Tuesday, April 1, 2014

Postal Service Dragging Its Feet on Fixing Periodicals

Postal officials, who frequently complain about losing money on Periodicals mail, bear much of the blame for that loss, according to the Postal Regulatory Commission.

“The Commission is increasingly concerned that the Postal Service’s Periodicals pricing strategy is leading to inefficient mailer preparation,” the commission wrote recently in its review of 2013 postal rates, echoing a complaint that magazines have been making for the past decade.

“The inefficient pricing signals being sent by the Postal Service’s prices prevent the Postal Service from maximizing contribution from Periodicals. Further, the inefficient price signals are increasingly creating winners and losers within the Periodicals class.”

The Postal Service’s flawed accounting shows that it receives only 76 cents in Periodicals-class revenue for every dollar it spends delivering magazines and newspapers. That was an improvement of 4 cents over the previous year – the first improvement since 2008 – but it hasn’t eliminated the political and legal pressure to jack up Periodicals rates.

A year ago, in considering whether Periodicals rates are legal, the PRC directed USPS to “leverage its pricing flexibility to improve Periodicals bundle and container pricing to incent more efficient mailer preparation and increase contribution from Periodicals.”

The efficient subsidize the inefficient

Instead, the commission chided, USPS has followed its same old approach to Periodicals pricing – just raising rates by the same percentage across the board. As a result, efficient Periodicals mailers are subsidizing inefficient ones, and USPS is losing out on a change to get publications to mail in ways that reduce its costs.

For example, the PRC wrote, the Postal Service’s own study shows that copies in carrier-route bundles are among the most profitable type of Periodicals mail, yet USPS steadfastly refuses to improve the incentives for carrier-route bundles. [In fact, it’s actually watered down the incentive over the years.]

The PRC noted that the Postal Service has undertaken various initiatives to reduce the cost of Periodicals and other flat mail, but “the Commission is concerned that the Postal Service is not measuring the success of the operational initiatives it has implemented to reduce the costs of Flats.”

It cited a statement from two trade associations urging the PRC “to ‘confront directly the elephant in the living room of Periodicals mail pricing: the Postal Service’s failure to rein in the out-of-control costs of Periodicals Mail despite large investments in automation equipment by the Postal Service, and large increases in worksharing by periodical publishers and their mail service providers.’”

No explanation

Postal officials never have offered a plausible explanation for the USPS's allegedly escalating costs for handling Periodicals.

If the saying that “what gets measured gets done” is true, the Postal Service is shooting itself in the foot by not tracking which of its cost-cutting efforts are working. How can it decide which ones need to be tweaked or scrapped and which ones are worthy of expanding and emulating?

Are postal officials more interested in avoiding the embarrassment that comes with owning up to failures than they are in improving their operations?
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Robert Mitchell said...

The Commission suggests that rate differences for Periodicals be set equal to the associated cost differences. Doing this under a cap would have no effect on finances initially. If mailers respond to the incentives, the revenue reductions would be equal to the cost reductions, which would reduce the cost coverage (given that it is now reported to be below 100%), not increase it, if the costs are right. And the contribution would not be changed. If the costs are wrong (due for example to their dependency on a reconciliation factor that has a distant relation to the operations involved), the reduction in cost coverage could be large.

The model for worksharing is often taken to be that of a firm contracting out. If it costs a firm 12 cents to do a piece of work and a contractor will do it for 7 cents, the firm will find it profitable to contract out the work. But why would a firm pay a contractor 12 cents to do work it would happily do for 7 cents? Someone needs to think through these things.

Anonymous said...

I work on the FSS machines and in our plant, it doesn't matter how the mail is prepped by the mailers. Everything is cut open and run through the machines. When we run carrier walk sequence flats, it mostly goes to mechanical rejects and has to be run on the AFSM100 or resamped the following day. When we complain about it being a waste of time, the answer is always about numbers.

@dryMAILman said...

It's very hard to see just how wonderful USPS periodical cost-cutting strategy is without comparing it to various second-rate strategies. That's why all next week I'm welcoming Dianne Feinstein's husband and other USPS officials to *USPS FLATS Strategy Appreciation Week*-- I'll be offering up my own second-rate flats strategy for discussion and comparison purposes all next week on Twitter.