result. The issue is explored further in the following articles:


muckraker said...

Well, that's news my publication can't afford. If you get any indication when those price jumps may hit, please let us know. Thanks for the info!

Anonymous said...

I have read over the last few yars that periodicals would need to increase 13% to 17% to cover their cost. Never have I read 31%. Where did you get that number?

D. Eadward Tree said...

To Anonymous: The Postal Service's latest (mis)calculation is that Periodicals only cover 76.1% of their cost. Getting that to 100% would require a rate increase of 31% -- and of course cause less Periodicals mail, which would probably drive up the alleged cost per copy even more.