Monday, December 29, 2014

The U.S. Parcel -- uh, Postal -- Service Presents Its Wish List to Congress

The U.S. Postal Service presented a long wish list to Congress today, along with a subliminal message.

“Despite challenging marketplace conditions, an inflexible business model imposed by federal law and financial issues caused by legislative constraints, the Postal Service is moving forward with a lot of momentum,” Mickey D. Barnett and Postmaster General Pat Donahoe wrote in a joint letter appearing in the agency’s annual report to Congress.

Even in the report's only photo showing letters,
(Can you spot them?) packages take center stage.

Translation: “Hey, Congress, the Postal Service is scrambling to keep its head above water because you’ve created a helluva mess. Now could you get off your butts and do something more useful than naming post offices?”

Donahoe and Barnett can afford to be forthright. Donahoe is retiring Feb. 1, and Barnett’s term as chair of USPS’s Board of Governors expired earlier this month.

As for the subliminal message: The 84-page report has 14 photos featuring parcels, one that (barely) shows letters, and none depicting flat mail. Guess what postal officials think is the key to the agency’s future? After all, USPS’s parcel business grew 9% during Fiscal Year 2014, while revenue from other sources declined slightly.

Here's how the report spelled out “What’s Needed” from Congress:

The Postal Service is urging Congress to pass comprehensive postal legislation. Among the provisions we seek are those needed to ensure that the Postal Service is self-sustaining and financially strong as well as a reliable, low-cost partner to the American people and the communities it serves. These provisions include:
  • Require within the Federal Employees Health Benefit Program a set of specific health care plans that would fully integrate with Medicare and virtually eliminate the retiree health benefits unfunded liability.
  • Adjust the FERS [Federal Employee Retirement System] payment amount using Postal Service-specific demographic and salary growth assumptions and refund any existing surplus.
  • Adjust delivery frequency (six-day packages/fiveday mail). 
  • Streamline governance model and eliminate duplicative oversight.
  • Provide authority to expand products and services.
  • Require defined contribution retirement system for future Postal Service employees.
  • Require arbitrators to consider the financial condition of the Postal Service.
  • Reform Workers’ Compensation.
  • Allow the Postal Service the right to appeal EEOC class action decisions to Federal Court.
The Postal Service continues to do its part within the bounds of existing law to place the organization in a favorable financial position, and we are proud of the achievements we have made to reduce costs while significantly growing our package business. Despite these efforts, however, we cannot return the Postal Service to profitability, nor can we secure our longterm financial outlook without the passage of comprehensive reform legislation.

The bottom line is that the Postal Service is ready to make the necessary changes to keep delivering for America. We just require the freedom to make it happen.

Wednesday, December 17, 2014

Legal Trick Means No Postage Increase -- For Now

With some parliamentary maneuvering, the U.S. Postal Service Board of Governors has apparently avoided the need to raise postage rates sooner than it wanted.

A key deadline for the rumored hurry-up rate hikes passed today when the Consumer Price Index numbers for November were announced.

As the board drew close to losing its quorum last week (because of -- what else? -- Congressional inaction) there was talk the governors were preparing rate hikes that would be announced this week and implemented in the spring. (See USPS May Seek a Rate Hike After All.) That appeared to be the last chance for the governors to raise rates until Congress got around to approving new governors.

But a Federal Register filing published yesterday revealed that the governors came up with another plan: While they still had a quorum, they passed a resolution naming the remaining members to a Temporary Emergency Committee that will "will exercise those reserved Board powers necessary for operational continuity until such time as sufficient members are available to enable a quorum of the Board to convene."

Assuming the resolution withstands any legal challenges, it means Congressional deadlock won't prevent USPS from increasing rates when it chooses. That appears likely to be in a few months, after an appeals court rules whether the 4.3% "exigency" surcharge on most postage should be increased or extended.

A rate hike approved before the board lost its quorum would have to have been filed prior to today's CPI release, which caused a recalculation of the inflation-based cap on rate increases.

The Postal Regulatory Commission now calculates that an increase based on the change in CPI during the past 12 months would be capped at 1.685%. But the Alliance of Nonprofit Mailers puts the true cap at 1.965%, because there hasn't been a CPI-based increase for 15 months. And it projects that, despite plummeting gasoline prices, the inflation-based cap is likely to keep inching up for the next few months.

Tuesday, December 16, 2014

Sales of Printed Books Are Growing? Impossible!

Amazon's current #1 book
For years, the pundits have been telling us that all forms of print media would steadily shrink and shrivel as consumers switch to digital media. But here are two recent indications from the U.S. book industry that reality will be a bit more complicated than the soothsayers would have us believe:

1) Unit sales of printed books are on track to increase this year. (Update: It's official: Sales were up 2.4% in 2014.)

2) During the third quarter of 2014, print books actually took market share from ebooks.

“The industry is poised to post its first increase in print sales since 2008,” Publishers Weekly reported last month, citing BookScan data showing a 2% sales bump so far this year.  That report was followed by two consecutive weeks of sales that were up 5% versus last year.

When I wrote in 2012 that U.S. sales of ebooks had apparently plateaued, I was chastised as some kind of Luddite even though I was merely reporting on industry figures. Booming iPad sales surely meant that more people would switch from print to digital for their book reading, meaning more e-books and the continuing decline of printed books, I was told.

“This is the second inning of a long ball game,” my cyber-friend BoSacks commented. “Digital will win and it won’t need extra innings.” He was not alone in thinking that printed books would soon become a niche format.

“Given the explosive growth of ebook sales since the launch of the Kindle in 2007, with increases in the triple digits for several years, many expected the paper book industry to remain in retreat for the foreseeable future,” Claire Fallon of the Huffington Post noted a couple of months ago. “Recently, however, ebook gains seem to have stabilized with hardcover and paperback books still comfortably dominant. In 2013, sales growth for ebooks slowed to single digits.” (Editor’s note: Industry data don’t always capture sales of self-published ebooks.)

Where's the fat lady?
“In mature markets, we are seeing solid growth in digital while print book sales are proving resilient,” says Jonathan Nowell, president of Nielsen Book.  (Note to BoSacks: Better call the bullpen. The starting pitchers are running out of gas, and the fat lady ain't ready to sing.)

So why did the Ebook Revolution that was supposed to have thoroughly disrupted (hate that word!) the traditional book industry apparently peter out with a U.S. market share of barely 20%? There are several reasons, with lessons for other media that are undergoing digital transformations. (Take note, fellow magazine publishers):
  • Low-hanging fruit: For the first few years after the Kindle was introduced in 2007, ebook growth was explosive but also narrowly focused on certain categories. The ebook format became most popular in genres that are read from first page to last, such as novels and biographies, but is barely a blip in photography and some types of reference books. Once most of the book-a-week romance and suspense buyers bought an e-reader or tablet, further growth of ebooks had to be based on grabbing harder-to-reach fruit. 
  • Legacy publishers adapt: The pundits tend to assume that decades-old publishers will lumber along like dinosaurs, oblivious to the digital meteor strike that will soon lead to their extinction. But book publishers didn’t just sit back and watch while ebooks lowered the barriers to entry and raised the chances of success for a new wave of self-publishers. Self-published ebooks became the new slush pile, where the big book publishers went looking for authors worth signing. The big players have also studied the most entrepreneurial self- and non-traditional publishers, adapting their methods to selling both print and ebooks. It's a bit like the magazine industry (um, magazine media industry), where the Internet Revolution has led not led to destruction of the savvy but rather their transformation into multi-media ventures. 
  • On demand: Printing technology hasn’t stood still, either. In the past couple of years, the equipment and infrastructure for print on demand have blossomed – to the detriment of traditional book printers but to the benefit of book publishers. The ability to print one book at a time economically on an as-needed basis has enabled the industry to slash its inventory costs and reduce the risks of book launches. Backlist titles that were out of print for years are suddenly available again. Using POD, self-published ebook authors can easily create print editions with virtually no upfront costs. 
  • Consumers didn’t take sides: Some proponents see ebooks in terms of a holy war that is liberating authors from the shackles of Big Print (traditional book publishers). They assumed that once people “converted,” they would never go back to print. But readers didn’t get the message; few book readers have given up print entirely. They expect ebooks when they want ebooks and print when they want print. They buy e-books to read to their children, then shell out for print editions of the kids’ favorites. The same executive who furtively read Fifty Shades of Gray on her Kindle while flying to a business meeting will proudly peruse her print edition of The Great Gatsby on the flight home. 
  • Digital is not the enemy of print: Where is it written that people will buy only a fixed number of books, so that every ebook sold means the sale of one less printed book? Ebooks have drastically lowered the barriers to entry for new titles and new authors; the best usually find their way into print. That means more choices for consumers, which tends to increase overall sales. 
What of the future? Though some of my fellow print geeks see ebooks as a passing fad that will eventually lose out to "real" books, I’m not so sure.

What happens if ebook technology becomes more suited to sharing, highlighting, Post-It Noting, attractive photo spreads, and reading on smart phones? Will Amazon uses its market power to bolster ebooks at the expense of print? What happens if Barnes & Noble collapses? (Indie bookstores will pick up all the slack? Really?) Will ebook subscription services be a game changer?

I can offer only two predictions: Anyone who blithely projects that recent trends will continue unabated into the next decade will be proven wrong. And, as Jonathan Nowell of Nielsen Book says: “For the foreseeable future, we will operate in a hybrid print and digital world.”

Related articles:

Monday, December 8, 2014

USPS May Seek a Rate Hike After All

Please see the update to this article, Legal Trick Means No Postage Increase -- For Now.

Barely two months after deciding to skip the usual January price increases, the U.S. Postal Service appears close to announcing that prices will rise in the spring. As usual, the do-nothing Congress is to blame.

The Association for Postal Commerce (aka PostCom), a multi-industry trade group for business mailers, reports that USPS is readying itself for the next postal price change to be effective April 26, 2015." PostCom's "heard it through the grapevine" reports on Postal Service doings are usually right on the mark.

Rates could rise nearly 1.7% for the "market-dominant" mail classes, such as First-Class, Standard, and Periodicals. That could mean a one-cent increase in the price of Forever Stamps, to an even 50 cents.

What's driving the agency's change of plans, according to PostCom, is that Congress has failed to act on five nominations to USPS's Board of Governors, which oversees the Postal Service and must approve any rate changes. If Congress doesn't approve some of the nominations before its holiday recess, scheduled to start later this week, the board will lack a quorum until next month -- and maybe much longer if Congress deadlocks or is too busy naming post offices to act on the nominations.

With no quorum, no rate increases could be enacted. It's not completely clear whether the governors, while still having a quorum, could approve a rate increase but leave it to management's discretion when, or even whether, to file the new rates with the Postal Regulatory Commission.

The Board of Governors announced Oct. 1 that it would forgo the usual inflation-based January rate increase "in part because of the uncertainty regarding the exigent price increase." (See The Postal Service Giveth, and the Paper Market Taketh Away.)

The exigent surcharge of 4.3%, intended to compensate USPS for its losses during the Great Recession, is scheduled to expire next summer, but the agency has gone to court to increase and extend the surcharge.And some politicians have talked of making it permanent.

Also prompting the Postal Service's change of plans may be declining oil prices, which could lead to decreases in the Consumer Price Index. Normal increases in market-dominant rates are limited to changes in the CPI.

The current CPI-based ceiling of 1.678% may be the largest USPS will see for at least a few months if petroleum prices keep dropping. Unless USPS files for an increase, the ceiling will be recalculated Dec. 17 (not Dec. 15, as I originally mis-stated) when the Labor Department reveals the CPI for November.

Saturday, December 6, 2014

Donahoe Will Be in Good Shape When He Leaves U$P$

Last fiscal year, even before she was chosen to be the future the Postmaster General, Megan J. Brennan was the U.S. Postal Service's highest paid employee.

But don't fret for retiring Postmaster General Pat Donahoe. He will leave USPS on Feb. 1 with a pension having an estimated present value of more than $4 million, according to a financial report the agency filed Friday.

Brennan's FY2014 base salary of $236,536 was $42,000 less than Donahoe's. But with a $20,000 bonus and a $77,000 gain in the value of her FERS retirement plan, her total compensation of $351,655 came out $3,000 ahead of Donahoe's.

Before some grandstanding politicians tries to score points by blathering about overpaid postal executives, consider this: The CEOs of USPS's slightly smaller competitors, FedEx and UPS, earned more than $14 million and $10 million, respectively -- versus $1.8 million for the top five USPS executives combined.

Related articles: