Mail industry

James Cox Kennedy is the chairman of Cox Enterprises, a media conglomerate founded by his grandfather.  Mr. Kennedy is part of the 1% the Occupy movement is protesting against.  Actually, according to the Forbes 400 list, Mr. Kennedy’s $6 billion stake in the family’s company makes him the 53rd richest person in the United States, and that puts him in the top 0.00002%.  Mr. Kennedy doesn’t own the country’s post offices, but his company has hired a law firm to advocate closing them. 

Cox Enterprises is a highly diversified company based in Sandy Springs, Georgia.  It owns 15 television stations, 86 radio stations, several newspapers, and a broadband communications and entertainment company.  It also owns Cox Target Media, North America’s direct mail leader and provider of the Valpak® savings envelope.

You’re probably familiar with Valpak’s “Blue Envelopes®.”  They show up in your mailbox now and then, filled with coupons for discounts on a variety of products and services — automotive, beauty, entertainment, health, home improvement.  Maybe you look forward to saving a few bucks next time you need an oil change or a pizza.  Maybe you toss the thing in the trash without a second thought. 

Valpak depends on the Postal Service to deliver those Blue Envelopes, but the company isn’t very interested in post offices and postal workers.  Its primary concern is keeping postal rates down and profits up.  Cox mails the Blue Envelope to 40 million households each month, 500 million a year.  With that kind of volume, even the smallest increase in rates quickly adds up and cuts into profits.  That’s why the big mail industry stakeholders like Valpak and the Direct Marketing Association favor cuts to the postal workforce, processing plants, and retail network. 

On Friday, Valpak submitted its “Initial Brief” to the Postal Regulatory Commission (PRC) on the case of the Retail Access Optimization Initiative (RAOI), the Postal Service’s plan to close 3,650 post offices.  The brief was prepared by William J. Olson, PC, a Virginia law firm that deals with various kinds of law — constitutional, nonprofit organization, election, health, and firearms — as well as postal law.  Olson himself has written several papers about the postal system, such as “Enhancing Competition By Unbundling the Postal Administration,” which is about “bifurcating” the postal system so that a government-owned agency would take care of delivering the mail (thereby maintaining the universal service obligation), while the receiving and processing component of the system would be privatized.

The Valpak brief argues that the PRC should approve the RAOI because it will help “the Postal Service’s near-desperate need to achieve increased efficiencies and cost savings” and thereby avoid “some form of bailout from Congress, possibly from taxpayers, in order to continue operating.”  The brief addresses legal principles, the financial setting, the Village Post Office, the “non-postal” benefits of a post office, and so on, but the heart of the matter for Valpak is that post offices are simply a very "inefficient" way to “collect revenue” so it only makes sense to close post offices that are losing money and  “unnecessary.”  Otherwise, we’re headed for a “bailout.”

In its own “Initial Brief” to the PRC, the Postal Service studiously avoids any suggestion that post offices might be closed for running at a deficit.  “The RAO Initiative is structured so as not to violate the 39 U.S.C.
§ 101(b) prohibition against closing small Post Offices solely for operating at a deficit,” says the USPS brief.  James Boldt, the man running the RAOI, explicitly testified that whether any facilities were "operating at a deficit" was “not a criterion for their inclusion as candidates for discontinuance review under the RAO Initiative.”  The Postal Service has said repeatedly the RAOI is not only about “cost savings” but also about “optimizing the retail network” and other goals.  The Final Determination notices to close post offices always make it clear that there were several reasons for the discontinuance, not just that the post office was running at a deficit.

The Valpak brief, however, does not mince words, and it probably has the USPS lawyers cringing.  Valpak goes straight for the deficit issue and lays bare the real reason — the only reason — for closing post offices.  The brief states, “Uneconomic retail services, including but not limited to those post offices with a two-hour earned workload, constitute what long has been the most expensive and inefficient way of providing citizens with access to retail postal services.”

The mailing industry has won the battle over the “exigent rate increase.”  The Postal Service will be withdrawing its request to the Postal Regulatory Commission to increase postage. 

No one likes it when rates go up, but this announcement should make people mad as hell.  The Postal Service is closing thousands of post offices, preparing to put hundreds of thousands out of work, and consolidating 500 large processing plants into 200.  In the process, it is prepared to ruin the lives of millions of people — workers, their families, people living in cities where those big facilities are crucial, and folks in small towns and neighborhoods where a post office actually means something. 

But when it comes to increasing revenues with a rate increase, well, no, the Postal Service can’t do that.  It might cut into the profits of the mail industry, and we wouldn’t want to make those big companies upset, would we?  The only group who seems happy with the Postal Service right now is the Direct Marketing Association (DMA), which has applauded the proposed cuts to the workforce and post offices.

The decision not to raise rates may also please some regular postal customers, but they won’t be pleased for long.  Not when their local post office closes, the lines at the post office five or ten miles away get longer, and delivery time on the mail slows down.  Yes, the Postal Service is planning on adding another day to delivery times in order to help keep costs down — another decision designed to please those in the mail industry, since they’d prefer if it took another day for their advertisements to get to your house, so long as their costs stay down.  The industry might not care, but did anyone ask the rest of the country how they feel about first class going from one-to-three days to two-to-four? 

The managers at L’Enfant Plaza have decided to take the “service” out of “Postal Service” by embarking on a strategy that even some inside the industry worry will become a death-spiral, with decreasing service leading to fewer customers and less revenue, and declining revenues leading to the necessity for further cuts.  As Post & Parcel reports, “fears are that efforts to reign in the processing infrastructure to match the lower volumes could prove a ‘self-fulfilling prophecy,’ with reduced service levels prompting further mail volume reductions.”

Eventually the decline in service will wake up the American people, but by then it will be too late.  The infrastructure of the Postal Service will have been so drastically dismantled it will be impossible to rebuild it, no matter how angry people are.

Another reason people should be mad as hell about the Postmaster’s decision to withdraw the exigent rate increase is the whole decision-making process has taken place in the privacy of meeting rooms at USPS headquarters.  It’s backroom politics at its worst.  All that was missing was the cigar smoke.

Nobody likes it when the Postal Service raises its postage rates, but maybe it’s time to consider a rate hike.  It won't be a popular idea, but it might be better than closing thousands of post offices and laying off over a hundred thousand workers and pushing thousands more out of their jobs.

Not that a small increase in postage would cover the cost of all those workers, but it would go a long way.  Let’s look at some numbers.

On July 25, 2011, the Postal Service asked the Postal Regulatory Commission (PRC) to let it implement an “exigent rate increase” averaging more than 4 percent across most classes of mail in order to make up for volume lost during the recession. 

An exigent rate increase, if you’re not familiar with the term, is one that goes beyond an increase that just keeps up with inflation, and the PRC can only approve such a request when it is “due to extraordinary or exceptional circumstances.” 

Last year the Postal Service asked for an exigent rate increase of about 5.6% due to the recession and revenues lost to the internet, but the PRC denied the request for complicated reasons, some having to do with the meaning of “due to" but mostly because the PRC felt that the Postal Service has systemic problems — like over funding of its benefits programs — that a rate hike won't solve.

In its new request in July, the Postal Service did not specify exactly how rates for each class of mail would change (leaving the door open that first-class mail could get hit harder than bulk).  It just asks for a rate increase that would add up to an additional $2.3 billion in revenue.  That’s considerably less than the $3.2 billion the original increase would have brought in, but it’s still a significant amount of potential revenue.

What could the Postal Service do with that $2.3 billion?  For starters, it could cancel its plans to close 4,400 post offices.  The Postal Service says closing 3,600 of those post offices would save $200 million, so figure $240 million for all 4,400.  That’s just ten percent of the revenue that would come in with the rate increase. 

That leaves over $2 billion.  How many jobs is that?  The Postal Service payroll is about $49 billion a year, and 120,000 workers represent about 18% of the workforce, so their wages and benefits cost about $9 billion.  The $2 billion from a rate increase could thus save over 26,000 jobs.

Now, it seems like a 4% increase in postage — less than two cents for a first-class letter — might be a reasonable alternative to closing 4,400 post offices and putting 26,000 people out of work.  

But given how postage rates always seem to go up and up, maybe it's better to hold the line and just say no.  This chart dramatizes just how steady the increases have been.  On the other hand, those increases just reflect inflation, and the real cost of mailing has actually declined.  This is another bogus chart.  US rates are among the lowest in the industrialized world.  Anyway, a rate increase is clearly debatable, and it would be an interesting conversation for the American people to have.

But that’s not what’s going to happen.  There will be a public hearing by the PRC and all sides will be heard, and there will be a serious effort to arrive at a fair decision consistent with all the relevant statutes, but much of the decision making is going to take place in the conference rooms at L'Enfant Plaza and the fancy restaurants of our nation’s capital.  And the politicians, lobbyists, and Postal Service management who are eventually going to be calling the shots are not going to be worrying about whether average Americans would prefer low postage rates or jobs and post offices.

The big guns in the room are going to be the bulk mail companies, and they have already made their position clear.  They have been fighting against the rate increase since it was initially proposed last year, and they have already come out in favor of the proposed cuts to labor and the post offices.   On August 12, within hours of hearing the USPS plan, the Direct Marketing Association— the leading association of businesses using direct marketing (junk mail) — “applauded” the proposed cuts. 

Given how powerful the junk mail industry is, you might wonder how the Postal Service could even consider raising rates.  In fact, a couple of months ago it looked like the Postal Service would be dropping its request for a rate increase — at least for the bulk mailers. 

On June 21, Postmaster General Donahoe told attendees at the National Catalog Forum in Washington June 21-22 that he wouldn’t push for an exigent rate increase for Standard Mail flats – the category affecting most catalogers.  Donahoe’s comments “earned high marks in the eyes of attendees.”   

“PMG Donahoe is a breath of fresh air,” said one attendee.  “I think the USPS has a leader who gets it,’ said another. “Now the only question is if the regulators and legislators will allow him to make the necessary changes.”

“I found PMG Donahoe to be refreshingly open and honest in his willingness to partner with his customers to operate his business in a more efficient manner,” said Chris Smith, vice president of ecommerce/catalog for Jockey International. “If he is successful in moving his agenda forward, it will not only be a win for our industry, but for all mailers, and a win for the U.S. Postal Service.” 

A win-win for the bulk-mail industry and the Postal Service, but not for postal workers and rural communities.  It’s easy to see where the PMG’s loyalties seem to lie.  It looks like he’s more interested in keeping down the cost for delivering an underwear catalog than he is in protecting post offices and the jobs of postal workers.